C&S Procedures

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New Zealand Clearing Limited

Clearing and Settlement

Procedures

10 August 2009

C&S Procedures

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Contents

Section A: Interpretation and Construction 1A.1 Interpretation 1A.2 Construction 1

Section 1: Introduction and General Provisions 2

Amendment Procedure 21.1 Amendment of Rules 2

Definition Procedure 41.2 Bank 41.3 Business Day 4

Section 2: Clearing Participants 5

Application Procedure 52.1 Application Procedure 52.2 Application Information 72.3 Application Form 7

Technical Requirements Procedure 72.4 Technical requirements 82.5 Systems Testing 8

Compliance Plan Procedure 82.6 Compliance Plan 9

Business Continuity Plan Procedure 102.7 Business Continuity Plan 10

Training Plan Procedure 122.8 Training Plan 12

Records Procedure 132.9 Books, Records and Explanations 132.10 Accounting Records 142.11Other Records 162.12General Requirements 162.13 Timing 172.14 Language 172.15 Place of keeping Records 172.16 Retention of Records 17

Financial Reporting Procedure 18

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2.17 Annual Reporting 182.18 Half-yearly Reporting 192.19Monthly Reporting 192.20 Content of Financial Statements 192.21 Accuracy 202.22 NTA Reporting 202.23 Late Delivery 20

Audit Procedure 202.24 Audit 202.25 Content of Audit Report 22

Insurance Procedure 222.26 Insurance 23

Inspection Procedure 242.27 Schedule 242.28 Procedure 252.29 Expenses 252.30 Additional Inspection 25

Settlement Bank Procedure 252.31 Settlement Bank Undertaking 262.32 Settlement Banks 26

Responsible Person Procedures 262.33 Responsible Person Qualifications 272.34 Periodic Certifications 272.35On Demand Certification 272.36 Authorised Signatories 272.37 Training 28

C&S Agreement Procedure 322.38 C&S Agreement 32

Capital Adequacy Procedures 332.39 Capital Adequacy Requirements 342.40 Valuation and Foreign Currencies 342.41 Items excluded from NTA 352.42 Items included in NTA 352.43Operational Risk Requirement 362.44 Netting 362.45 Counterparty Risk Requirement 362.46 Large Position Risk Requirement 372.47 Position Risk Requirement 372.48 Currency Risk Requirement 382.49 Primary Market Risk Requirement 382.50Market Risk Requirement 38

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2.51 Definitions 39

Section 3: Clearing 43

Discretionary Transaction Procedure 433.1 Notification 433.2 Acceptance 44

Option Exercise Procedure 443.3 Notice of Exercise 443.4 Automatic Exercise 45

Subdivision Procedure 453.5 Notice of Application - subdivision 463.6 Notice of Acceptance 46

Give up – Take up Procedure 463.7 Notice of Application – Give up – take up Transactions 473.8 Notice of Acceptance 47

Transaction Liquidation Procedure 473.9 Notice of Application – Liquidation of Settlement Transaction 483.10 Notification 48

Settlement Transaction Cancellation Procedure 493.11 Application 493.12 Notice of Cancellation 49

Margin Procedure 503.13Margin Calculation 503.14 Notification 50

Collateral Procedure 513.15 Notification of Call and Provision of Collateral 523.16 Voluntary Collateral Delivery 523.17 Bank Account Principles 523.18 Form of Guarantee 533.19 Collateral Type 533.20 Eligible Securities 533.21 Valuation and Haircuts 533.22Minimum Money Collateral 543.23Withdrawal, return and property transfers 54

Section 4: Settlement 63

Settlement Procedure 634.1 Settlement Day 63

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4.2 Settlement Time 634.3 Settlement Fail Allocation 64

Section 5: Settlement Reporting 66

Sub Account Procedure 665.1 Application 66

Section 6: CHO Powers 67

Approved Market and Product Procedure 676.1 Approved Markets 676.2 Application for Approved Products 676.3 Approved Products 68

Waiver and Ruling Procedure 696.4 Waivers and Rulings 696.5 Application 696.6 Timing 716.7 Procedure 716.8 Fees 716.9 Validity 726.10 Publication 726.11 Revocation 73

Fee Schedule Procedure 736.12 Set Fees 736.13Waiver and Ruling Fee 736.14 Late Filing Fee 74

Currency Conversion Procedure 746.15 Currency Conversions 74

Section 7: Default 76

Buy-in Procedure 767.1 Buy-in 76

Overdue Interest Rate Procedure 777.2 Overdue Interest Rate 77

Section 8: Miscellaneous 78

Notice Procedure 788.1 Notice 788.2 Notice to Head of Operations 79

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Clearing and Settlement Procedures

Section A: Interpretation and Construction

A.1 Interpretation A.1.1 Definitions incorporated by reference: Capitalised terms defined in

the Clearing and Settlement Rules have the same meaning when used in these Procedures, unless expressly stated or the context requires otherwise.

A.1.2 Interpretation: In these Procedures, the following terms bear the following meanings: Business Partner Identification Number means a unique identification code assigned to a Clearing Participant in the Clearing House System; Large Position Counterparty Risk Requirement means the amount calculated under Procedure 2.46.2;

Large Position Issuer Risk Requirement means the amount calculated under Procedure 2.46.3; Minister means the Minister for the time being responsible the administration of the Reserve Bank of New Zealand Act 1989;

NZAX has the meaning given to that term in the NZX Participant Rules;

NZDX has the meaning given to that term in the NZX Participant Rules;

NZSX has the meaning given to that term in the NZX Participant Rules;

Total Margin Payable Report means the report given to each Clearing Participant under Rule 5.2 and used for the calculation of the Margin requirements of the Clearing Participant;

A.2 Construction A.2.1 Without limiting any provision in a Rule relating to the application of that

Rule to one or more Procedure, the following Rules shall also apply to these Procedures, with such necessary modifications to assist such application, including references to “a Rule” or “these Rules” being replaced with references to “a Procedure” or “these Procedures”: Rules 1.6.2(a),(b),(e),(g),(j),(k) and (l), 1.6.3, 1.6.4, 6.1, 6.5, 6.6, 8.1.1(a), 8.1.2, 8.1.3, 8.1.4, 8.1.5, 8.1.6, 8.1.7, 8.2, 8.3, 8.4 and 8.7.

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Section 1: Introduction and General Provisions Amendment Procedure

Procedures For Rule 1.3.1 1.3.1 CHO may from time to time amend these Rules, in

accordance with the relevant Procedure. Amendments to these Rules become binding on Clearing Participants upon the later of:

(a) the day that is 41 days after the date on which

either of the joint regulators first received notice of the proposed amendment under section 156ZB(1) of the Reserve Bank of New Zealand Act 1989, if the joint regulators have not disallowed such amendment under section 156ZC of the Reserve Bank of New Zealand Act 1989;

(b) any later date that is specified as part of the

proposed amendment.

1 1.1 Amendment of Rules

1.1.1 CHO may from time to time at its discretion initiate a review of, or propose amendments to, the Rules, by Notice to Clearing Participants. The Notice will set out (as applicable):

(a) the Rule or Rules to be reviewed and/or amended;

(b) the nature of the issues that have arisen which necessitate the review or amendment;

(c) the result CHO desires to achieve from the review or amendment;

(d) in the case of an amendment, the amendment proposed;

(e) in the case of a review, the scope of the review;

(f) to the extent it differs from the timetable set out in Procedure 1.1.3, the timetable for the review or amendment.

(g) any other information CHO believes is relevant.

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1.1.2 A review will comprise a broad policy based proposal for modification of the Clearing House and Rules without a specific amendment proposed. The specific amendment will be developed in the process of the review after consultation. An amendment will be narrower in focus and will propose one or more specific amendments.

1.1.3 The process for a review or amendment of the Rules will, except to the extent CHO determines otherwise, follow the following indicative timeframe following issue of Notice of the review or amendment:

(a) CHO to receive submissions on proposed review or amendment

15 Business Days following Notice

(b) CHO to consider submissions, give Notice to Clearing Participants of its decisions on issues raised and, in the case of a review, its proposals for draft amendments to the Rules.

15 Business Days after closing date for submissions

(c) CHO to receive submissions on CHO response, and in the case of a review, proposed amendments.

10 Business Days after further notice issued

(d) CHO to consider submissions and provide final amendments (if any) to Minister in accordance with section 156ZB(1) of the Reserve Bank of New Zealand Act 1989.

10 Business Days after closing date for further submissions

1.1.4 CHO may give Notice of the review or amendment to such other interested parties as it considers fit.

1.1.5 Where CHO believes it is appropriate having regard to the nature of the amendment (but not otherwise) it may adopt the procedures set out in this Procedure when making amendment to Procedures.

1.1.6 CHO reserves the right to depart from the process set out in this Procedure in unusual circumstances.

1.1.7 In addition to the procedures set out in this Procedure, CHO must comply with the requirements of sections 156ZB and 156ZC of the Reserve Bank of New Zealand Act 1989 when amending the Rules.

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Definition Procedure

Procedures for Rule 1.6.1 1.6.1 In these Rules the following terms bear the following

meanings:

Bank means a bank registered under the Reserve Bank of New Zealand Act 1989, or a bank having comparable status under the laws of Australia, the European Union, the United Kingdom, Japan or the United States of America, or any other Person designated as a Bank by Procedure.

Business Day means a Working Day as defined by the

Interpretation Act 1999 but excludes any day CHO notifies by Procedure is not a Business Day.

1.2 Bank

1.2.1 The following additional persons are designated as a Bank for the purposes of the Rules and Procedures:

(a) [no additional persons]

1.3 Business Day

1.3.1 The following working days are not Business Days for the purposes of the Rules and Procedures:

(a) [no additional days]

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Section 2: Clearing Participants

Application Procedure

Procedures For Rules 2.3.1 and 2.2.1 (r) 2.3.1 Applications for participation in the Clearing House

must be made in the manner prescribed by Procedure. An application constitutes a binding offer by the applicant to be bound by the Rules.

2.2.1 An applicant to be a Clearing Participant will not be

allowed to participate in the Clearing House and will not be provided access to the Clearing House System unless the applicant:

(r) has provided any additional information

prescribed by Procedure, including a completed and signed application form;

2 2.1 Application Procedure

2.1.1 A Person applying for participation in the Clearing House must complete, sign and deliver to CHO an application in the form prescribed by Procedure 2.3 together with:

(a) the certificate of incorporation (or equivalent document confirming establishment of the entity) and names and addresses of Directors and shareholders of the applicant company and a copy of the constitution (or equivalent document);

(b) the applicant’s audited accounts for the preceding 5 years;

(c) evidence of the applicant’s current financial position, sufficient to demonstrate that the applicant meets the capital adequacy requirements relevant to the category of Clearing Participant it is applying for;

(d) details of any legal or arbitration proceedings active, threatened or pending against the applicant or any member of its group which may have a significant effect on the reputation of the applicant;

(e) details of any adverse or potentially adverse matters in respect of the applicant which have been brought to the attention of any relevant regulatory authorities during the last 6 years (where possible please provide copies of any relevant correspondence in relation to such matters);

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(f) the applicant’s business plan relating to its business as a Clearing Participant;

(g) the applicant’s compliance plan, business continuity plan and training plan relating to its business as a Clearing Participant;

(h) details of the applicant’s technology relevant to its clearing and settlement business and its conformance with CHO’s system and timetable for completion of systems testing;

(i) details of the applicant’s payment and accounting systems;

(j) copies of certificates of insurance for professional indemnity and directors and officers cover and other cover determined by the Clearing Participant to be appropriate for the purposes of Procedure 2.26;

(k) the undertakings and acknowledgements from the applicants Settlement Bank required by Rule 2.8.1;

(l) name of the applicant’s Responsible Person, including evidence of compliance with the requirements of Procedure 2.36 and 2.37;

(m) where the applicant is applying to be a General Clearing Participant, a copy of the applicant’s standard form of C&S Agreement, and (if requested by CHO), a legal opinion from independent lawyers acceptable to CHO that the C&S Agreement complies with the requirements of Rule 2.12.2 and 2.12.3;

(n) a description of the applicants management structures including names of personnel holding management positions;

(o) description of the applicant’s corporate structure;

(p) any information required by CHO in order to register a financing statement against the Clearing Participant on the PPSR;

(q) details of the property to be provided as collateral;

(r) any other information which the applicant thinks may be relevant to CHO in considering the application.

2.1.2 An applicant may, if permitted by CHO, submit in substitution of any of the information required by Procedure 2.1.1:

(a) evidence of membership of, or participation in, any other

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market, clearing house or settlement system, together with confirmation of compliance with the rules or other requirements of that market, clearing house or settlement system;

(b) evidence of holding a status, licence, permission or entitlement relevant to the assessment of suitability for participation in the Clearing House, together with confirmation of compliance with the regulatory requirements of that status, licence, permission or entitlement.

2.1.3 CHO may require additional information in relation to an application or any of the information or supporting documentation filed in support of the application.

2.1.4 An applicant must submit information (in typed format), in as much detail as the applicant feels appropriate to support their application.

2.1.5 CHO will keep confidential all information provided to it by the applicant in relation to its application, except to the extent that disclosure of any or all of the information is necessary for the exercise of its regulatory functions, becomes publicly available (other than by disclosure by CHO) or as otherwise required by law.

2.2 Application Information

2.2.1 In addition to the information specified by Rule 2.2.1, an applicant for participation shall provide:

(a) [Nothing currently required]

2.3 Application Form

2.3.1 An application for participation in the Clearing House must be on the form, and include the confirmations, determined by CHO from time to time. An applicant should request the form from CHO.

Technical Requirements Procedure

Procedures For Rule 2.2.1(g) and 2.5.1(c) 2.2.1 An applicant to be a Clearing Participant will not be

allowed to participate in the Clearing House and will not be provided access to the Clearing House System unless the applicant: (g) satisfies CHO as to the applicant’s technical

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capacity to be connected to the Clearing House System, including satisfaction of such systems testing as may be prescribed by Procedure;

2.5.1 A Clearing Participant must at all times: (c) comply with operational, procedural and

technical requirements of the Clearing House System and networks, as specified by CHO by Procedure;

2.4 Technical requirements

2.4.1 The technical requirements for connectivity to the Clearing House System are contained in the following documents:

(a) Network connectivity overview;

(b) CHO/CDO Message definition;

(c) TCP/IP Interface specification.

2.5 Systems Testing

2.5.1 CHO will require a Clearing Participant to undertake the following testing:

(a) Conformance of BOS software: Conformance must be successfully completed for all the Clearing Participant’s Back Office System (BOS) software. The extent of the testing required is contained in the Clearing Participant Technical Conformance document available from CHO. All tests will be based on specifications and procedures defined in this document.

(b) Connectivity: The connectivity test is network based and it involves the testing of successful connectivity between the Clearing Participant and the Clearing House System. Note that this does not require CHO to physically attend the premises of the Clearing Participant.

(c) Validation: Validation tests are system/business message based and must be successfully completed by each Clearing Participant. These tests are run against the Clearing House System front end web application and the Clearing Participant’s BOS - if applicable.

