Retailer default decisions and reasons paper

Proposed Code amendments: Implementing retailer default

Regulated arrangements for managing a trader default became operational in July 2014. The regulated process for resolving a trader default is initiated when a trader does not fulfill financial obligations to the clearing manager, becomes insolvent, or the trader's use-of-system agreement with a distributor is terminated because of a serious financial breach by the trader (and certain other conditions are met).

The arrangements for managing a trader default situation are contained in Part 11 and Part 14 of the Code.

The key elements of the trader default regime are:

Open all

Days -5 to 0: Preliminary assessment

 
-5
 
 
0
Trader fails to pay clearing manager or distributor (subject to conditions) or becomes insolvent
Preliminary: After we’ve received a formal notification but before the official process starts, the Authority needs to review the situation and decide the next steps.
Authority reviews situation and decides to initiate trader default process

 

Days 1 to 7: Trader default process begins

 
1
 
 
7
Authority's trader default process starts
Phase 1: the defaulting trader has seven days to resolve the default situation or assign its customers to another trader.
Trader seeks commercial solution to resolve default

 

Days 8 to 14: Customers advised to switch trader

 
 
 
14
Authority advises consumers to switch away from defaulting trader
Phase 2: if the default situation is not resolved, we will advise the customers of the defaulting trader that they have seven days to switch to another trader.
Customers switch away from defaulting trader

 

Days 15 to 18: Remaining customers assigned

 
 
 
18
Authority assigns remaining customers
Phase 3: we run a three stage process to assign all remaining customers to a new trader - first by running a two-stage tender process, and then by a mandatory allocation process. The aim is to run the tenders over three days.
Two tenders to assign any remaining customers, followed by mandatory allocation if needed
  All customers of the defaulting trader should have a new trader 18 days after the process has been initiated, although this may be longer if Phase 3 takes longer than three days.

 

In order to implement the regime, we:

  • have a process manual that details the step-by-step actions we will take if there is a trader default situation
  • have a guideline for managing a trader default situation
  • undertook a desktop exercise involving the Authority and the registry to test the effectiveness of the service providers system in place. This exercise ensured the registry system could handle small and large events of trader default.
  • made a presentation to traders and distributors at our annual reconciliation participant forum in June 2015. We stressed that traders be prepared for the potential influx of calls to their call centres from potential customers as a result of the Phase 2 advertising, should be able to prepare tenders in time for Phase 3, and have systems and processes in place for mandatory assignment.

More information

If you have any questions or need more information on our trader default scheme, contact our market operations team.

Email: marketoperations@ea.govt.nz.