Aligning the markets

Impact on market participants

MfE’s proposals will constitute a significant change for the NZU market in New Zealand. It will align the regulation of the NZU market with New Zealand’s financial markets and many international emissions trading schemes. In many jurisdictions emission allowances are already treated as financial instruments or products under the definitions set out in their financial markets laws, and financial markets authorities are tasked with overseeing the emissions trading sector.

The impact of the proposed changes will be varied across NZU market participants. For participants that provide services relating to the NZU market – in particular, advisers, brokers, custodians and market operators – the proposed changes would result in a material increase in the level of regulation. For participants that already provide similar services for traditional financial products (and are licensed under those regimes) the new regime may look familiar, but it could be a leap for entities not familiar with the existing regulatory regime. The changes are likely to be less significant for parties that trade NZUs on their own account.

Either way, NZU market participants should assess the impact of the proposed changes, including whether they would be regulated under MfE’s proposal and the effect of any such regulation on their operations.