2.5.2 CHO will notify Clearing Participants of any amendment or addition to these conformance tests.

Compliance Plan Procedure

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Procedures For Rule 2.5.2(a) 2.5.2 Without limiting Rule 2.5.1, a Clearing Participant who

is not solely a Lending Clearing Participant must at all times:

(a) for the purpose of ensuring compliance with

Rule 2.5.1, have in place a compliance plan that will ensure continuous compliance with all requirements imposed by or pursuant to these Rules and all requirements prescribed by Procedure;

2.6 Compliance Plan

2.6.1 A Clearing Participant that is not solely a Lending Clearing Participant must, at all times, maintain adequate, suitably designed and effective accounting systems and internal procedures and controls to procure compliance with the applicable requirements the of the Securities Legislation and the Rules. This includes a periodic review of the obligations under the Securities Legislation and the Rules, the identification of the key risks facing the Clearing Participant and the establishment of systems, procedures and controls to monitor and manage those risks.

2.6.2 A Clearing Participant’s compliance plan should address the following matters relating to its participation in the Clearing House:

(a) a statement of the objectives of the compliance plan;

(b) a programme of procedures and controls, including regular periodic (daily, weekly, monthly, quarterly and annual) tasks, processes, monitoring and sampling and testing of operational activities;

(c) the management structure, including operations and processes, for implementation of that Clearing Participant’s compliance plan;

(d) allocation of compliance responsibilities among the Clearing Participant’s Personnel (with a detailed description of the tasks to be allocated to each role, cross-referenced where appropriate with the compliance and procedures manuals referred to in Procedure 2.6.2(e)) and responsibility for the design, implementation, functioning and review of the compliance plan, which must be subject to the supervision of the Responsible Person;

(e) written compliance and procedure manuals, setting out the

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Clearing Participant’s procedures, and controls over those procedures, in all areas of its clearing and settlement operations;

(f) recording and reporting to the Clearing Participant’s Responsible Person, breaches and suspected breaches of the Securities Legislation and the Rules, and providing structures and procedures for investigation, external reporting, mitigation, discipline and remedy of those breaches;

(g) processes for avoiding or managing conflicts of interest arising for Personnel involved in both compliance activities and operational activities;

(h) maintenance of records of compliance activities;

(i) processes to test and internally audit the effectiveness of the implementation of that Clearing Participant’s compliance plan;

(j) processes for regular periodic review of the adequacy of the compliance plan (including against the requirements of this Procedure) and implementation of the actions required as a consequence of that review.

Business Continuity Plan Procedure

Procedures For Rule 2.5.2(b) 2.5.2 Without limiting Rule 2.5.1, a Clearing Participant who

is not solely a Lending Clearing Participant must at all times:

(b) maintain satisfactory systems for the execution,

recording, reporting, clearing and settlement of Transactions and Settlement Transactions as are necessary to enable it to perform its obligations as a Clearing Participant under these Rules and for that purpose have in place a business continuity plan that meets all requirements prescribed by Procedure;

2.7 Business Continuity Plan

2.7.1 A Clearing Participant that is not solely a Lending Clearing Participant must, at all times, maintain adequate disaster recovery and business continuity arrangements aimed to ensure timely recovery and continuation of its usual operations that are relevant to its role as a Clearing Participant following short,

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medium and long term disruption of its business. 2.7.2 As a minimum a Clearing Participant’s business continuity plan

should address the following matters:

(a) the management framework for implementation of that Clearing Participant’s business continuity plan and emergency procedures including allocation of responsibility for the design, implementation, functioning and review of the plan, which must be subject to the oversight of the Responsible Person;

(b) the services or functions to be maintained by the business continuity plan and emergency procedures, which shall include:

cf ASX

(i) data communications lines;

(ii) routers;

(iii) gateways;

(iv) open interface sessions;

(v) clearing and settlement software applications and associated hardware;

(vi) databases and archives / storage;

(vii) payment facility access;

(viii) site contingency;

(ix) Personnel, processes, procedures and financial resources;

(x) communication with clients;

(xi) communication with regulators (including CHO).

(c) the resource requirements, including people, systems and other assets and arrangements for how these resources will be obtained;

(d) the recovery priorities for that Clearing Participant’s operational processes affected by the disruption;

(e) communication arrangements in relation to the disruption and how this will be communicated to internal and external parties;

(f) system processes for determining the integrity of the

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information affected by the disruption; (g) processes to test the adequacy and effectiveness of that

Clearing Participant’s business continuity plan and emergency procedures; and

(h) processes for regular periodic review of the business continuity plan and emergency procedures and implementation of that review.

Training Plan Procedure

Procedures For Rule 2.5.2(c) 2.5.2 Without limiting Rule 2.5.1, a Clearing Participant

who is not solely a Lending Clearing Participant must at all times:

(c) maintain sufficient Personnel with adequate

knowledge, experience, training and competence to ensure the Clearing Participant’s compliance with the Rules, and performance of its obligations as a Clearing Participant under these Rules, and for these purposes have in place a training plan that meets all requirements prescribed by Procedure;

2.8 Training Plan

2.8.1 Each Clearing Participant that is not solely a Lending Clearing Participant must prepare and implement a training plan formulated for the purposes of ensuring that all Personnel engaged in the Clearing Participant’s clearing and settlement business obtain and maintain adequate knowledge in relevant Rules and laws and obtain and maintain competency in using the system for the clearing and settlement tasks they are evolved in.

2.8.2 Each training plan shall provide for:

(a) appointment of a training officer, with responsibility for supervision and implementation of the training plan.

(b) regular assessment of the training and development, supervision and competency of Personnel;

(c) development of training description for each position or function;

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(d) a programme of continuing development to ensure Personnel are kept up-to-date with changes in law, rules, practices and technology;

(e) annual internal audit and testing of training results;

(f) periodic review of the training plan.

2.8.3 Training must include specific technical skill training and general training in law, regulation, rules, practice and ethics.

2.8.4 The training plan may include such other features as the Clearing Participant believes are necessary.

2.8.5 Each Clearing Participant shall provide to CHO on request the following:

(a) copy of training plan;

(b) copy of annual internal audit results;

(c) copy of periodic review report;

(d) copy of proposed amendment or variation to the training plan.

Records Procedure

Procedures For Rule 2.5.2(f) 2.5.2 Without limiting Rule 2.5.1, a Clearing Participant who

is not solely a Lending Clearing Participant must at all times:

(f) maintain any records that may be prescribed by

Procedure for the period prescribed by Procedure;

2.9 Books, Records and Explanations

2.9.1 Each Clearing Participant that is not solely a Lending Clearing Participant must maintain accounting and other records containing complete and accurate records and explanations of the affairs and transactions of its business. The books, records and explanations must be:

(a) kept separate and distinct so as to distinguish the books, explanations and records for its clearing and settlement business from the books, explanations and other records of any other business in which the Clearing Participant

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may be involved; (b) sufficient to comply with the requirements of the Securities

Legislation governing the maintenance of financial records;

(c) sufficient to enable the Clearing Participant to be subject to financial reporting and audit requirements set out in Procedures 2.17 to 2.25 ;

(d) otherwise in the form and with the content prescribed by Procedures 2.10 to 2.14; and

(e) retained for a period of 7 years following the end of the financial year to which they relate.

2.10 Accounting Records

16.6.1 2.10.1 Each Clearing Participant that is not solely a Lending Clearing Participant must maintain accounting records in respect of its business activities and in respect of the assets, liabilities and transactions in its control or for which it is accountable. These records must be prepared in accordance with Generally Accepted Accounting Practice so as to give a true and fair view of the ability of the Clearing Participant to meet its financial obligations.

2.10.2 The records to be maintained in accordance with Procedure 2.10.1 must be sufficient to capture and record (in a memorandum account where appropriate), on a timely basis and in an orderly fashion, each transaction and commitment that that Clearing Participant enters into, and in each case, with sufficient information to explain its nature and the asset(s) and/or liability(ies), actual and contingent, which arise or may arise from it.

2.10.3 The records to be maintained in accordance with Procedure 2.10.1 must be maintained in a manner such that they disclose, or are capable of disclosing promptly the financial and business information that will enable that Clearing Participant’s management to:

(a) identify, quantify, control and manage that Clearing Participant’s risk exposures;

(b) make timely and informed decisions;

(c) monitor the performance of all aspects of that Clearing Participant’s business;

(d) monitor the quality of that Clearing Participant’s assets; and

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(e) safeguard that Clearing Participant’s assets, including assets belonging to Customers for which that Clearing Participant is responsible.

2.10.4 The accounting and other records of each Clearing Participant to be maintained in accordance with Procedure 2.10.1 must contain details of exposure limits authorised by management which are appropriate to the type, nature and volume of business undertaken by that Clearing Participant. Management must ensure that the information contained in the records is capable of being summarised in a way that enables actual exposures to be readily and regularly measured against these limits.

2.10.5 The accounting records must show the assets, liabilities, events and transactions in the Clearing Participant’s control or for which it is accountable. Accounting records must be kept so as to ensure that the Clearing Participant:

(a) correctly records and explains the events and transactions occurring in the course of its business activities;

(b) can at any time determine its financial position with reasonable accuracy; and

(c) can prepare financial statements that comply with the Financial Reporting Act 1993 that can be readily and properly audited.

2.10.6 Each Clearing Participant must:

(a) maintain clear and up-to-date documentation of all accounting systems and internal controls, including a record of all material changes made to those systems and controls and the dates on which those changes were implemented; and

(b) provide such explanations of the systems and controls maintained under Rule 2.5.2 to CHO as may be requested.

2.10.7 Each Clearing Participant shall notify CHO promptly of any changes to the systems and controls that might reasonably affect CHO’s assessment of the adequacy of such systems and controls.

2.10.8 Without limiting anything in this Procedure 2.10, the accounting records of a Clearing Participant must, as a minimum, contain:

(a) entries from day to day of all sums of money received and expended and the matters in respect of which they are

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received and expended; (b) a record of all income and expenses explaining their

nature;

(c) a record of all assets and liabilities, including any commitments or contingent liabilities;

(d) entries from day to day of all Settlement Transactions of that Clearing Participant’s own account and separately by that Clearing Participant acting as agent for another party;

(e) entries from day to day of the receipt and delivery of all Money or Approved Products in the possession or control of that Clearing Participant, whether owned by that Clearing Participant or by another party;

(f) an up-to-date record of all Money or Approved Products in the possession or the control of that Clearing Participant, showing the beneficial owner, the purpose for which they are held, and whether they are subject to any security interest.

2.11 Other Records

2.11.1 Each Clearing Participant that is not solely a Lending Clearing Participant must ensure that records and reports:

(a) are maintained in sufficient detail and with sufficient cross-references to establish an adequate audit trail. The audit trail must include all records, working papers and schedules supporting the production of annual financial statements and all financial reporting statements;

(b) are arranged, filed and indexed in such a manner as to permit ready access to any particular record. Where that Clearing Participant maintains its records in any manner other than on paper in an easily legible form, then it shall also provide facilities for the prompt access to these records and for the prompt production of copies of these records on paper in such easily legible form; and

(c) are adequate to demonstrate compliance with the Securities Legislation and Rules.

2.12 General Requirements

2.12.1 The requirements of this Procedure are not exhaustive and it is the obligation of each Clearing Participant that is not solely a Lending Clearing Participant to ensure that the records and reports maintained are sufficient having regard to the nature of the Clearing Participant’s business. The detailed requirements

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of this obligation will vary according to, amongst other things: (a) the manner in which the business of each Clearing

Participant is structured, organised and managed;

(b) the size of the business of each Clearing Participant; and

(c) the nature, volume and complexity of the transactions and commitments of each Clearing Participant.

2.13 Timing

2.13.1 The financial records must be made as soon as practicable after the events to which they relate.

2.14 Language

2.14.1 All records and reports which a Clearing Participant is required to maintain under this Procedure must be kept in writing and in the English language, or in a manner which will enable them to be readily accessible by CHO and readily converted into writing in the English language at the cost of the Clearing Participant. CHO may direct a Clearing Participant to convert records into writing and into English. That direction must be complied with by the time specified by CHO when giving the direction.

2.15 Place of keeping Records

2.15.1 The location at which the records and reports required by this Procedure are kept must be notified to CHO.

2.15.2 If the records which a Participant is required to maintain under this Procedure are kept outside New Zealand:

(a) the Clearing Participant must send, or cause to be sent, to New Zealand, records which will enable true and fair financial statements to be prepared; and

(b) CHO may direct a Clearing Participant to produce any of its records in New Zealand.

2.15.3 A Clearing Participant must comply with any direction given by CHO under Procedure 2.15.2(b) by the time specified by CHO when giving the direction and at the cost of the Participant.

2.16 Retention of Records

2.16.1 The Records, reports and explanation required to be maintained by Procedure must be retained for a period of 7 years following the financial year to which they relate.

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Financial Reporting Procedure

Procedures For Rule 2.5.2(g), 2.14.2 2.5.2 Without limiting Rule 2.5.1, a Clearing Participant who

is not solely a Lending Clearing Participant must at all times:

(g) provide financial statements and other

information as prescribed by Procedure;

2.14.2 Subject to Rule 2.14.3, a Clearing Participant (other than a Clearing Participant who is solely a Lending Clearing Participant) must provide to CHO a monthly report of its daily Capital Adequacy Calculations during that month at the time and in the manner prescribed by Procedure.

2.17 Annual Reporting

2.17.1 Within 90 days after the end of a Clearing Participant's financial year, a Clearing Participant that is not solely a Lending Clearing Participant must deliver to CHO:

(a) financial statements of the Clearing Participant for the financial year;

(b) an auditor’s report on the financial statements that complies with Procedure 2.25;

(c) a copy of any return or notice filed with the Registrar of Companies during that financial year;

(d) a certificate of currency for insurances to be maintained;

(e) a graphical presentation of the Clearing Participant’s group structure at balance date. At a minimum this should disclose the Clearing Participant’s ultimate parent and all sister companies;

(f) a current organisation chart of the Clearing Participant;

(g) a reconciliation that indicates the differences between the audited financial statements at year-end with the monthly return provided to CHO for the last month of the financial year pursuant to Procedure 2.19.1; and

(h) if a reconciliation is provided under paragraph (g), a restatement of the monthly report of the daily Capital Adequacy Calculations provided to CHO for the last month

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of the financial year pursuant to Procedure 2.22; and (i) a copy of all bank audit confirmations requested and

received by the Clearing Participant’s auditor relating to financial statements.

2.18 Half-yearly Reporting

2.18.1 Within 35 days after the end of a Clearing Participant's financial half-year, a Clearing Participant that is not solely a Lending Clearing Participant must deliver to CHO:

(a) financial statements of the Clearing Participant for the first half-year (which need not be audited);

(b) a reconciliation that indicates the differences between the financial statements for the half-year with the monthly return provided to CHO for the last month of the financial half year pursuant to Procedure 2.19.1; and

(c) if a reconciliation is provided under paragraph (b), a restatement of the monthly report of the daily Capital Adequacy Calculations provided to CHO for the last month of the financial half-year pursuant to Procedure 2.22.

