91.BRF 5246 Proposed protocol for ETS announcements and other market sensitive information releases Redacted.pdf

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Proposed protocol for ETS announcements and
other market sensitive information releases
Key messages
1.  The New Zealand Emissions Trading Scheme (ETS) and the ETS secondary market
(NZU market) are central to the Government’s strategy for addressing climate change. A
feature of the NZU market is the extent to which Government announcements can have
a direct impact on market activity.
2.  There are existing controls in place to protect NZU market sensitive information,
including requirements under the Public Records Act 2005 and the Government’s
general protective security measures. MfE has developed guidance to help identify when
information is ‘market sensitive’.
3.  There is an opportunity for you to establish a specific protocol for Government ETS
announcements and other releases of market sensitive information to the NZU market.
This would enhance market credibility and integrity by aligning ETS announcements with
approaches taken in the private sector and in other areas of Government.
4.  The proposed protocol would ensure that announcements containing market sensitive
information are not made close to ETS auction dates. It also would provide a structured
and consistent way to make different types of announcements.
5.  We recommend releasing all ETS announcements to all parties, including the media,
simultaneously. Embargoes have been used previously for announcements of complex
information, but they involve significant information security risks. Lock ups provide
better information security than embargoes, but the need for them to take place outside
of trading hours would constrain their effectiveness.
6.  Officials recommend that you adopt the protocol as a set of rules that apply to market
sensitive announcements made via your role as the Minister of Climate Change, and
that you share the protocol with your colleagues to initiate a dialogue about how to apply
it to the relevant areas of their portfolios.
Recommendations
We recommend that you:
a.  note and provide feedback (if required) on the existing controls in place to protect market
sensitive information.

b.  endorse the four categories of market sensitive information
Yes | No

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c.  endorse the proposed controls for categories
     Yes | No

d.  note that embargoes were considered, but we do not recommend because of the
information security risks

e.  note that lock ups were considered, but we do not recommend because the requirement
to undertake outside of trading hours constrains their effectiveness

f.  agree to adopt the protocol as a set of rules that apply to market sensitive
announcements made in your capacity as the Minister of Climate Change
     Yes | No

g.  agree to share this advice with your colleagues and their offices to initiate a dialogue
about how to apply it to the relevant areas of their portfolios and consider whether a
Cabinet Circular would be appropriate


     Yes | No

Signatures

Mark Vink
Chloe Groser
General Manager
General Manager
Markets
Communications and Engagement
31 October 2024
31 October 2024

