Bond ETP Securities Settlement Quiz

Settlement of Bond ETP Securities

• The Settlement Authority monitors and ensures the settlement of all Bond ETP Securities.
• The Settlement Authority facilitates the settlement of transactions in Bond ETP securities through the Bond ETP trading system.
• The Settlement Authority manages the risks associated with the settlement of transactions in Bond ETP securities.
• The Settlement Authority may defer the settlement of Bond ETP securities transactions that in its view could cause systemic risk.
• The Settlement Authority may roll settlements of Bond ETP Securities to a later date.
• The Settlement Authority can instruct members to borrow relevant securities from National Treasury through the South African Reserve Bank to cover unsettled transactions.
• The Settlement Authority sets fees associated with settlement of Bond ETP securities.

Roles of the JSE Clearing and Settlement Division

• Ensure Settlement Assurance for trades executed in the ETP Market
• Monitor Bond settlements
• Perform lender of last resort between SARB and Primary Dealers
• Lender of last resort for IRC members
• Balance the daily margin and maintenance levels of the Primary Dealers
• Assist market regulation with cancellation of ETP trades when required
• Monitor settlements of all ETP trades
• Monitor Cash Bond settlements
• Advise members of all uncommitted positions and potential issues
• Manage the same same-day window and extension thereof in the Cash Bonds Market
• Issue fines for transgressions of the Rules and Directives in the Cash Bonds Market
• Inward listing for bonds reporting

Settlement Principles for ETP Securities

• Trade by trade
• Between buyer and seller
• On a rolling and contractual basis where transactions become contractually due to be settled a prescribed number of days after the trade date.

Member Settlement Obligations

• Members must inform the Settlement Authority of any transaction in Bond ETP securities that is unlikely to settle on the settlement date.
• Members' CSPDs (Central Securities Depositories) must commit to settling bond ETP securities on behalf of the member by 18:00 on the business day preceding the settlement date.
• If a member is unable to ensure that their CSDP commits to settling a transaction by 18:00 on the business day preceding the settlement date, the member must immediately notify the Settlement Authority.
• If a member's CSDP has committed to settling a sale transaction in Bond ETP securities prior to the settlement date, the member may be unable to settle the transaction on the settlement date if there is a dependency on the settlement of another transaction in the same bond.
• If by 13:15 on the settlement date the member's CSDP has not committed to settle a sale transaction in Bond ETP securities, the member must take all necessary steps to ensure that the member's CSDP is in a position to recommit to settle by 15:00.

Rolling of Settlement

• The Settlement Authority will obtain a list of Bond ETP settlements from the CSD that are not going to be effected on the due settlement date, following notification by the failing member and a determination by the Settlement Authority.
• The failing and non-failing members will be instructed to re-book the original transaction at the original yield for settlement on the revised settlement date.
• The transaction will be reported by the failing and non-failing members to the ETP fails management trading system. If settlement does not take place on the revised settlement date, the Settlement Authority will, under exceptional circumstances, roll the settlement to another revised settlement date.

Mark-to-market of Bond ETP Securities

• The JSE may, in terms of the calculation method set out in the directives, on any business day, mark-to-market the unsettled transactions in Bond ETP securities if the JSE determines that such is necessary in respect of a particular member, or the unsettled transactions of all members of the Bond ETP market; or that the market conditions in respect of Bond ETP securities warrant such a calculation.

Margin on Bond ETP Securities Transactions

• Initial margin shall be paid by a member into the member's CPD margin account in an amount calculated by the JSE based on calculation methods agreed with the Market Committee.
• The JSE shall, in its sole discretion, determine, as a result of the marking-to-market of transactions, when mark-to-market adjustments to initial margin shall be paid to or by a member in respect of a transaction in Bond ETP securities.
• Failure by a member to pay the initial margin and any adjustments thereto in contravention of these rules may, in the discretion of the JSE, be deemed to be an act of default.
• A member may establish a margin deposit in the member's CPD margin account in order to meet the member's margin obligation from time to time. Any amount held in a member's CPD margin account which is in excess of the member's margin obligation on a particular day may be withdrawn by the member with the approval of the Settlement Authority.