2.19 Monthly Reporting

2.19.1 Within 10 Business Days of the end of each calendar month, each Clearing Participant that is not solely a Lending Clearing Participant must deliver to CHO a copy of a trial balance as at the last day of the preceding month. Such trial balance must provide details as to the name or nature of each balance, must be provided in each separate currency and consolidated to NZ$ equivalents and must be provided in the on-line format provided from time to time by CHO for that purpose.

2.20 Content of Financial Statements

2.20.1 Financial statements delivered to CHO must be prepared in accordance with the requirements of the Financial Reporting Act 1993.

2.20.2 Where a Clearing Participant is incorporated outside New Zealand or conducts all or part of its business outside New Zealand, CHO may at its discretion accept financial statements prepared in accordance with the law and financial reporting standards of the Clearing Participant’s home jurisdiction where CHO is satisfied that the law and financial reporting standards of that jurisdiction are substantially equivalent to New Zealand financial reporting standards. CHO may seek, at the expense of the Clearing Participant concerned, an opinion from a suitably qualified professional to establish the

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equivalency of financial reporting standards in differing jurisdictions.

2.21 Accuracy

2.21.1 Each Clearing Participant must ensure that the information contained in each return or report is extracted accurately from the records of the Clearing Participant. CHO may require a Responsible Person of the Clearing Participant to certify as to the accuracy and completeness of each return or report.

2.22 NTA Reporting 2.22.1 A monthly report of a Participant’s daily Capital Adequacy

Calculations required under Rule 2.14.2 must be:

(a) lodged with CHO via a specified electronic reporting platform specified by CHO within 10 Business Days of the end of each month;

(b) certified by the Responsible Person and the Clearing Participant’s Chief Financial Officer (or person who holds an equivalent position) as complete and accurate; and

(c) contain all supporting information as advised by CHO from time to time.

2.23 Late Delivery

2.23.1 Each Clearing Participant failing to supply the reports or returns required by Procedures 2.17 to 2.22 by the specified date, shall pay the fee for late filing as specified by Procedure 6.14.

Audit Procedure

Procedures For Rule 2.5.2(h) 2.5.2 Without limiting Rule 2.5.1, a Clearing Participant who

is not solely a Lending Clearing Participant must at all times:

(h) appoint and maintain the appointment of an

auditor in accordance with the requirements prescribed by Procedure;

2.24 Audit

2.24.1 Each Clearing Participant that is not solely a Lending Clearing Participant must:

(a) appoint an person qualified to act as an auditor pursuant

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to the Companies Act 1993 to hold office as auditor, subject to CHO having no objection, until the auditor is removed from office or retires; and

(b) appoint an auditor to fill a vacancy within 10 Business Days of the vacancy occurring or such other time as prescribed by law.

2.24.2 Where a Clearing Participant is incorporated outside New Zealand or conducts all or part of its business outside New Zealand, CHO may at its discretion accept the appointment as auditor of a Person who is qualified to act as an auditor of the financial statements in accordance with the law and financial reporting standards of the Clearing Participant’s home jurisdiction, where CHO is satisfied that that person is suitably qualified.

2.24.3 Each Clearing Participant that is not solely a Lending Clearing Participant must:

(a) ensure that its auditor conducts, on an annual basis (or more frequently if required by Rule 6.6.2 (i)) an audit of:

(i) the Clearing Participant’s financial statements;

(ii) any other matter specified by CHO;

(b) ensure that its auditor prepares a report on that audit in a form containing the matters specified by this Procedure and otherwise acceptable to CHO; and

(c) deliver that report to CHO when:

(i) it delivers its financial statements under Procedure 2.17.1; or

(ii) when otherwise required under Rule 6.6.2 (i).

2.24.4 A Clearing Participant that is not solely a Lending Clearing Participant must give its auditor access to its premises and Directors, Personnel, agents and any other Person acting on behalf of the Clearing Participant and all records, documents, explanations and other information required by the auditor in respect of any audit conducted under the Rules.

2.24.5 A Clearing Participant must:

(a) not impose any limitation on the extent of any audit required under the Rules;

(b) permit and direct the auditor to notify CHO immediately if any limitation is imposed on the auditor, or if the auditor is

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hindered or delayed in the performance of the auditor's duties; and

(c) include in the terms of appointment of the auditor provisions substantially similar to Procedure 2.24.5(a) and (b) and deliver to CHO a copy of the terms of appointment of the auditor.

2.24.6 CHO may direct a Clearing Participant that is not solely a Lending Clearing Participant to have a further audit conducted of the Clearing Participant's internal control procedures or other matters and to deliver an auditor's report (in a form acceptable to CHO) in respect of that audit if it considers that there has been a material change in circumstances or where it considers an audit is necessary or desirable.

2.25 Content of Audit Report

2.25.1 An audit report provided for the purposes of Procedure 2.17.1(b) must contain:

(a) the content prescribed by section 16(1) of the Financial Reporting Act 1993; and

(b) a statement as to whether in the opinion of the auditor the amounts in the monthly return of the Daily Capital Adequacy Calculations provided to CHO for the last month of the financial year pursuant to Procedure 2.22, or the amounts in the restatement of that return provided under Procedure 2.17.1(h) are consistent with the financial statements to which the audit report relates.

2.25.2 An audit report provided for the purposes of Procedure 2.17.1(b) must, if required by CHO prior to commencement of the audit, also contain statements in relation to:

(a) Such other matters as CHO shall determine at its complete discretion;

(b) the content and preparation of any certificate of the Responsible Person relating to the conduct of the Clearing Participant’s business during the relevant accounting period to be delivered to CHO in accordance with the Rules; and

(c) the Clearing Participant’s compliance with the Rules.

Insurance Procedure

Procedures For Rule 2.5.2(i)

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2.5.2 Without limiting Rule 2.5.1, a Clearing Participant who is not solely a Lending Clearing Participant must at all times:

(i) have in place the insurance requirements

prescribed by Procedure;

2.26 Insurance

2.26.1 Each Clearing Participant that is not solely a Lending Clearing Participant must at all times hold insurance of a kind and for an amount that the Clearing Participant reasonably determines to be appropriate having regard to the clearing and settlement business and operations carried out by that Clearing Participant and the risks associated with that Clearing Participant’s clearing and settlement business, including those risks associated with the Directors, Personnel, agents or other Persons acting on behalf of the Clearing Participant.

2.26.2 As a minimum, a Clearing Participant that is not solely a Lending Clearing Participant must take out the following insurances:

(a) Professional indemnity insurance; and

(b) Directors’ and officers’ liability insurance.

2.26.3 Each Clearing Participant that is not solely a Lending Clearing Participant, in so far as it is able, must provide CHO with written evidence of:

(a) the insurance company providing the insurance cover;=

(b) the type of cover provided by that Clearing Participant’s insurance company;

(c) the amount of cover which that Clearing Participant has pursuant to Procedure 2.26.1 and any limitations on that cover;

(d) the date on which the insurance cover became effective;

(e) the date the insurance cover will expire; and

(f) any material changes that are made to the amount of insurance cover for that Clearing Participant. Notification of such material changes must be sent to CHO together with the Clearing Participant’s monthly return.

2.26.4 If required by CHO, a Clearing Participant that is not solely a Lending Clearing Participant will provide to CHO a copy of each insurance policy it holds.

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Inspection Procedure

Procedures For Rule 2.5.2(l) 2.5.2 Without limiting Rule 2.5.1, a Clearing Participant

who is not solely a Lending Clearing Participant must at all times:

(l) co-operate with CHO in exercise of the

powers set out in Rule 7.3 on such periodic or other systematic basis as may be prescribed by Procedure;

2.27 Schedule

2.27.1 At the commencement of each calendar year, CHO will develop and publish by Notice to each Clearing Participant that is not solely a Lending Clearing Participant, a schedule of Clearing Participant inspections to be undertaken in that year in respect of that Clearing Participant. The schedule will be developed on a risk based analysis of each Clearing Participant that is not solely a Lending Clearing Participant.

2.27.2 In determining the risk profile of each Clearing Participant that is not solely a Lending Clearing Participant, CHO will have regard to:

(a) the period of time since the Clearing Participant’s last inspection;

(b) the nature, size and scale of the Clearing Participant’s clearing and settlement business;

(c) any complaints or matters other that have arisen since the last inspection of the Clearing Participant;

(d) the Clearing Participant’s management controls and infrastructure;

(e) any disciplinary action taken or proposed since the last inspection;

(f) any other factors CHO determines as relevant.

2.27.3 Once risk profiles have been established, Clearing Participants that are not solely a Lending Clearing Participant will be ranked in order of risk and a schedule developed having regard to the resources available to CHO.

2.27.4 CHO will give Clearing Participants at least 10 Business Days

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Notice of each scheduled inspection. 2.28 Procedure

2.28.1 10 Business Days prior to a scheduled inspection, CHO will provide to the Clearing Participant a list specifying:

(a) the initial documents or files that CHO will inspect during the inspection. CHO may specify further documents for inspection during the inspection;

(b) a list of the Clearing Participant’s Personnel CHO wishes to interview and an indicative timetable for those interviews;

(c) any other information, matter or thing CHO requires to be available for inspection during the inspection .

2.28.2 A scheduled inspection will take place in the Clearing Participant’s offices. The Clearing Participant will make available to CHO such accommodation and facilities as are reasonably necessary to complete the inspection.

2.28.3 Within 20 Business Days of completion of the inspection, CHO will provide the Clearing Participant with a draft report of the results of the inspection.

2.28.4 The Clearing Participant will have 15 Business Days to provide comments to CHO in relation to the draft report.

2.28.5 Within 10 Business Days of expiry of the period referred Procedure 2.28.4, whether or not the Clearing Participant has provided comments, CHO will prepare and provide to the Clearing Participant a final inspection report.

2.29 Expenses

2.29.1 Clearing Participants will reimburse CHO on demand the cost of undertaking inspections, including reasonable internal and staff costs.

2.30 Additional Inspection

2.30.1 Nothing in this Procedure limits CHO’s ability to exercise its powers under Rule 7.6 at any time without Notice where CHO believes necessary.

Settlement Bank Procedure

Procedures For Rule 2.8.1(b) and 2.8.4.

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2.8.1 Each Clearing Participant who is not solely a Lending Clearing Participant must deliver, or procure its nominated Settlement Bank to deliver, to CHO (including at the time the Clearing Participant applies to CHO under Rule 2.3 for participation in the Clearing House) a written acknowledgment by the Settlement Bank that it will:

(b) inform CHO by a time specified by Procedure if

the Settlement Bank will not make a required payment to CHO at or by the time such payment is due;

2.8.4 CHO will maintain a list of approved Settlement

Banks which it will publish by Procedure. CHO may remove a bank from the list of approved Settlement Banks at its sole discretion. CHO must give as much advance notification as possible of any removal from the list of approved Settlement Banks. Any changes to the list of approved Settlement Banks must be notified to the Clearing Participants using an affected Settlement Bank.

2.31 Settlement Bank Undertaking

2.31.1 The time specified for Rule 2.8.1(b) shall be 10.00am.

2.32 Settlement Banks

2.32.1 The Settlement Banks are:

(a) [open to all Registered Banks]

Responsible Person Procedures

Procedures For Rules 2.11.2 (b), 2.11.3 (d), (e) & (g) , 2.11.2 Each Responsible Person must:

(b) have, and continue to have, skills, knowledge,

expertise and experience and have completed qualifications or training, of a type specified by Procedure;

2.11.3 Each Responsible Person must:

(d) submit to CHO such reports or certifications in

relation to the Clearing Participant’s business as a Clearing Participant and/or its compliance with these Rules as prescribed by Procedure;

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(e) submit to CHO, in the manner prescribed by

Procedure, details of any natural persons who are authorised to sign documents in connection with the Clearing Participant’s business as a Clearing Participant and these Rules on behalf of the Clearing Participant and/or the Responsible Person, and Promptly notify CHO in writing of any changes to those details;

(g) complete any training or continuing education

requirements prescribed by Procedure.

2.33 Responsible Person Qualifications

2.33.1 Prior to being nominated as a Responsible Person a nominee must have completed both:

(a) NZX Diploma course 405; and

(b) NZX Diploma course 508.

2.34 Periodic Certifications

2.34.1 Each Responsible Person must deliver to CHO on or before the 10th day of each calendar month, a monthly compliance report in the form set out in Appendix A of this Procedure signed by the Responsible Person.

2.34.2 Each Responsible Person must deliver to CHO on or before the 10th day of each financial year, an annual compliance report in the form set out in Appendix B of this Procedure signed by the Responsible Person.

2.35 On Demand Certification

2.35.1 Each Responsible Person must deliver to CHO, on or before the date specified by CHO, certification as to the Clearing Participant’s compliance with applicable Securities Legislation or Rules, in the form required by CHO signed by the Responsible Person.

2.36 Authorised Signatories

2.36.1 A Responsible Person must submit to CHO details of any natural persons authorised by the Responsible Person to sign documentation on behalf of the Responsible Person or the Clearing Participant. The details must include:

(a) the name, title and function of each person;

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(b) the extent of the authorised signatory’s authority;

(c) specimen signatures of any new authorised signatories;

(d) the date the authorised signatory was appointed.

2.36.2 A Participant must notify CHO in writing if any authorised signatory ceases to be authorised by the Responsible Person or if any new natural persons are given that authority.

2.37 Training

2.37.1 Initial Education: Prior to being nominated as a Responsible Person, a nominee must have completed the following training:

(a) CHO orientation training;

(b) [nothing additional]

2.37.2 Continuing Education: The continuing education requirements for Responsible Persons are the successful completion of at least 15 hours (or 15 hours equivalent) compliance education every calendar year.

2.37.3 Suitable compliance education means education or professional development approved by CHO directly related to compliance obligations, policies, procedures and ethics with specific relevance to the Clearing Participant's and Responsible Person’s obligations under the Securities Legislation and Rules. This includes internal training.

2.37.4 CHO may approve, for the purposes of compliance with continuing education requirements, the quality and measurement standards of continuing education or continuing professional development established for their members by one of the professional bodies set out below:

(a) Australasian Compliance Institute;

(b) New Zealand Institute of Chartered Accountants;

(c) New Zealand Law Society.

2.37.5 When a Clearing Participant appoints a natural person to the role of Responsible Person during a calendar year, the Clearing Participant must be able to demonstrate to CHO that the Responsible Person has undertaken compliance education since the date of appointment as a Responsible Person by that Clearing Participant which satisfies the continuing education requirement pro-rata to the number of full months that the Responsible Person held that role during that year.

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Appendix A - Monthly Compliance Certificate

Clearing Participant: Month Ended: I hereby certify and represent that: 1 The Clearing Participant has met the requirements of Rule 2.13 at

all times (including at all times during each day) during the period. 2 Except to the extent disclosed in writing to CHO, the

representations and warranties set out in Rule 2.9.1 are true and accurate in all material respects.

3 The Clearing Participant continues to satisfy the requirements of Rule 2.2.

4 The Clearing Participant has made all notifications to CHO required by Rule 2.7.

Name: Responsible Person Dated

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Appendix B - Annual Compliance Certificate

Clearing Participant:

Year Ended:

I hereby certify and represent that during the period:

1 The Clearing Participant has developed and implemented its compliance plan as required by Rule 2.5.2(a) and the compliance plan is operating effectively and is adequate having regard to the nature and extent of the Clearing Participant’s clearing and settlement activities to ensure compliance with applicable Securities Legislation and the Rules.