Hon Simon WATTS

Minister of Climate Change

Date
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Proposed protocol for ETS announcements and
other market sensitive information releases
Purpose
1.  The purpose of this briefing is to note existing controls to protect ETS related market
sensitive information and propose a protocol for Government announcements and other
releases of information that are market sensitive to the NZU market. This work aligns
with the ETS market strategy and governance work.
Background
2.  The coalition Government’s strategy for addressing climate change includes credible
markets as one of the five key pil ars that wil  support New Zealand’s climate transition.
3.  The NZU market is central to this aspect of the Government’s strategy. It has the
following features:
•  New Zealand Unit (NZU) trading and related activities are not specifically regulated.
•  There are four privately provided trading platforms — CommTrade, Carbon Match,
emsTradepoint, and Marex. There is also an over-the-counter (OTC) market that
may account for around half of the annual NZU trading volume.
•  Trading hours vary across platforms: Marex is open from 8 a.m. to 5 p.m. NZT on
business days, Commtrade and Carbon Match operate from 10 a.m. to 5 p.m. NZT
on business days, and emsTradepoint is open from 8 a.m. to 8 p.m. NZT on both
business days and weekends.
4.  A feature of the NZU market is the extent to which Government announcements can
have a direct impact on market activity. For example, the release of the consultation
document for ETS settings earlier this year coincided with an immediate 20 percent price
drop, reducing the market’s valuation by more than $1 bil ion.
5.  Currently there is no official protocol for Government announcements about the ETS.
This poses a risk to market credibility and stability. There is an opportunity for you to
establish a protocol for Government ETS announcements and other releases of market
sensitive information to the NZU market. This would enhance market credibility by
providing a consistent, integrity-based approach, and would align with approaches taken
in the private sector and in other areas of Government.
6.  On the New Zealand Stock Exchange (NZSX), issuers are required to release material
information to the market promptly and without delay. This requirement is also known as
the ‘continuous disclosure obligation’. Listed companies are not permitted to provide
advance material to the media via embargo or lock up.
7.  In other areas of Government, protocols are in place to protect information that could
impact markets. These protocols include requirements about the timing of releases,
embargoes, and media lock ups. Statistics New Zealand’s releases are guided by
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legislation, with corresponding powers in place to enforce sanctions if protocols are
breached.
8.  In preparing this advice, we have consulted with NZX Limited (in its capacity as the
provider of ETS auction services to the Ministry), and with the Treasury, Statistics New
Zealand, the Ministry for Primary Industries, the Environmental Protection Authority, the
Climate Change Commission (CCC), and Department of Prime Minister and Cabinet.
Existing controls to protect market sensitive information
9.  All Government information is required to be created, stored, handled and shared in
accordance with the Public Records Act 2005 and the Government’s protective security
requirements.
10.  Because there are no statutory or other formal rules that prescribe the NZU market, MfE
has developed the following guidance to determine whether a release is market sensitive
and/or if it might trigger other rules e.g. those that apply to listed companies:
i
Is the information publicly available at present? If it is publicly available, the
information is not market sensitive.
ii
If the information is not publicly available at present:
i.  Would knowledge of the information materially influence the price of
trading or the likelihood of trading of NZUs or products linked to the NZU?
ii.  If someone had advanced knowledge of the information, could they buy or
sell NZUs (or derivative products linked to the NZU) at an advantage to
others?
iii.  If someone had advanced knowledge of the information, could they buy or
sell financial products (i.e. shares in listed issuers) with an advantage over
others?
11.  Consistent with this guidance, Government organisations need to take care to ensure
that:
i
they identify when ETS information is or may be market sensitive;
ii
market sensitive information is accessed only by those people who have a legitimate
need to see it;
iii
market sensitive information is not discussed in public, or inappropriately within an
open plan office environment;
iv
the information is labelled as ‘market sensitive’ when shared elsewhere within
Government;
v
market sensitive information is only shared with a person or organisation outside
Government when there is a legitimate reason to do so and with appropriate
controls in place (for example to a contractor or consultant that needs access to the
information to perform their work and subject to a confidentiality agreement);
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Market participants are emailed to inform them of the release.
Category 4
The email can be released within trading hours. If there is an
announcement, this can also be made within trading hours.

Potential options to support communication objectives
15.  The ETS is complex, historically, we have released a limited number of high-risk and
high complexity (Category 1) market sensitive announcements to media ahead of time
under embargo. By allowing time for journalists to digest complex information,
embargoes help the media communicate climate announcements to the public.
16.  Embargoes and lock ups are used elsewhere in Government to assist with
communicating complex information. Some embargoes and lock ups are supported by
legislation, such as the Data and Statistics Act 2022, which includes provisions that
allow for sanctions if embargoes on Statistics New Zealand releases are breached.
Currently, no similar provisions exist in the Climate Change Response Act 2002.
17.  However, we do not recommend either embargoes or lock ups because:
i
An embargo transfers the control of information to the media, which increases the
risk of compromised information security. We consider that this risk – whether
security breaches occur or not – would impact market credibility.
ii
A lock up would need to be held in Wellington, restricting access to those media
who could attend. It would also need to be held very early in the morning (perhaps
between 6 and 7am), if the announcement is to be made in time to enable the
market to digest it before platform trading commences at 8am, potentially reducing
coverage of the announcement.
18.  The absence of an embargo or lock up for Category 1 ETS announcements may impact
the depth and quality of media content for announcements such as the second
emissions reduction plan (ERP2) and the Nationally Determined Contribution (NDC). It
may be possible to mitigate this risk using media stand-ups. Removing these early
releases of information limits the risk that the information is leaked or relied on to trade
and introduces stronger controls that will strengthen the reputation of the NZU market.
If you adopt the protocol, we recommend that you share it with your colleagues
19.  Our advice is to adopt the protocol as a set of rules that apply to market sensitive
announcements made via your role as the Minister of Climate Change. We note that
other Ministers may make announcements or release information that is NZU market
sensitive. We recommend that you share the protocol and start a dialogue with your
colleagues about how to apply it to the relevant areas of their portfolios.
20.  We note the existence of Cabinet Circular CO23(5), which sets out guidance for
Ministers and officials dealing with inside information relating to listed issuers and quoted
derivatives. Once shared and discussed with colleagues, you have the option to seek
Cabinet agreement on the protocol and include it in a similar circular, highlighting the
importance of protecting NZU market sensitive information and releasing it correctly.
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Next steps
21.  We will continue to identify potentially market sensitive releases from other agencies,
including those related to ETS policy, operations, data, or modelling.
22.  We will progress work with relevant agencies to implement the framework for managing
releases. We can provide a progress update on this work in due course.

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