Fees

• The Settlement Authority may charge any member the fees associated with settlement of Bond ETP securities as prescribed by directive.
• Payment of the fees charged shall be made to the Settlement Authority within five business days of notification.

Settlement of Bond ETP Securities

• JSE Clearing and Settlement team is the Settlement Authority for trades in Cash Bond Securities listed on the JSE.
• Settlement Authority ensures trades are settled according to JSE Rules and Directives.

Functions of the JSE Clearing and Settlement division - Cash Bonds Market and ETP

• Ensures Settlement Assurance for trades executed in the ETP Market.
• Monitors Bond settlement.
• Acts as a lender of last resort between the SARB and Primary Dealer.
• Acts as a lender of last resort for IRC members.
• Balances daily margin and maintenance levels of the Primary Dealers.
• Assists market regulation with cancellation of ETP trades when required.
• Monitors settlements of all ETP trades.
• Monitors Cash Bond settlements.
• Advises members of all uncommitted positions and potential issues.
• Manages the same-day window and extension thereof in the Cash Bonds Market.
• Issues fines for transgressions of the Rules and Directives in the Cash Bonds Market.
• Handles inward listing for bonds reporting

Settlement principles for ETP securities

• Settlement of Bond ETP securities are done:
  • trade by trade
  • between buyer and seller
  • on a rolling and contractual basis, transactions are due to be settled a prescribed number of days after the trade date

Settlement Authority

• Manages the settlement of transactions in Bond ETP securities executed on the Bond ETP trading system and the ETP fails management trading system.
• Manages the risks associated with the settlement of transactions in Bond ETP securities.
• May take action when the settlement of a transaction in a Bond ETP security will not take place or is unlikely to take place on settlement date:
  • Facilitating the settlement of Bond ETP securities in terms of the rolling of settlement procedures set out in the Bond ETP Rules and Directives, if the relevant circumstances merit such action.
  • Facilitating the settlement of Bond ETP securities in terms of the default procedures as a result of the default of an ETP member.
  • Deferring the settlement of Bond ETP securities transactions that in its view could cause systemic risk if they were not to settle, by way of a notification to the CSD of the deferral and the extension of the timeframes referred to Bond ETP Rules and Directives.

Settlement of Bond ETP Securities

• All transactions in Bond ETP securities shall be settled electronically through the CSD, in accordance with the settlement principles.
• A trade in Bond ETP securities by a member shall:
  • be committed to by the member’s CSDP by no later than 18h00 on the business day preceding the settlement date.
  • be settled on the third business day after the trade date.

Member settlement obligations

• A member shall ensure that the settlement of a transaction in Bond ETP securities that has been effected by such member takes place.
• A member must immediately inform the Settlement Authority of any transaction in Bond ETP securities that in its view is unlikely to settle on the settlement date.
• No member may, on the settlement date, stop payment in respect of a CSD settlement.
• If a member's CSDP has committed to settling a transaction in Bond ETP securities on behalf of the member, the member may not instruct the CSDP to revoke its commitment to settle the transaction, unless the member receives an instruction to do so from the Settlement Authority.
• By no later than 17h30 on the business day preceding the settlement date, a member must make the necessary arrangements to ensure that the CSDP of that member is in a position, by no later than 18h00 on the business day preceding the settlement date, to commit to settle the transactions in Bond ETP securities on the settlement date.
• A commitment by a CSDP to settle a transaction in Bond ETP securities in respect of a member shall become unconditional as at 8h30 on the settlement date.
• If a member is unable to ensure that the member’s CSDP commits to settling a transaction in Bond ETP securities by 18h00 on the business day preceding the settlement date, the member shall immediately notify the Settlement Authority.
• If the Settlement Authority receives notification, the Settlement Authority will determine whether settlement of the relevant transaction will be rolled to a later date and, if so, the member must act in accordance with the instructions received from the Settlement Authority.
• Despite a member’s CSDP having committed to settle a sale transaction in Bond ETP securities prior to the settlement date, a member may be unable to settle the transaction on the settlement date due to a dependency on the settlement of another transaction in the same bond in respect of which the CSDP of the counterparty to that transaction has not yet committed to settling.
• If by 13h15 on the settlement date the member's CSDP has not committed to settle a sale transaction in Bond ETP securities, the member must take all necessary steps to ensure that the member's CSDP is in a position to recommit to settle the transaction as soon as possible but by no later than 15h00.
• To ensure that the member's CSDP is in a position to commit to settle a Bond ETP securities sale transaction by no later than 15h00 on the settlement date if the circumstances arise, a member must take the necessary steps by 14h00 to cover the uncommitted sale transaction, failing which the Settlement Authority will instruct the member to borrow the relevant securities from National Treasury through the South African Reserve Bank to cover the transaction.
• The member must comply with the instructions given by the Settlement Authority and must ensure that the member's CSDP has recommitted to settling the sale transaction by no later than 15h00.