2 All matters of non-compliance with the Securities Legislation and the Rules that have been identified by the compliance plan have been notified to CHO.

3 The Clearing Participant has developed and implemented a training plan as required by the Rules and the training plan is operating effectively and is adequate having regard to the nature and extent of the Clearing Participant’s clearing activities.

4 The Clearing Participant has developed and maintains a business continuity plan as required by the Rules and the plan is operating effectively and is adequate having regard to the nature and extent of the Clearing Participant’s clearing activities.

4 The Clearing Participant has met the requirements of Rule 2.13 at all times (including at all times during each day) during the period.

5 The Clearing Participant has maintained the records required by the Rules.

6 Except to the extent disclosed in writing to CHO, the representations and warranties set out in Rule 2.9.1 are true and accurate in all material respects.

7 The Clearing Participant continues to satisfy the requirements of Rule 2.2.

8 I have completed the following continuing education courses: Course Provider Duration

9 I have retained copies of the relevant documentation on which this representation is based and this is available for inspection by CHO.

10 The Clearing Participant has made all notifications to CHO required by Rule 2.7.

Name :(Responsible Person)

Dated

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C&S Agreement Procedure

Procedures For Rule 2.12.2. 2.12.2 A C&S Agreement must provide for the matters

prescribed by Procedure. A C&S Agreement may include such other terms and conditions that are not inconsistent with the Rules or the matters prescribed by Procedure. If such inconsistency exists the Rules and the matters prescribed by Procedure will prevail.

2.38 C&S Agreement

2.38.1 Each C&S Agreement must address the following:

(a) procedures in relation to receipt and delivery of Approved Product and Money;

(b) procedures for payment of collateral in respect of initial margin or other margins;

(c) the extension of client credit (if applicable);

(d) the provision of security for the obligations of the Customer;

(e) risk management provisions including dealing, position and settlement limits and controls and filters;

(f) communications, settlement confirmation and reporting between the Customer and the Clearing Participant;

(g) fees, disbursements and any other amounts payable.

(h) government duty and any other applicable taxes;

(i) if applicable, opening, approving and monitoring of Accounts for Derivatives Transactions;

(j) if applicable, the exercise of an Option Transaction;

(k) where applicable, the terms upon which the Clearing Participant will accept instructions from the Customer on behalf of a mutual client, governing the exercise of an Option Transaction;

(l) procedures for dealing with any misdirected market transaction which is cleared by the Clearing ; and

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(m) procedures for dealing with default by the Customer.

2.38.2 A C&S Agreement may include such other terms and conditions that are not inconsistent with the Rules or the matters prescribed by this Procedure.

2.38.3 CHO may give reasonable directions to a Clearing Participant requiring it to make (or refrain from making) amendments to the terms of any C&S Agreement, and the Clearing Participant must comply with those directions within the time specified by CHO.

Capital Adequacy Procedures

Procedures for Rule 2.13.1, 2.15.2, 2.15.4

2.13.1 Minimum Capital Required: Subject to Rule 2.13.2, a Clearing Participant (other than a Clearing Participant who is solely a Lending Clearing Participant) must at all times maintain its Net Tangible Assets at a level equal to, or greater than, its Prescribed Minimum Capital Adequacy, which shall be the higher of:

(a) the Minimum NTA of the Clearing Participant, as

prescribed for its category of Clearing Participant by Procedure; and

(b) the Total Risk Requirement of the Clearing Participant, as

calculated in accordance with Rule 2.16. 2.15.2 In calculating a Clearing Participant’s Net Tangible Assets, a

Clearing Participant must exclude all items specified by CHO from time to time by Procedure.

2.15.4 A Clearing Participant must value assets and convert foreign

currencies in the manner determined by Procedure.

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2.39 Capital Adequacy Requirements

2.39.1 The minimum Net Tangible Asset levels are:

(a) $1,000,000 for an Individual Clearing Participant;

(b) $5,000,000 for a General Clearing Participant; and (c) $5,000,000 for a Default Clearing Participant.0

2.40 Valuation and Foreign Currencies

2.40.1 In calculating its NTA or Total Risk Requirement, a Clearing Participant must mark to market each of its principal positions in Financial Instruments on each Business Day. Except where provided for by Procedure, all assets and liabilities are to be valued in accordance with Generally Accepted Accounting Practice.

2.40.2 In arriving at a mark to market value, where the position has a published market price, the mark to market value will be the Last Sale.

2.40.3 In arriving at a mark to market value for an Option or rights position with no published market price, or that cannot otherwise be valued under Procedure 2.40.2, the position must be valued as follows:

(a) for a purchased Option or right that is In the Money, the In the Money Amount multiplied by the quantity underlying the Option; and

(b) for a written Option that is In the Money, the sum of (i) the In the Money Amount multiplied by the quantity

underlying the Option; and (ii) the initial premium received for the Option.

2.40.4 In arriving at a mark to market value for a Swap or Forward Rate Agreement, the position must be valued as follows:

(a) having regard to the net present value of the future cash flows of the contracts; and

(b) using current interest rates relevant to the period in which the cash flows will arise.

2.40.5 In calculating its NTA, a Clearing Participant must apply such discount or haircut to any item that may be included in the calculation as notified to that Clearing Participant by CHO on such conditions and for such periods notified by CHO.

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2.40.6 Where CHO has made a determination under Procedure 2.40.5, it will advise the Clearing Participant in writing, specifying the reasons for its determination.

2.40.7 In calculating NTA or any component of the Total Risk Requirement, in respect of a Trading Day, a Clearing Participant must convert any amounts in foreign currency other than the Base Currency to the Base Currency at the prevailing spot rate on or about 5pm on that Trading Day from a readily available market source and the Clearing Participant must specify the rate and source in all reporting to CHO.

2.40.8 For the purposes of Procedure 2.40.6 CHO, from time to time, may stipulate that a specific source cannot be used as a source for currency conversion.

2.40.9

2.41 Items excluded from NTA

2.41.1 The following items must be excluded from the calculation of Net Tangible Assets:

(a) all Intangible Assets. This does not include liabilities associated with Intangible Assets;

(b) guarantees in favour of CHO, except where and to the extent to which the Clearing Participant has a Net Underwriting Commitment for the purposes of the calculation of the Primary Market Risk Requirement;

(c) any Subordinated Debt approved by CHO in accordance with Rule 2.17.1;

(d) Fixed Assets;

(e) any asset which, in the normal course of business is not capable of being realised within 12 months; and

(f) any item excluded under Procedure 2.41.2

2.41.2 CHO may, from time to time, notify a Clearing Participant that it must exclude any item that otherwise would be included in its NTA calculation on such conditions and for such period notified by CHO.

2.41.3 Where CHO has made a determination under Procedure 2.41.2, it will advise the Clearing Participant in writing, specifying the reasons for its determination.

2.42 Items included in NTA

2.42.1 The following items must be included in the calculation of Net

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Tangible Assets: (a) all Contingent Liabilities;

(b) assets and liabilities in respect of segregated client monies held on the Clearing Participant’s balance sheet;

2.43 Operational Risk Requirement

2.43.1 A Clearing Participant’s Operational Risk Requirement is equal to 1% of the higher of:

(a) the Clearing Participant’s budgeted total revenue for the month in which the calculation is made; or

(b) the Clearing Participant’s average actual monthly total revenue before tax of the three complete consecutive calendar months preceeding the date on which the calculation is made.

2.44 Netting

2.44.1 A Clearing Participant may calculate the Positive Credit Exposure under Procedure 2.45 and Procedure 2.46 for an individual Counterparty on a net debit basis across all currencies only where:

(a) netting is permissible on a “First In First Out” basis under NZ Generally Accepted Accounting Practice; or

(b) assets pending settlement are held by the Clearing Participant on behalf of the Counterparty. This does not include any segregated client assets held on balance sheet.

2.45 Counterparty Risk Requirement

2.45.1 A Clearing Participant’s Counterparty Risk Requirement shall be calculated in respect of each of its Positive Credit Exposures for each Counterparty. In calculating Positive Credit Exposures, the Clearing Participant shall:

(a) include all trade and intragroup debtors and all transactions in Financial Instruments; and

(b) exclude all transactions with CHO and all Net Underwriting commitments.

2.45.2 The Positive Credit Exposure for an individual Counterparty shall be calculated as the sum of:

(a) 6% of the value of all transactionswith that Counterparty

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remaining unsettled, but that are not overdue; (b) 10% of the Intial Margin Requirement for all clients in

respect of margined transactions with that Counterparty;

(c) 50% of the value of all transactions with that Counterparty that are Overdue if the Counterparty is an AFSL holder, a financial market participant that is regulated in the U.S, U.K, or other OECD country, a Bank or a Clearing Participant, NZX Participant Requiring Capital or [Futures Participant] Bank or an NZX Participant; and

(d) 100% of all other transactions with that Counterparty.

2.45.3 Where a right of set off exists and a single counterparty has outstanding balances in more than one category of Procedure 2.47.1, the credit balance is first applied to the higher Counterparty Risk Requirement.

2.46 Large Position Risk Requirement

2.46.1 The Large Position Risk Requirement is calculated as being the aggregate of the:

(a) Large Position Counterparty Risk Requirement; and (b) Large Position Issuer Risk Requirement.

2.46.2 The Large Position Counterparty Risk Requirement applies when a Clearing Participant’s Positive Credit Exposure to an individual Counterparty exceeds 19% of that Clearing Participant’s total liabilities and will be the sum of: (a) 2% of the value of transactions with that Counterparty that

are not Overdue; and (b) 10% of the value of transactions with that Counterparty

that are Overdue. 2.46.3 The Large Position Issuer Risk Requirement applies when a

Clearing Participant has a principal position in a class of an individual Issuer’s Securities that is more than 10% of all the securities in that class or that has a value that exceeds 19% of that Clearing Participant’s total liabilities and will be an additional 5% of the total of the relevant Position Risk Requirement.

2.47 Position Risk Requirement

2.47.1 The Position Risk Requirement represents the aggregate of a Clearing Participant’s individual absolute position risk amounts in particular Securities or transactions. The position risk amount for a particular Security or transaction is:

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(a) For debt and equity securities:

(i) 3% of the value of Securities issued by central government and Bank Issuers;

(ii) 6% of the value of all Securities within the NZX50 index and any Recognised Market Index and any Investment Grade debt Securities;

(iii) 8% of the value of all other New Zealand or Australian Listed Securities and local or state government issuers;

(iv) 50% of the value of Securities issued by New Zealand and Australian non-Listed Issuers; and

(v) 100% of the value of all other Securities.

(b) For derivative products:

(i) in respect of margined transactions that are bought options, the amount of the premuium less initial margins paid;

(ii) in respect of all other margined transactions, twice the Initial Margin Requirement; and

(iii) in respect of non-margined transctions, an amount calculated on a basis from time to time approved by CHO.

2.48 Currency Risk Requirement 2.48.1 The Currency Risk Requirement represents the sum of

adjustment factors set out below as follows: (a) 3% of the net of that Clearing Participant’s unhedged

Financial Assets and Financial Liabilities denominated in AUD; and

(b) 6% of the net of the Clearing Participant’s unhedged Financial Assets and Financial Liabilities denominated in a currency other than the Base Currency or AUD,

2.49 Primary Market Risk Requirement

2.49.1 The Primary Market Risk Requirement is calculated in respect of all Net Underwriting Commitments and in relation to each Net Underwriting Commitment is the percentage of that Net Underwriting Commitment applicable to the Securities subject of the commitment under Procedure 2.47.1.

2.50 Market Risk Requirement

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2.50.1 From time to time CHO may by written Notice, require a Clearing Participant or all Clearing Participants to include Market Risk Requirement in its Total Risk Requirement. In determining whether a Market Risk Requirement is necessary, CHO will have regard to:

(a) the risk profile of the Clearing Participant;

(b) domestic and global market volatility; and

(c) any other relevant factor.

2.50.2 A Clearing Participant will be required to calculate and include the Market Risk Requirement in its Total Risk Requirement in accordance with any Notice given by CHO from time to time.

2.51 Definitions

2.51.1 In Procedures 2.39 to 2.50, the following terms bear the following meanings:

AFSL means an Australian Financial Services License issued to financial planners and financial services industry corporations by the Australian Securities and Investment Commission.

AUD means Australian currency, Bank Guarantee means an irrevocable commitment by the

issuing bank to make a payment, at the request of its client, to the beneficiary specified in the bank guarantee, subject only to the beneficiary filing a request with the bank to that end before the expiry date of the guarantee and up to the amount specified therein.

Base Currency means New Zealand currency. Contingent Liabilities have the meaning determined in

accordance with Generally Accepted Accounting Practice.

Counterparty means in respect of a transaction to which a Market Participant Requiring Capital is a party, another party to that transaction.

Derivatives means a Futures Contract and/or an Option. Financial Asset and Financial Liability have the meaning

determined in accordance with Generally Accepted Accounting Practice.

Financial Instrument means:

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(i) A Security;

(ii) A Derivatives Contract;

(iii) An Emission Unit; and

(iv) Any other instrument prescribed as such by CHO from time to time.

Fixed Asset has the meaning determined in accordance with Generally Accepted Accounting Practice.

Forward Rate Agreement means an agreement in which two parties agree that:

(i) One party will make payments to the other party of an amount of interest for a specified period in respect of an agreed principal amount;

(ii) No commitment is made to lend or borrow the principal amount; and

(iii) The exposure is limited to the difference between the agreed and actual market interest rates at settlement.

Intangible Assets has the meaning determined in accordance with Generally Accepted Accounting Practice.

Investment Grade means a Security that with a credit rating that is BBB- or higher by Standard & Poor's or Baa3 or higher by Moody's or BBB (low) or higher by DBRS.

In the Money means:

(i) In relation to call Options, that the current market price of the underlying instrument is greater than the exercise price; and

(ii) In relation to put Options, that the current market price of the underlying instrument is less than the exercise price.

In the Money Amount means, in relation to an Option or right that is In the Money, the difference between the current market price of the underlying and the exercise price;

Issuer means any person which is or has been Listed and, where applicable has the extended meaning given in NZSX/DX Listing Rule 1.1.5.

Last Sale means the most recent price (during a trading session) or the price of the final transaction (after the market

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closes) for a given Financial Instrument.

Listed has the meaning in the NZSX/DX Listing Rules. Net Underwriting Commitment means the aggregate of any

underwriting, sub-underwriting or firm allocation commitment in respect of a particular Security less any legally binding applications from clients in relation to that commitment.

OECD means The Organisation for Economic Co-operation and Development.

Overdue means where an unconditional obligation of a Counterparty remains unpaid after the date on which the obligation was due for payment under the terms of the transaction, except that:

(i) For trades in Financial Instruments, the transaction shall be considered overdue if unsettled 10 Business Days after the date on which the trade became unconditional; and

(ii) For a written Option, the transaction shall be considered overdue if the Counterparty has not paid the premium; and

(iii) For transactions where the Clearing Participant holds on trust as security for the amount outstanding, Securities with a current market value of at least 140% of the amount payable, shall not be considered overdue.

Positive Credit Exposure means an exposure to a Counterparty where, if the Counterparty to default, the Market Participant Requiring Capital would suffer financial loss.

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Recognised Market Index means an index specified in the

following table:

Recognised Market Indexes:

Country Index

Australia S&P/ASX200

Austria ATX

Belgium BEL 20

Canada TSE 35

France CAC 40

Germany DAX

Hong Kong Hang Seng

Italy MIB 30

Japan Nikkei 225

Netherlands EOE 25

Spain IBEX 35

Sweden OMX

Switzerland SMI

UK FTSE 100; FTSE mid-250

US S&P 500

Swap means a transaction in which two parties agree to exchange streams of payments over time on a pre-determined basis.

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Section 3: Clearing

Discretionary Transaction Procedure

Procedures For Rule 3.1.2 (b) 3.1.2 Discretionary Transactions: A Transaction in an

Approved Product that is not a Mandatory Transaction may be submitted for clearing and settlement on the Clearing House in accordance with these Rules. Unless and until CHO determines otherwise, Discretionary Transactions will be automatically accepted for clearing and settlement on the Clearing House when:

(b) the Clearing Participants providing clearing and

settlement services to both parties to the Transaction otherwise assent in accordance with the relevant Procedure to clearing and settlement of the Transaction on the Clearing House.

3 3.1 Notification

3.1.1 Application for submission under Rule 3.1.2 of a Transaction for clearing and settlement on the Clearing House may be made by a Clearing Participant on behalf of a Customer that is party to a Transaction. That Clearing Participant must give CHO [specify electronic message required] by 5.30pm of the day before the proposed day of Settlement of the Transaction (or in the case of a transaction with more than one Settlement, the time of the first Settlement). That message must identify:

(a) details of the Transaction involved including;

(i) the date and time of the Transaction;

(ii) the Approved Product ID/ISIN and quantity;

(iii) the price and amount payable on settlement; and

(iv) if the system default settlement cycle is not to apply, the settlement date or dates.

(b) the identity of the parties to the Transaction;

(c) the Clearing Participant providing clearing and settlement services for the other party to the Transaction; and

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(d) the amounts of Money payable and /or Approved Product deliverable under the Transaction; and

(e) the date of settlement of the Transaction.

3.1.2 A copy of the application given under Procedure 3.1.1 must be given to the Clearing Participant providing clearing and settlement services for the other party to the Transaction.

3.2 Acceptance

3.2.1 Following receipt of an application for submission of a Transaction for clearing and settlement in the Clearing House, Notice of acceptance will be notified by CHO either through the Clearing House System or by Market-side Securities Trade Confirmation [MT518] to each Clearing Participant concerned.

Option Exercise Procedure

Procedures For Rule 3.4.1 3.4.1 The exercise by a Clearing Participant of its rights

under a Settlement Transaction that arises from an Option Transaction must be notified to CHO in the manner prescribed by Procedure. Those Procedures may provide that in the absence of instructions from the Clearing Participant to the contrary, CHO may determine, on behalf of the Clearing Participant, the exercise or otherwise of any rights of the Clearing Participant under the Settlement Transaction that arises from an Option Transaction prior to expiry of the Option.

3.3 Notice of Exercise

3.3.1 The exercise of an Option shall be notified to CHO through the Clearing House System user interface on or before the expiry date. The Notice must:

(a) identify the open position by reference to the position reference number in the Clearing House System.

(b) specify the number of lots to be exercised.

(c) specify either:

(i) that the Option is to be exercised; or

(ii) if the account indicator has been set to auto exercise, specify that the Option is not to be exercised.

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3.3.2 A Notice of exercise is irrevocable.

3.3.3 Notice of exercise must be given during the period, or on the date, specified and otherwise as provided by the terms of the option.

3.4 Automatic Exercise

3.4.1 When an Option instrument is created in the Clearing House System, CHO will specify the final exercise method, which will include automatic exercise.

3.4.2 A Clearing Participant may make a request through the Clearing House system user interface to override an automatic exercise instruction.

Subdivision Procedure

Procedures For Rule 3.5.1 and 3.5.2 3.5.1 A Clearing Participant may apply to CHO for the

rights and obligations of that Clearing Participant under a Settlement Transaction to be cancelled in full by that Clearing Participant and replaced with two or more replacement Settlement Transactions having the quantities as are nominated by the Clearing Participant (subject to such minimum quantities as may be prescribed by Procedure and such amounts being in aggregate equal to the quantity of the original Settlement Transaction) and otherwise on terms identical in all respects to the original Settlement Transaction.

3.5.2 CHO may in its absolute discretion, and without

giving any reason, make a decision to either accept or decline an application for subdivision of a Settlement Transaction under Rule 3.5.1, and may accept the application subject to any terms and conditions as CHO in its absolute discretion determines. Acceptance or otherwise of the application for subdivision will be notified to the Clearing Participant in the manner prescribed by Procedure. Upon notification of acceptance of an application for subdivision in accordance with the Procedure, the original Settlement Transaction is cancelled and replaced by one or more separate and independent Settlement Transactions in the quantities nominated by the Clearing Participant (being in aggregate equal to the quantity of the original Settlement Transaction) and otherwise on terms

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identical in all respects to the original Settlement Transaction.

3.5 Notice of Application - subdivision

3.5.1 Application for novation of a Settlement Transaction in accordance with Rule 3.6 shall be made by the Clearing Participant giving the [specify electronic message required]. That message must clearly identify:

(a) the Settlement Transactions involved by [appropriate reference number];

(b) the quantities of Approved Product to be included in each proposed replacement Settlement Transaction; and

(c) the proposed date of subdivision.

3.5.2 The minimum quantity of Approved Product that may be included in a proposed replacement Settlement Transaction is the minimum prescribed by the relevant market for a trade.

3.6 Notice of Acceptance

3.6.1 Following receipt of an application under Rule 3.6 for subdivision from a Clearing Participant, Notice of acceptance or decline of a subdivision application will be notified by CHO by [specify electronic message required]. CHO will include in any Notice of acceptance any terms and conditions of acceptance by CHO of the application under Rule 3.6 for subdivision.

Give up – Take up Procedure

Procedures For Rule 3.6.1 and 3.6.2 3.6.1 A Clearing Participant may apply to CHO for the

rights and obligations of that Clearing Participant under a Settlement Transaction to be novated in full by that Clearing Participant to another Clearing Participant by notification to CHO in the form and in the manner prescribed by Procedure.

3.6.2 CHO may in its absolute discretion, and without

giving any reason, make a decision to either accept or decline an application for novation of a Settlement Transaction under Rule 3.6.1, and may accept the application subject to any terms and conditions as CHO in its absolute discretion determines. Acceptance or otherwise of the application for

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novation will be notified to the Transferor and Transferee in the manner prescribed by Procedure. Upon notification of acceptance of an application for novation in accordance with the Procedure, the Settlement Transaction is cancelled and replaced by separate and independent Settlement Transactions on identical terms between the Transferee and CHO. Subject to Rule 3.6.4, the rights and obligations of the Transferee will entirely supersede and replace the rights and obligations of the Transferor with respect to the relevant Settlement Transaction.

3.7 Notice of Application – Give up – take up Transactions

3.7.1 Application for novation of a Settlement Transaction in accordance with Rule 3.7 shall be made by the Transferor giving an instruction through the Clearing House system. That instruction must clearly identify:

(a) the Settlement Transactions involved by appropriate trade reference number identifier;

(b) the Transferee by the Clearing House System Business Partner Identification Number; and

(c) the proposed date of novation.

3.7.2 The Transferee must, within one Business Day, confirm acceptance of the novation by giving an instruction through the Clearing House system

3.8 Notice of Acceptance

3.8.1 Following receipt of an application for novation from a Transferor and confirmation of acceptance of the novation by the Transferee, Notice of acceptance or decline of a novation application will be notified by CHO to the Transferor and Transferee through the Clearing House System. CHO will include in any Notice of acceptance any terms and conditions of acceptance by CHO of the application under Rule 3.7 for novation.

Transaction Liquidation Procedure

Procedures For Rule 3.7.1 and 3.7.2 3.7.1 A Clearing Participant who is Buyer to one or more

Settlement Transaction that results from a Derivatives Transaction and a Seller to one or more other Settlement Transactions that results from a Derivatives Transaction the terms of which (whether

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originally, or as a result of the operation of Rule 3.5.1) when aggregated are identical in all respects other than price and contract date, and are recorded in the same sub-account, may apply to CHO in the form and in the manner prescribed by Procedure, for its rights and obligations under those Settlement Transactions to be novated in full by that Clearing Participant to another Clearing Participant by notification to CHO in the form and in the manner prescribed by Procedure.

3.7.2 CHO may in its absolute discretion, and without

giving any reason, make a decision to either accept or decline an application for novation of Settlement Transactions under Rule 3.7.1, and may accept the application subject to any terms and conditions as CHO in its absolute discretion determines. Acceptance or otherwise of the application for novation will be notified to the Transferor and Transferee in the manner prescribed by Procedure. Upon notification of acceptance of an application for novation in accordance with the Procedure, the Settlement Transaction is cancelled and replaced by a separate and independent Settlement Transaction that reflects the settlement difference (if any) as calculated by CHO, Settlement Date of which Settlement Transaction will be the next Settlement Day.

3.9 Notice of Application – Liquidation of Settlement

Transaction

3.9.1 Application for novation of a Settlement Transaction in accordance with Rule 3.8 shall be made by the Transferor giving an instruction through the Clearing House System. That message must clearly identify:

(a) the Settlement Transactions involved by reference number;

(b) the Transferee by the Clearing House System Business Partner Identification Number;

(c) the proposed date of novation.

3.9.2 The Transferee must, within one Business Day, confirm acceptance of the novation by giving an instruction through the Clearing House System.

3.10 Notification

3.10.1 Following receipt of an application under Rule 3.8 for novation

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from a Transferor and confirmation of acceptance by the Transferee, Notice of acceptance or decline of a novation application will be notified by CHO to the Transferor and Transferee shall be given through the Clearing House System. Notice shall specify:

(a) The conditions (if any) attached to the acceptance;

(b) The details of the new Settlement Transaction (if any) that reflects the settlement difference, including the amount of any payment of money or delivery of Approved Product required and the Settlement Date.

Settlement Transaction Cancellation Procedure

Procedures For Rule 3.9.2(b). 3.9.2 The cancellation of a Discretionary Transaction:

(b) by agreement between both parties in accordance with the relevant Procedure.

will result in the cancellation of the relevant Settlement Transactions of the Clearing Participants recorded with CHO as Buyer and Seller for the Transaction.

3.11 Application

3.11.1 Application for cancellation of a Settlement Transaction arising from a Discretionary Transaction in accordance with Rule 3.10.2(b) may be made by the parties to the original Discretionary Transaction. That notification must be given, at the latest, before 5.00pm on the day before the date of the Settlement Transactions (or in the case of a transaction with more than one Settlement, the time of the first Settlement) and must clearly identify:

(a) the Settlement Transactions involved by the Business Partner Identification Number;

(b) the other party to the original Discretionary Transaction by the Business Partner Identification Number; and

3.11.2 The other party to the original Discretionary Transaction must, on that Business Day, confirm agreement to cancellation of the Settlement Transactions.

3.12 Notice of Cancellation

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3.12.1 Following receipt of an application for cancellation and confirmation of agreement to the cancelation, Notice of the cancellation will be notified by CHO through the Clearing House System or by Market-side Trade Confirmation – Cancel [MT518].

Margin Procedure

i Procedures For Rule 3.10.4 3.10.4 The methods for calculating each Margin component

will be determined using a risk based algorithm and/or such other method as may be provided by Procedure.

1.

ii 3.13 Margin Calculation 2.

iii 3.13.1 Initial Margin: The amount of Initial Margin required in respect of a Net Open Position shall be determined using a Value at Risk model, taking into account:

3.

iv (a) the liquidity of the Approved Product; 4.

v (b) price volatility of the Approved Product; 5.

vi (c) the portfolio effect related to Approved Product. 6.

vii 3.13.2 Variation Margin: The amount of Variation Margin required each day in respect of a Net Open Position shall be determined taking into account:

7.

viii (a) movement of daily settlement price against contract price; or

ix (b) movement of daily settlement price.

x 3.13.3 Additional Margin: The amount of Additional Margin required in respect of a Net Open Position shall be determined taking into account:

xi (a) expected or anticipated price movements;

xii (b) deliveries of the underlying instrument for derivative contract;

xiii (c) credit risk of the Clearing Participant.

3.14 Notification

xiv 3.14.1 A Clearing Participant will be notified at the end of each Settlement Day of the amount of each Margin component it is

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required to provide on the next Settlement Day, and the resulting aggregate Margin that the Clearing Participant must make provision for, in the Total Margin Payable Report.

Cu Collateral Procedure

xv Procedures For Rule 3.11.2, 3.11.10, 3.12.1, 3.12.2, 3.12.3, 3.11.4 and 3.15.3. 3.11.2 A Clearing Participant may deliver Eligible Collateral

to CHO at any time, and must deliver Eligible Collateral to, or at the direction of, CHO when required to do so by CHO. The methods of notifying CHO of an election by the Clearing Participant to deliver Eligible Collateral, or notifying Clearing Participants of a requirement to deliver Eligible Collateral, will be provided by Procedure.

3.11.10 CHO must invest, or direct the investment of, Money

Collateral transferred to it in an account with a Bank selected, and on terms to be determined, at CHO’s discretion. CHO will prescribe the principles for investment of Money Collateral by Procedure.

3.12.1 CHO will have sole discretion to determine Eligible

Collateral and will specify by Procedure the Money, Eligible Securities, Third Party Collateral and other property comprising Eligible Collateral.

3.12.2 CHO will have sole discretion to determine the

valuation of Eligible Collateral, including the Haircut to be applied to each type of Eligible Collateral and will publish such details by Procedure.

3.12.3 CHO will have sole discretion to determine the

quantity or proportion of each type of individual Eligible Securities, Money, Third Party Collateral or other property which any or all Clearing Participants may or must deliver as collateral by Procedure or otherwise.

3.11.4 CHO may identify other methods of providing

Collateral by Procedure. 3.14.4 The procedure for withdrawal of Collateral (other than

Transferred Collateral), return of Third Party Collateral and transfers of property under Rule 3.14.2(b) will be prescribed by Procedure.

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xvi 3.15 Notification of Call and Provision of Collateral

xvii 3.15.1 CHO will notify each Clearing Participant of the amount of Eligible Collateral that that Clearing Participant must deliver by the Total Margin Payable Report generated at the close of business on the Business Day prior to each Settlement Day. That report will include confirmation of the amount of Eligible Collateral currently held and calculation of the additional Eligible Collateral required.

xviii 3.15.2 The required amount of Eligible Collateral must be provided before 9.30 am on the Settlement Day.

xix 3.15.3 At or prior to the time of delivery of Eligible Collateral that is not Third Party Collateral, the Clearing Participant will deliver, in form and substance satisfactory to CHO, evidence that the Eligible Collateral is free and clear of any Security Interest, lien, encumbrance or other restriction. This evidence must include (but is not limited to) the results of a search of the PPSR for financing statements registered against the Clearing Participant dated no earlier than the relevant Settlement Day.

xx 3.15.4 At or prior to the time of delivery of Eligible Collateral that is not Transferred Collateral or Third Party Collateral, the Clearing Participant will confirm in writing to CHO that the relevant Eligible Collateral is included in the collateral description contained in the Clearing Participant’s application form, as provided for in Procedure 2.1.