Rolling of settlement

• In the event that the Settlement Authority receives notification from a member that the member is unable to settle a transaction in Bond ETP securities on the settlement date, the Settlement Authority will assess, based on all information available to it at the time, whether exceptional circumstances exist that warrant settlement of the transaction being rolled to a later date and whether the member will be able to settle the transaction on a later date.
• If the Settlement Authority determines that the circumstances warrant the settlement of the transaction being rolled to a later date and that the member will be able to settle the transaction on a later date, the Settlement Authority may roll the settlement of the transaction.
• The rolling of settlement of a Bond ETP securities transaction will be carried out in the following manner:
  • The Settlement Authority will obtain a list of Bond ETP settlements from the CSD which are not going to be effected on the due settlement date, following notification by the failing member and a determination by the Settlement Authority. This list will include the failed trade leg as well as the opposite trade leg.
  • The Settlement Authority will advise the failing and non-failing members that the transaction will be rolled to a revised settlement date determined by the Settlement Authority.
  • The failing and non-failing members will be instructed to re-book the original transaction at the original yield for settlement on the revised settlement date.
  • The transaction will be reported by the failing and non-failing members to the ETP fails management trading system.
• If settlement does not take place on the revised settlement date, the Settlement Authority will, under exceptional circumstances, roll the settlement to another revised settlement date.
• However, if the Settlement Authority determines that settlement will not be able to take place on the further revised settlement date, the JSE will consider whether the member is in default and, if this is the case, deal with the transaction in terms of those default rules.

Mark-to-market of Bond ETP securities

• The JSE may, in terms of the calculation method set out in the directives, on any business day and at any time, mark-to-market the unsettled transactions in Bond ETP securities, if the JSE in its sole discretion determines:
  • that such is necessary in respect of a particular member, or the unsettled transactions of all members of the Bond ETP market; or
  • that the market conditions in respect of Bond ETP securities warrant such a calculation.

Margin on Bond ETP securities transactions

• Initial margin
  • Initial margin shall be paid by a member into the member's CPD margin account in an amount calculated by the JSE based on calculation methods agreed with the Market Committee.
  • The initial margin shall be commensurate with the loss that could arise as a result of the default of the member in terms of its settlement obligations that relate to transactions in Bond ETP securities.
• Mark-to-market adjustments to initial margin
  • The JSE shall, in its sole discretion, determine, as a result of the marking-to-market of transactions, when mark-to-market adjustments to initial margin shall be paid to or by a member in respect of a transaction in Bond ETP securities.
  • Under normal circumstances the JSE will calculate mark-to-market adjustments to the initial margin on a daily basis.
  • The amount due by a member shall be paid by no later than 12h00 on the business day following the day on which such payment was calculated, or at such other time as specifically agreed upon between the member and the JSE.
  • Failure by a member to pay the initial margin and any adjustments thereto in contravention of these rules may, in the discretion of the JSE, be deemed to be an act of default.
  • A member may establish a margin deposit in the member's CPD margin account in order to meet the member's margin obligation from time to time.
  • Any amount held in a member's CPD margin account which is in excess of the member's margin obligation on a particular day may be withdrawn by the member with the approval of the Settlement Authority.

Fees

• The Settlement Authority, in consultation with the Market Committee, may charge any member the fees associated with settlement of Bond ETP securities as prescribed by directive.
• Payment of the fees charged shall be made to the Settlement Authority within five business days of notification.

This quiz covers the key concepts surrounding the settlement of Bond ETP securities, including the roles of the Settlement Authority and the JSE Clearing and Settlement Division. Understand how risks are managed, fees are set, and how transactions are monitored within the Bond ETP trading system.