3.16 Voluntary Collateral Delivery

3.16.1 A Clearing Participant may notify CHO of the delivery of additional Securities Collateral and Money Collateral at any time by submitting to CHO a collateral lodge request by way of collateral proposal [MT504] or through an instruction in the Clearing House System.

3.16.2 Where Collateral is provided in Securities, the Securities will be automatically transferred to CHO’s Product Collateral account.

3.16.3 Where Collateral is provided in the form of Money or bank guarantee, CHO will check to ensure receipt of Collateral before accepting the collateral lodge request.

3.16.4 CHO will confirm acceptance of collateral through the Clearing House System or by Collateral Status and Processing Advice [MT507].

xxi 3.17 Bank Account Principles

xxii 3.17.1 CHO shall take the following principles into account when

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investing Money Collateral: xxiii (a) the security and financial stability of the investment. CHO

will have regard to the rating of the Bank, its financial position and regulatory environment;

xxiv (b) the level of return received. CHO will have regard to the level of return relative to returns available on investments of a similar risk profile; and

xxv (c) the notice period required to obtain repayment of the investment.

xxvi 3.18 Form of Guarantee

xxvii 3.18.1 Guarantees must be provided in the form prescribed by Appendix A to this Procedure;

xxviii 3.19 Collateral Type

xxix 3.19.1 Only collateral of the types referred to in Rule 3.12.1 to 3.12.3 may be provided.

A 3.20 Eligible Securities

B 3.20.1 The following are Eligible Securities:

C (a) Approved Products issued by issuers in the NZX 50 (provided that CHO is satisfied, in each case, with such matters as CHO considers relevant to its ability to obtain, perfect and maintain an effective, first ranking Security Interest in that Approved Product);

D (b) Approved Products issued by the New Zealand Government.

E 3.20.2 CHO may, by written notice to Clearing Participants, approve other Approved Products as Eligible Securities. In considering any such approval, CHO may take into account any factors it considers relevant to its ability to obtain, perfect and maintain an effective, first ranking Security Interest in such Approved Product.

xxx 3.21 Valuation and Haircuts

xxxi 3.21.1 Each day, CHO assigns a value for Eligible Collateral purposes to all Eligible Collateral held or provided. The way this value is determined depends on the type of Eligible Collateral as follows:

xxxii (a) Money in NZ$ shall be valued at face value;

xxxiii (b) Money in foreign currency will be valued at:

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A (i) $US, 95% of face value;

B (ii) EUR, 95% of face value;

C (iii) $AUS, 95% of face value;

D (iv) £UK, 95% of face value

(v) (vi) all other currencies, 90% of face value.

xxxiv (c) Approved Products issued by Issuers in the NZX 50 index are valued at 70% of daily closing market price;

xxxv (d) New Zealand Government securities are valued at 95% of daily closing price.

xxxvi 3.22 Minimum Money Collateral

3.22.1 The minimum amount of Money that a Clearing Participant must provide as Collateral at any time is 30% of the total value of Collateral required to be delivered by that Clearing Participant at that time.

xxxvii 3.23 Withdrawal, return and property transfers

xxxviii 3.23.1 The procedure for withdrawal of Collateral other than Third Party Collateral and Transferred Collateral is as follows:

xxxix (a) The Clearing Participant will notify CHO of the identity and quantity of the asset and quantity to be withdrawn;

xl (b) CHO will calculate the valuation of the assets identified and confirm whether there would be Eligible Collateral of sufficient value remaining after the requested withdrawal to meet for the Clearing Participant’s current Eligible Collateral requirement;

xli (c) If there would be Eligible Collateral of sufficient value remaining after the requested withdrawal to meet the Clearing Participant’s current Eligible Collateral requirement, CHO will transfer the surplus Eligible Collateral to be withdrawn out of a Product Collateral Account or Money Collateral Account to the Clearing Participant’s nominated account.

xlii 3.23.2 The procedure for return of Third Party Collateral is as follows:

xliii (a) The Clearing Participant will notify CHO of the identity of the Third Party Collateral to be returned;

xliv (b) CHO will calculate the valuation of the Third Party Collateral identified and confirm whether there would be

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Eligible Collateral of sufficient value remaining after the requested return to meet for the Clearing Participant’s current Eligible Collateral requirement;

xlv (c) If there would be Eligible Collateral of sufficient value remaining after the requested return to meet the Clearing Participant’s current Eligible Collateral requirement, CHO will return the nominated Third Party Collateral to the issuer of that Third Party Collateral.

xlvi 3.23.3 The procedure for transfers in respect of Transferred Collateral is as follows:

xlvii (a) The Clearing Participant will notify CHO of the identity of the Transferred Collateral that it requests a transfer in respect of;

xlviii (b) CHO will calculate the valuation of the property it would be required to transfer in respect of the Transferred Collateral identified and confirm whether, following the application of Rule 3.14.6, there would be Eligible Collateral of sufficient value remaining after the requested transfer to meet for the Clearing Participant’s current Eligible Collateral requirement;

xlix (c) If there would Eligible Collateral of sufficient value remaining after the requested transfer to meet the Clearing Participant’s current Eligible Collateral requirement, CHO will transfer property of the same type, nominal value, description and amount as the identified Transferred Collateral to the Clearing Participant’s nominated account.

l 3.23.4 CHO will endeavour to process Collateral withdrawals and returns, in respect of Collateral (as applicable) on the day the request is received, provided that it is received by CHO by 4.00 pm. The Clearing House System will process requests received each day during end of day processing.

li

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lii Appendix A

liii Form of Guarantee

liv DEED POLL OF GUARANTEE RELATING TO A CLEARING PARTICIPANT’S OBLIGATION TO PROVIDE COLLATERAL Date: PARTY [Name of Guarantor], [address] (”Guarantor”) BACKGROUND A. [Name of Clearing Participant] (“the Participant”) wishes to be or remain a

Clearing Participant under the Operating Rules (“Rules”) of New Zealand Clearing Limited (“CHO”).

B. CHO requires that each Clearing Participant (other than a Clearing Participant that is solely a Lending Clearing Participant) provides Collateral to CHO to a value that is equal to at least the aggregate of the Margin components for each Settlement Transaction entered into by the Clearing Participant.

C. The Guarantor has agreed to enter into this guarantee at the request of the Participant in favour of CHO to enable the Participant to be or to remain a Clearing Participant.

1 INTERPRETATION 1.1 In this Deed of Guarantee the following terms bear the following meanings:

“Guaranteed Moneys” means the sum of money to be [paid/provided] from time to time under Rule 3.11.1 to meet the Collateral obligations of the Participant as determined by CHO up to a maximum amount of $XXXX, taking into account the value from time to time of other Collateral provided by the Participant or in respect of the Participant’s obligations to provide Collateral.

“Procedures” means the Procedures made pursuant to the Rules from time to time.

“Rules” means CHO’s Clearing and Settlement Rules, as amended from time to time.

1.2 In this deed unless the context otherwise requires: (a) all capitalised terms will bear the meaning that those terms contain in the

Rules and the Procedures; (b) references to clauses are to clauses of this Deed of Guarantee; (c) unless otherwise stated, references to currency are to New Zealand currency; (d) references to a party are to a party of this Deed of Guarantee and include any

party’s successors and permitted assigns; (e) words importing the plural include the singular and vice versa; (f) any obligation not to do something will include an obligation not to suffer,

permit, allow or cause that thing to be done; and (g) all warranties, representations, indemnities, covenants, agreements and

obligations given or entered into by more than one person will be deemed to have been given or entered into jointly and severally.

2 GUARANTEE 2.1 The Guarantor hereby absolutely, unconditionally and irrevocably guarantees to

CHO the due and punctual payment by the Participant of the Guaranteed Moneys. The Guarantor undertakes that if the Participant does not pay to CHO any of the Guaranteed Moneys when due, the Guarantor will pay that Guaranteed

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Money to CHO forthwith upon demand from CHO. 2.2 All payments under this Deed of Guarantee must be made free and clear of any

restriction or condition, and in full, without set off or counterclaim, without any deduction or withholding of any nature.

2.3 The Guarantor shall have no right to make any enquiry as to CHO’s assessment of the extent of the Participant’s Collateral obligation to CHO.

3 STATUS OF GUARANTEE The guarantee granted under clause 2 above:

(a) is a continuing guarantee for the payment of the Guaranteed Moneys to CHO;

(b) is irrevocable and unconditional; (c) operates (and remains in full force and effect) irrespective of any intervening

payment, settlement of account or anything else until CHO has executed and delivered to the Guarantor a final release of the obligations of the Guarantor under this Deed of Guarantee; and

(d) despite anything else in this Deed of Guarantee, is a continuing obligation separate and independent from the Guarantor’s other obligations contained in this Deed of Guarantee.

4 DEED FOR BENEFIT OF CHO 4.1 The Guarantor agrees to pay the Guaranteed Moneys to CHO notwithstanding that

at the time of CHO making demand of the same, CHO may not have made demand upon, or realised any security interests or guarantees of or commenced proceedings against, or otherwise taken any action against the Participant.

4.2 This Deed of Guarantee is given for the benefit of and is enforceable by CHO. 4.3 This Deed of Guarantee is in addition to, and shall not prejudicially affect or be

prejudicially affected by, any other guarantee or security, or any other right, which CHO may have in respect of any Guaranteed Moneys.

5 GUARANTOR’S LIABILITY The Guarantor is not to be discharged, nor are its obligations under this Deed of

Guarantee to be affected (nor are any of CHO’s rights to be affected) by anything which, but for the operation of this clause, might operate to discharge or affect the obligations of, or otherwise provide a defence to, the Guarantor (whether or not known to the Guarantor or CHO), including (without limitation):

5.1 CHO granting to the Participant or any other Person time, credit, forbearance, indulgence or waiver of the Rules or Procedures;

5.2 any increase in the Guaranteed Moneys; 5.3 any amendment to or variation of (however fundamental) the Rules or Procedures, any other agreement, guarantee or security, or any of the rights of CHO against the Participant or any other Person; 5.4 the non-existence, avoidance, invalidity or unenforceability of:

(a) any rights of CHO against the Participant or any other Person; (b) any other agreement, guarantee or security in respect of any Guaranteed

Moneys, or any failure by any Person to execute or be bound by any other agreement, guarantee or security in respect of any Guaranteed Moneys;

5.5 any release or discharge (in whole or part) of: (a) the Participant or any other Person, or the liability of the Participant or any

other Person ceasing for any reason; or (b) any other agreement, guarantee or security in respect of any Guaranteed

Moneys; 5.6 any enforcement of, delay in enforcing or failure to enforce:

(a) any rights of CHO against the Participant or any other Person; or (b) any other agreement, guarantee or security in respect of any Guaranteed

Moneys; 5.7 any moratorium (whether by statute, order of court or order of any authorised agency):

(a) in respect of the payment of the Guaranteed Moneys; or (b) which has the effect of staying or suspending all or any of the rights of CHO

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against the Participant or any other Person; 5.8 the insolvency, receivership, administration or dissolution of the Participant, the

Guarantor or any other Person, or the appointment of any liquidator, receiver, administrator, statutory manager or similar person, or the establishment of any compromise or other arrangement, in respect of the Participant, the Guarantor or any other Person;

5.9 the amalgamation, change in constitution, status or control, or reconstruction or reorganisation, of CHO, the Participant or any other Person;

5.10 anything done, or omitted or neglected to be done, by CHO, whether in exercise of the rights of CHO under this Deed of Guarantee or any other agreement, guarantee or security, or otherwise; or

5.11 any other thing whatever, other than a release of the obligations of the Guarantor under this Deed of Guarantee executed by CHO and delivered to the Guarantor.

6. NATURE AND EXTENT OF OBLIGATIONS 6.1 CHO may retain, carry to a suspense account (with a view to preserving the rights of

CHO to prove as against the Participant or any other person for the whole of the Guaranteed Moneys), and appropriate at its discretion, any amount received by it under this Deed of Guarantee until the Guaranteed Moneys have been paid in full.

6.2 This Deed of Guarantee is in addition to, and shall not prejudicially affect or be prejudicially affected by, any other guarantee or security, or any other right, which CHO may have in respect of any Guaranteed Moneys.

6.3 The Guarantor: (a) waives all rights of subrogation, and any other right to exercise or benefit

from the rights of CHO as against the Participant or any other person, until all the Guaranteed Moneys have been finally repaid; and

(b) where the indebtedness or obligations secured by any other guarantee or security held by CHO (“other security”) includes, in addition to Guaranteed Moneys, other indebtedness or obligations, also waives all rights of subrogation in respect of, and any other right to exercise or benefit from the rights of CHO under, that other security until all indebtedness and obligations secured by that other security has been paid or satisfied in full.

7. GUARANTOR NOT TO COMPETE WITH CHO 7.1 The Guarantor undertakes that until the Guaranteed Moneys have been finally

paid, it will not take steps to recover (whether directly or by set-off, counterclaim or otherwise), or accept, money or other property, or exercise or enforce rights, in respect of any indebtedness of the Participant or any co-surety to it (including any indebtedness arising under any right of indemnity or contribution to which the Guarantor is entitled by reason of the entry into, or performance of obligations under, this Deed of Guarantee ). To the extent necessary to give effect to this clause the Guarantor waives all such rights of indemnity and contribution.

7.2 The Guarantor undertakes that it will not claim, prove or accept payment in the dissolution of the Participant or any co-surety in competition with CHO except: (a) with the prior written consent of CHO; or (b) when required to do so by CHO. If the Guarantor (whether or not CHO has required it to do so, or has consented to it doing so) claims, proves or accepts payment in the dissolution of the Participant or any co-surety for all or any part of any indebtedness of the Participant or that co-surety to the Guarantor, the Guarantor shall pay to CHO all amounts received by it in relation to any such proof (and all interest accruing on such amounts) and, pending payment, shall hold the benefit of that proof and all such amounts and interest on trust for CHO.

8 PRINCIPAL DEBTOR As between CHO and the Guarantor, the Guarantor’s liability shall be the liability

of principal debtor and CHO may enforce this Deed of Guarantee directly against the Guarantor without first taking any steps or proceedings, or exercising any right which CHO may have, against the Participant or any other Person.

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9 REPRESENTATIONS AND ACKNOWLEDGEMENTS 9.1 The Guarantor continuously represents and warrants to CHO that:

(a) it is a [company] duly incorporated and validly existing under the laws of its jurisdiction of incorporation and it has the power and authority to own its assets and carry on its business as it is being conducted;

(b) it has the power to enter into, perform and deliver, and has taken all necessary actions to authorise its entry into, and performance and delivery of, this Deed of Guarantee and its obligations under this Deed of Guarantee;

(c) the obligations expressed to be assumed by it in this Deed of Guarantee are legal, valid, binding and enforceable against it in accordance with their terms;

(d) none of the execution and delivery of this Deed of Guarantee, nor performance or observance of any of the Guarantor’s obligations under this Deed of Guarantee, nor the exercise of the Guarantor’s rights under this Deed of Guarantee:

(i) violates, conflicts with, or results in a breach of any terms, conditions, or provisions of or constitutes a default under, any law, regulation or court order by which it is bound;

(ii) violates, conflicts with, or results in a breach of any terms, conditions, or provisions of or constitutes a default under any agreement to which the Guarantor is a party, or which is binding on the Guarantor or its assets;

(iii) violates, conflicts with, or results in a breach of any terms, conditions, or provisions of any of its constitutional documents; or

(iv) exceeds any limitation on, or constitutes an abuse of, the powers of the Guarantor’s directors;

(e) all consents and authorisations required or desirable:

(i) to enable it lawfully to enter into, and exercise its rights and comply with its obligations under, this Deed of Guarantee; and

(ii) to make this Deed of Guarantee admissible in evidence in its jurisdiction of incorporation,

have been obtained or effected and are in full force and effect; (f) except as notified in writing by Guarantor to CHO, it is not a party to any

litigation, arbitration, nor subject to any administrative proceeding or investigation, the outcome of which may have a material adverse effect on the business of the Guarantor, nor is any litigation, arbitration or administrative proceeding or investigation threatened; and

(g) except as notified in writing by Guarantor to CHO, it is able to pay its debts as they fall due and the value of its assets is greater than the value of its liabilities (taking into account contingent and prospective liabilities);

(h) the latest published annual, semi-annual or quarterly financial statements of the Guarantor:

(i) have been prepared in respect of the most recently completed period and as at the most recent for which financial statements are required to have been prepared;

(ii) except as stated in the notes to them, comply with any applicable financial reporting standards;

(iii) give a true and fair view of the financial condition of the Guarantor as at the date and for the period to which they relate; and

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(iv) include a true and complete copy of any auditor’s report required; and (i) all information given to CHO at any time is true and correct and not

misleading in any way.

9.2 The Guarantor acknowledges to CHO that: (a) in executing this Deed it did not rely on any statement, representation,

warranty or information provided to it by CHO; (b) the Guarantor’s obligations under this Deed will not be avoided, discharged

or affected by any representation, warranty or information; and (c) CHO was not prior to the execution of this Deed and is not subsequently

under any duty to disclose information to the Guarantor relating to the participant.

10 PRIVACY Except as required by law or the Rules, CHO has no duty to disclose to the Guarantor or any other Person, anything relating to the Participant.

11 TERMINATION AND REINSTATEMENT 11.1 The Guarantor may, at any time and without being required to do so, pay to CHO

the Guaranteed Moneys (or such lesser sum as CHO may in writing agree) and thereupon CHO shall execute a release of this Deed of Guarantee, and deliver such release to the Guarantor, whereupon the Guarantor’s obligations under this Deed of Guarantee shall cease and determine (subject to the operation of clause 11.4).

11.2 If the Participant notifies CHO that it no longer wishes to rely on the guarantee set out in this Deed of Guarantee, then upon the Participant providing the Collateral required by Rule 3.11.1 in substitution or exchange for the guarantee set out in this Deed of Guarantee, CHO may execute a release of this Deed of Guarantee, and deliver such release to the Guarantor, whereupon the Guarantor’s obligations under this Deed of Guarantee shall be released.

11.3 The Guarantor acknowledges that it has no right to terminate this Deed of Guarantee in any circumstance other than those referred to in this clause 11.

11.4 If any payment received or recovered, or amount applied, by CHO is avoided by, or is required to be refunded or repaid under, or is required to be accounted for under, any applicable law (including any law relating to preferences or insolvency) then (even if CHO has executed and delivered a release of this Deed of Guarantee): (a) that payment or application will be deemed not to have discharged or

affected the liability or obligation in respect of which that payment or application was received or made; and

(b) CHO and the Guarantor will, to the maximum extent permitted by law, be deemed to be returned to the position in which each would have been, and will be entitled to exercise all the rights which each would have had, if that payment had not been received or recovered or that amount had not been applied.

12 RELEASE 12.1 CHO will not be obliged to sign a release of this Deed unless:

(a) all Guaranteed Moneys have been finally paid and no circumstances exist that may give rise to any further Guaranteed Moneys; and

(b) CHO is satisfied that there is no reasonable likelihood that any amount, property or benefit received or recovered by it in respect of Guaranteed Moneys will or might be avoided by, or be required to be refunded or repaid under, or be required to be accounted for under, any applicable law (including any law relating to preferences or insolvency).

12.2 On CHO executing a release of this Deed of Guarantee, and delivering such release to the Guarantor, the Guarantor will no longer be liable for any obligation of the Participant incurred after the date on which such release is delivered to the Guarantor.

13 NOTICE 13.1 Any notice required to be given under this Deed of Guarantee, but excluding a

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release of this Deed of Guarantee, must be in writing and will be deemed to have been received if it is: (a) delivered to the relevant party;

(b) left at that party’s last known usual place of address or at an address specified by that party;

(c) posted by letter addressed to that party at the address referred to in clause 13.1 (b);

(d) is sent by email or facsimile to an address specified by that party.

13.2 Any release of this Deed of Guarantee must be executed as a deed and, for the purposes of section 9 of the Property Law Act 2007, will be delivered by CHO immediately on the earlier of: (a) physical delivery of the release deed, executed by CHO, into the custody of

the Guarantor; or (b) transmission by CHO or its solicitors (or any other Person authorised in

writing by CHO) of a facsimile, photocopied or scanned copy of an original of the release deed, executed by CHO, to the Guarantor.

13.3 Notices: (a) sent by post are deemed to have been delivered at the time when the letter

would in the ordinary course of post be delivered; (b) sent by facsimile or email, in the absence of proof to the contrary are deemed

to have been delivered on the date of transmission or the date an email was sent.

14 AMENDMENT Any amendment to this Deed of Guarantee must be entered into as a Deed between CHO and the Guarantor.

15 MISCELLANEOUS 15.1 The illegality, invalidity, or unenforceability of any provision of this Deed of

Guarantee under the law of any relevant jurisdiction, will not affect the legality, validity or enforceability of that provision under any other law, or the legality, validity or enforceability of any other provision of this Deed of Guarantee.

15.2 A waiver by CHO of any provision of this Deed of Guarantee will only be effective if it is given in writing and signed by CHO. A waiver will be effective only to the extent that it is expressly stated to be given. A failure to act, or a delay in exercising or attempting to exercise, or a non-exercise of, any right under this Deed of Guarantee or at law does not operate as a waiver of that right. A single exercise or partial exercise of any right does not preclude further exercises of that right or the exercise of any other right.

15.3 A certificate or determination by CHO as to any amount payable under this Deed of Guarantee or as to any fact which might reasonably be expected to be within CHO's knowledge will be, in the absence of manifest error, prima facie evidence of the matters to which it relates.

15.4 This Deed of Guarantee will be governed by New Zealand law. 15.5 The Guarantor irrevocably and unconditionally submits to the non-exclusive

jurisdiction of the courts of New Zealand. The Guarantor waives any right it has to object to an action being brought in those courts including by claiming that the action has been brought in an inconvenient forum or that those courts do not have jurisdiction.

[15.6 Without prejudice to any other mode of service allowed under any relevant law, the Guarantor agrees that any document in an action may be served on it: (a) by being delivered to or left for it at its address for service of notices under

this Deed of Guarantee; or (b) where it has appointed an agent for service pursuant to this Deed of

Guarantee, by being delivered to or left for the process agent.] [Include only if the Guarantor is incorporated outside of New

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Zealand.] [15.7 The Guarantor:

(a) agrees to maintain an agent in New Zealand; and (b) hereby irrevocably appoints [name and address] as its agent in New Zealand, for service of any document in relation to any proceedings before the New Zealand Courts in connection with this Deed of Guarantee. The Guarantor agrees that any failure by the agent to notify it of any document served will not invalidate the proceedings concerned.] [Include only if the Guarantor is foreign.]

Executed as a Deed by [Name of Guarantor]: [Position] [ Position] in the presence of: [Name [Name Address] Address]

lv

lvi Appendix B

lvii Form of Letter of Credit

lviii [none at moment]

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Section 4: Settlement

Settlement Procedure

Procedures For Rule 4.1.1, 4.5.1(a) and 4.6.1. 4.1.1 The timing of settlement of Settlement Transactions will be

specified in Procedure. Such Procedure will prescribe for each class or category of Approved Product and/or for each class or category of Settlement Transaction a time or times during each Settlement Day:

(a) for the transfer of amounts of Money to the Money Settlement Account of the Clearing Participant; and/or

(b) for the transfer of Approved Products to the Products Settlement Account of the Clearing Participant.

4.5.1 In the event a Clearing Participant fails to deliver all or any part of the required quantity of an Approved Product at a Settlement Time (other than a Settlement Time resulting from the application of Rule 4.4.1(c)), CHO will be entitled, at its sole discretion, to:

(a) identify one or more Clearing Participants who will fail to receive Approved Products due to the shortfall at that Settlement Time. Identification of the Clearing Participants so affected will be by a ballot conducted in the manner prescribed by Procedure. Clearing Participants are obliged to accept CHO’s allocation of any shortfall;

4.6.1 If CHO fails to deliver any of all of the required quantity of an Approved Product required to be delivered, or CHO fails to pay all or any part of the amount required to be paid, by CHO at the Settlement Time, then, subject to Rule 4.6.6, affected Clearing Participants may seek compensation from CHO in accordance with this Rule 6.6, for direct losses resulting from that failed delivery or payment, which CHO will without limitation to its own rights under the Rules, be entitled to recover from any Clearing Participant responsible for the settlement failure.

4 4.1 Settlement Day

4.1.1 Each Business Day will be a Settlement Day.

4.2 Settlement Time

4.2.1 The time of settlement of Settlement Transactions (being the time for the transfer of Money to the Money Settlement Accounts; and/or for the transfer of Approved Products to the

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Products Settlement Account of the Clearing Participant) will be determined by the class or category of Approved Product that is the subject of the Settlement Transaction and the class or category of Settlement Transaction.

4.2.2 All Settlement Transactions, with the exception of those involving or relating to the classes or categories of Approved Products or the class or category of Settlement Transaction listed in Procedure 4.2.3, will have a Settlement Time of 1:00pm on each Settlement Day.

4.2.3 The Settlement Transactions resulting from the classes or categories of Transactions or involving or relating to the classes or categories of Approved Products listed in the table below will have the Settlement Time(s) on each Settlement Day ascribed in the table:

(a) Approved Product/Settlement Transaction

Settlement Time(s)

Settlement Transactions resulting from operation of Rule 4.4.1(c) – (Settlement fails)

10.30am 3.30pm

Settlement Transactions resulting from all Stock Transactions other than settlement fails

11.00am 3.00pm

4.3 Settlement Fail Allocation

4.3.1 Where a settlement failure occurs and CHO is required to allocate the shortfall to non-defaulting Clearing Participants in accordance with Rule 4.5.1(a) or to allocate the shortfall to non-defaulting Clearing Participants whose original entitlement to receive delivery of Approved Product arose at the same Settlement Time in accordance with 4.4.2(a), those Clearing Participants shall be identified by the following Procedure:

(a) each Clearing Participant with an entitlement to receive the Approved Product in shortfall at the specified Settlement Time, will be allocated a random number by the Clearing House System;

(b) all the affected Clearing Participants will be sorted by their allocated numbers in ascending order, and allocated a position in sequence accordingly;

(c) the available quantity of the Approved Product will be

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allocated to the affected Clearing Participants in the order of that sequence;

(d) if a Clearing Participant’s entitlement is less than the remaining total available quantity, then that Clearing Participant will receive the full entitlement. The total available quantity will be reduced by that amount, and applied to the next Clearing Participant in the sequence;

(e) if a Clearing Participant’s entitlement is greater than or equal to the remaining total available quantity, then that Clearing Participant will receive the remaining total available quantity. The remaining Clearing Participants in the sequence will not receive any of their entitlement to the Approved Product.

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Section 5: Settlement Reporting

Sub Account Procedure

Procedure for 5.3.1. 5.3.1 CHO may, on receipt of a request from a Clearing

Participant in the form prescribed by Procedure, open one or more sub-accounts for the Clearing Participant, in the name of that Clearing Participant with the description required by the Clearing Participant.

5 5.1 Application

5.1.1 A Clearing Participant must submit an account opening application form to CHO. This form shall set out:

(a) The Business Partner Identification Number;

(b) Account type [owned account, omnibus with client, omnibus without client, client];

(c) Effective date;

(d) Tax code – where applicable;

(e) Settlement Bank details;

(f) Investor type [Foreign/Domestic];

(g) Currency; and

(h) Account description.

5.1.2 CHO will create each individual account as requested, at which time the account will be available in the Clearing House System.

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Section 6: CHO Powers

Approved Market and Product Procedure

Procedures For Rule 6.2.1, 6.3.1 and 6.3.4 6.2.1 CHO may at its absolute discretion approve a Market

as an Approved Market from which it will accept Transactions for clearing and settlement on the Clearing House. CHO will publish the identity of the Approved Markets by Procedure.

6.3.1 Any person may apply to CHO, in the form prescribed

by Procedure, to have a class of property approved as an Approved Product.

6.3.4 Where CHO determines to approve an application

made under Rule 6.3.1, CHO must notify the applicant, the Issuer of the Approved Product (if any), any Approved Market upon which the Approved Product is traded and, by Procedure, each Clearing Participant. Notice given under this Rule 6.3.4 will specify:

(a) the Commencement Date for that Approved

Product; (b) any conditions attached to approval of the

Approved Product.

6 6.1 Approved Markets

6.1.1 The following markets are Approved Markets:

(a) NZSX, NZDX and NZAX operated by NZX.

6.2 Application for Approved Products

6.2.1 An application for approval of a class of property must be made in writing in such form as CHO may request, and shall include:

(a) name and description of the property, including a copy of the document that prescribes the terms of the property and any offer document issued in relation to the property;

(b) description of the market (if any) on which it is traded, including a copy of the rules of any market on which it is traded;

(c) details of the register maintained for the property and

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arrangements for transfer of holdings on that register to the Depository.

(d) Historical trading data – if any.

(e) Details of the agreement and other arrangements for the transmission of information to the Clearing House System.

6.3 Approved Products

6.3.1 The following classes of property are Approved Products with commencement from [date]:

(a) All products quoted on the NZSX with the exception of:

[None at present]

These classes of property are approved without conditions.

(b) All products quoted on the NZAX. These products are approved without conditions.

(c) All products quoted on the NZDX with the exception of:

[None at present]

These classes of property are approved without conditions.

6.3.2 The following classes of property are Approved Products with

commencement from the date specified:

Product Market Commencement Date Conditions

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Waiver and Ruling Procedure

Procedures For Rule 6.8.1 6.8.1. CHO has sole discretion as to whether to waive all or

any part of these Rules or the Procedures and CHO may make rulings as to the interpretation of these Rules or the Procedures. CHO may make rulings and grant waivers from these Rules or the Procedures, on such terms and conditions as CHO, in its complete discretion, thinks fit. CHO may by Procedure specify the procedures and practices it will adopt in relation to consideration of applications for rulings or waivers.

6.4 Waivers and Rulings Guidance Note

6.4.1 Clearing Participants may apply to CHO for:

(a) a ruling as to the interpretation and application of any Rule or Procedure;

(b) a waiver from any Rule or Procedure.

6.4.2 CHO may make rulings and grant waivers, on such terms and subject to such conditions as CHO, in its complete discretion, thinks fit.

6.5 Application

6.5.1 Applications for waivers and/or rulings from a Rule or Procedure should be in writing and addressed to CHO, attention of the Head of Regulation. Applications may be made by e-mail to [email address].

6.5.2 Applications for a waiver or ruling should contain all information required to clearly establish and document the need for the waiver or ruling sought. As a minimum this should address:

(a) Applicant: the full name of the Clearing Participant seeking the waiver or ruling;

(b) Background: the full background to the matter and the transactions or circumstances in respect of which the waiver or ruling is sought. This should include the generic background to the situation or events in question followed by the material details, e.g., details of transactions, etc;

(c) Details: the specific Rule or Procedure in respect of which the waiver or the ruling is sought and any conditions of the waiver or ruling which the applicant considers

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appropriate;

(d) Reasons: for each provision of the Rule or Procedure in respect of which the waiver or ruling is sought, why the waiver or ruling is sought and give full reasons which may justify the waiver or ruling;

(e) Policy: the policy considerations applicable to the application. This should include identification of the application of the Rules or Procedures without the waiver or ruling, the hardship or mischief that will result if the application is not approved, the policy objective behind the Rule concerned, the basis upon which that policy objective continues to be addressed by, or is not affected by, the waiver or ruling sought and the manner in which the interests of CHO, clients of the Clearing Participant seeking the waiver or ruling and other Clearing Participants are protected or preserved by the proposed waiver or ruling;

(f) Precedents: any existing waiver or ruling decisions which are similar to the waiver or ruling sought and which may provide a precedent for the application. The application should state how the precedents are similar to, and different from, the waiver or ruling sought;

(g) Impact: how the proposed waiver or ruling may affect CHO, clients of the Clearing Participant seeking the waiver or ruling and other Clearing Participants, including any costs and benefits to them and the Clearing Participant;

(h) Timeframe: whether the application is urgent and the date by when a determination is needed and the reason/s why the application should be considered on an urgent basis;

(i) Publication: whether the applicant requires a decision or any information in relation to the application to be kept confidential and the period for which that confidentiality is required. This must set out the policy reason why the decision should not be published, or alternatively why publication should be delayed for a period of time; and

(j) Other: any other information known to the applicant and material or relevant to the application.

6.5.3 Applications for a waiver or ruling should be accompanied by any relevant documents to support the application.

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6.6 Timing

6.6.1 All applications for waivers and rulings should be submitted to CHO at least 10 Business Days prior to the Clearing Participant requiring a determination. If a determination is required in less than 10 Business Days a Clearing Participant may apply to have the application dealt with on an urgent basis.

6.6.2 If an application is urgent a timeframe should be provided within which determination is needed accompanied by the reasons for the request for urgent consideration.

6.6.3 CHO does not guarantee that a decision will be provided within any particular time. While CHO will always endeavour to meet an applicant’s timeframe, the ability to meet urgent timetables will be subject to CHO resource availability. The timing of a decision in relation to an application may also be influenced by the quality of the application and the thoroughness with which it has been prepared.

6.7 Procedure

6.7.1 On receipt of the application, it will be considered by CHO regulatory personnel. A CHO lead compliance officer will be identified to the applicant for the purposes of communications.

6.7.2 After an initial appraisal, the applicant may be asked to provide further information.

6.7.3 When all information requested by CHO has been provided by the applicant and considered by CHO, the lead compliance officer will prepare a decision in relation to the application. A draft decision may be provided to the applicant for discussion if CHO believes necessary.

6.7.4 In its decision CHO will, subject to Procedure 6.10.1, publish the identity of the Clearing Participant, the facts of that application, the determination made by CHO in response to that application and the grounds for determining the application.

6.8 Fees

6.8.1 The Clearing Participant making the application must pay the fees specified in that respect by Procedure 6.13. Fees will be payable regardless of whether the application is accepted or declined.

6.8.2 Waiver and ruling fees will be invoiced to the Clearing Participant concerned at the conclusion of CHO work, or on a monthly basis where necessary.

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6.9 Validity

6.9.1 Waivers and rulings will be valid and have effect in accordance with the terms of and for the period specified in the waiver or ruling decision.

6.9.2 Waivers and rulings which are granted on the basis of the information provided and on the assumption that the information is full and accurate in all material respects. Any waiver or ruling granted will be void from the outset if CHO has made the decision in relation to the application on the basis of incorrect, incomplete or misleading information.

6.9.3 Waivers and rulings granted subject to conditions are only valid if the conditions are satisfied or complied with. A waiver or ruling will be void from the outset if any such conditions are not satisfied or complied with in full.

6.10 Publication

6.10.1 CHO will publish all decisions in relation to requests for waivers or rulings from the Rules, unless:

(a) the Clearing Participant seeking the waiver or ruling establishes, to the satisfaction of CHO, grounds for maintaining confidentiality of CHO’s decision with respect to a waiver or ruling application; or

(b) CHO determines in its sole discretion not to publish its decision with respect to a ruling or waiver application.

6.10.2 A determination under Procedure 6.10.1 may comprise:

(a) a determination in relation to some or all of the information contained in a decision; and/or

(b) a determination to withhold publication permanently or for a period of time.

6.10.3 CHO will generally consider that rulings or waivers sought in anticipation of a transaction will be grounds for confidentiality until such transaction is announced publicly. If the transaction does not proceed, the waiver or ruling sought will not lose its confidentiality.

6.10.4 Applicants will be provided with decisions at least one half Business Day prior to their public release. The decision provided is a final decision and will not be for comment by the Clearing Participant. The decision is provided to facilitate the Market Participant dealing with the publication of the waiver by CHO.

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6.10.5 All decisions will be published by CHO by Notice to all Clearing Participants and any Approved Market for which the Clearing Participant provides clearing and settlement services. Waivers and rulings will also be published by CHO from time to time at [web address];

6.11 Revocation

6.11.1 Any waiver or ruling granted by CHO may be revoked at any time by CHO by Notice to the Clearing Participant concerned and such revocation shall have effect from the date stated in the Notice (which may be before the date of the Notice if CHO considers that the waiver or ruling was granted on the basis of incorrect information).

Fee Schedule Procedure

Procedure for Rule 6.11.2. 6.11.2 CHO will publish the fees, levies and other charges

payable under Rule 2.5.1(e) and Rule 6.11.1 by Procedure.

6.12 Set Fees

6.12.1 Admission and activity fees shall be found in CHO fee schedule which can be located at [website reference].

6.12.2 Activity fees will be calculated on a monthly basis by reference to the activity in each calendar month and will invoiced to the Clearing Participant by the 5th day of the following month. Invoices will be payable within 10 Business Days of issue.

6.13 Waiver and Ruling Fee 6.13.1 Each applicant for a waiver or ruling in accordance with

Procedures 6.5 and 6.6 must pay a fee calculated on the time devoted by personnel to the application calculated at:

(a) $287.50 per hour for CHO regulation personnel; and (b) $460 per hour for CHO board members or other

executives.

6.13.2 Where the applicant requests urgent consideration of the application the rate payable in accordance with Procedure 6.13.1 will be increased to:

(a) where a decision is required in under 2 Business Days, $862.50 per hour;

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(b) where a decision is required between 3 to 5 Business Days, $632.50 per hour; and

(c) where a decision is required between 5 to 10 Business Days, $460 per hour.

6.13.3 The applicant will also reimburse to CHO the costs charged by any professional advisors who may be engaged by CHO in the process of determination of the application.

6.14 Late Filing Fee 6.14.1 Each Clearing Participant that fails to supply any returns or

records by the specified date required by Procedures 2.17 to 2.23 must pay a fee of $250 and an ongoing fee of $250 for each additional day on which the Clearing Participant fails to supply the report or return.

6.14.2 Each Clearing Participant whose Responsible Person fails to supply any returns or records by the specified date required by Procedure 2.35 must pay a fee of $250 and an ongoing fee of $250 for each additional day on which the Responsible Person fails to supply the report or return.

Currency Conversion Procedure

Procedure for Rule 6.12.1. 6.12.1 Currency Calculations: For the purposes of any

currency conversion calculations under these Rules, CHO will convert amounts denominated in one currency to any other currency in the manner prescribed by Procedure.

6.15 Currency Conversions 6.15.1 For the purposes of any currency conversion calculations under

the Rules, CHO shall convert amounts denominated in one currency to any other currency at the spot rate of exchange displayed on Bloomberg [reference page] (or its successor or equivalent page) at or about 5.00pm on the date CHO is required to make that calculation bid rate for the bid cross rate between the two currencies. Where no cross rate is available CHO shall make the conversion into US$ and then to the required currency.

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6.15.2 If no rates are available on the [reference page] or the [reference page] is not available, then the rate conversion rate shall be determined by CHO to be the average (rounded upwards to two decimal places) of the rates quoted to CHO by three Banks selected by CHO at or about such time on such date. If fewer than three Banks provide such a quote, then the rate shall be the rate determined by CHO at its discretion to be the nearest practicable equivalent.

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Section 7: Default

Buy-in Procedure

7 Procedures For Rule 7.4.1 7.4.1 Where for the purposes of Rules 4.4.1(b) or 7.3.1(h)

CHO elects to buy Approved Product, that buy in will be conducted in accordance with Procedure.

7.1 Buy-in

7.1.1 A buy-in for an Approved Product traded on an Approved Market shall be conducted as follows:

(a) At or before 9.30 am on a day that the Approved Market is open for trading, CHO will notify the Defaulting Clearing Participant, and publicly announce on the Approved Market the quantity of each Approved Product for which it proposes to conduct a buy in.

(b) Where the number of Approved Products to be bought-in exceeds the minimum permitted holding for that Approved Product, the Defaulting Clearing Participant may at any time prior to 10.00 am deliver by transfer to CHO’s account in the Depository that minimum holding (or a multiple of that minimum holding) to CHO reduce the number of Approved Product to be bought-in.

(c) At or about 10.30 a.m. on that day, or such other time as CHO may from time to time notify on the day, CHO will procure the Trading Participant under the relevant Buy In Procurement Agreement to enter on the Defaulting Clearing Participant’s behalf into the trading system of that Approved Market a bid for the Approved Product at a price:

(i) in the case of price quoted product, a price that is not more than 2% above the current last transacted price for the Approved Product or the current bid price for the Approved Product, whichever is the highest; or

(ii) in the case of yield quoted product, a yield that is not more than 0.02% below the current last transacted yield for the Approved Product or the current bid yield for the Approved Product, whichever is the lowest.

(d) The buy-in shall be completed by matching offers in the trading system in accordance with the rules of the Approved Market. Offers may be in whole or in part of

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any particular Approved Product, provided that where part only is being offered, such offer shall be in marketable parcels.

(e) If sufficient Approved Product is not obtained by CHO within 30 minutes, CHO will reset the bid price, by re-setting it to:

(i) in the case of price quoted product, a price that is an additional 2% above the then current last transacted price for the Approved Product or the then current bid price for the Approved Product, whichever is the highest; or

(ii) in the case of yield quoted product, a yield that is an additional 0.02% below the then current last transacted yield for the Approved Product or the then current bid yield for the Approved Product, whichever is the lowest.

(f) CHO may repeat the re-pricing at 30 minute intervals during that day and each successive day that the Approved Market is open for trading until all the required quantity of the Approved Product has been acquired.

(g) Trades executed subject to this buy-in procedure shall be settled on the following settlement day.

7.1.2 No buy-in can be conducted for an Approved Product that is not traded on an Approved Market.

Overdue Interest Rate Procedure

Procedures For Rule 7.9.2 7.9.2 Overdue Interest: Any amount to be paid by a

Clearing Participant and not paid by its due date for payment will be treated as an unpaid amount and will bear interest at the rate prescribed by CHO by Procedure. Interest will accrue and compound on a daily basis and must be paid as a separate debt to CHO.

7.2 Overdue Interest Rate

7.2.1 The rate of interest payable on any amount not paid by a Clearing Participant is the rate equal to the aggregate of 5% per annum and CHO’s cost of borrowing.

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Section 8: Miscellaneous

Notice Procedure

Procedures For Rule 8.6.4 and 8.6.6. 8.6.4 For the purposes of any Rule or Procedure that

requires or permits a document to be given to a person whether the expression “serve”, ”give”, or ”send” or any other expression is used, the document may be given, and will be deemed to have been received, in the manner set out in the relevant Procedure. Nothing in this Rule or the Procedures prevents documents being sent, given to or served on a Person in any other manner permitted by law. Any document or notice shall be deemed to have been received by the recipient of the document or notice if the recipient has effectively received the document or notice, notwithstanding any non-compliance with this Rule or the Procedures.

8.6.6 Without limiting any other provision of this Rule 8.6, any notice to be given by a Clearing Participant to CHO under Rule 2.7 must be given to the Head of Operations of CHO, in the manner prescribed by Procedure.

8 8.1 Notice

8.1.1 CHO may give Notice to any Person by any of the following methods:

(a) (if to a natural Person) delivering it to the Person personally;

(b) leaving it at or by sending it by courier or post to, the address of the recipient last notified to CHO;

(c) sending it by facsimile to the recipient's facsimile number last notified to CHO;

(d) where the Notice is a circular or bulletin addressed to a class of Persons, delivering or communicating the circular or bulletin by any means permitted under this Procedure;

(e) specific email by any method which identifies a natural Person or relevant Person’s title as addressee; or

(f) broadcast email by any method which identifies the addressee and which, having regard to all the relevant circumstances at the time, was as reliable as appropriate

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for the purposes for which the information was communicated.

8.1.2 A Clearing Participant or Responsible Person may give Notice to CHO by any of the following methods:

(a) delivering it to the [Head of Operations] personally;

(b) leaving it at or by sending it by courier or post to [address] marked to the attention of [name];

(c) sending it by facsimile to [fax number] marked to the attention of [name];

(d) specific email addressed to [email address].

8.1.3 Where Notice is given in accordance with this Procedure:

(a) post is taken to be received on the second Business Day after the document is put in the post in a stamped envelope or other covering;

(b) courier and personal delivery is taken to be received at the time of delivery;

(c) facsimile is taken to be received when the sender's facsimile machine indicates a successful transmission to the facsimile number; and

(d) email is taken to be given 2 hours after the time the email enters the recipient's information system, unless a Notice of non-delivery or redirection has been received by the sender within that time.

8.1.4 A Notice given in accordance with this Procedure is deemed to be received by that Person at the time it is taken to be given to that person.

8.2 Notice to Head of Operations

8.2.1 Any Notice to be given by a Clearing Participant to CHO under Rule 2.7 must be given to the Head of Operations at [insert e-mail address].