Podcast
Questions and Answers
Which of the following is NOT a typical advantage of trading bonds on an exchange-driven market like the JSE-Debt Market, compared to OTC markets?
Which of the following is NOT a typical advantage of trading bonds on an exchange-driven market like the JSE-Debt Market, compared to OTC markets?
- Higher potential returns due to the unregulated nature of exchange-driven markets. (correct)
- Elimination of settlement risk through efficient exchange/CSD (STRATE) settlement.
- Reduced counterparty risk due to surveillance of JSE-Debt Market members.
- Reduced member fraud risk due to exchange surveillance and a guarantee fund.
An investor is concerned about the possibility of receiving fraudulent bond certificates. Which feature of the JSE-Debt Market most directly addresses this concern?
An investor is concerned about the possibility of receiving fraudulent bond certificates. Which feature of the JSE-Debt Market most directly addresses this concern?
- The role of the FSCA in regulating market participants.
- The availability of securities lending and borrowing.
- Its function as a primary venue for bond issuance.
- The dematerialized environment facilitated by STRATE. (correct)
How does STRATE contribute to the efficiency and security of bond transactions in South Africa?
How does STRATE contribute to the efficiency and security of bond transactions in South Africa?
- By providing a centralized platform for the immobilization and dematerialization of securities. (correct)
- By providing a platform for direct negotiation between bond issuers and investors.
- By acting as the regulatory body overseeing bond market activities.
- By offering insurance against losses incurred due to bond defaults.
A bond trader wants to engage in short selling of a specific bond. What mechanism in the South African bond market facilitates this activity?
A bond trader wants to engage in short selling of a specific bond. What mechanism in the South African bond market facilitates this activity?
What is the primary role of the Financial Sector Conduct Authority (FSCA) in the South African bond market?
What is the primary role of the Financial Sector Conduct Authority (FSCA) in the South African bond market?
Why are issuers likely to list debt securities on the JSE-Debt Market, even though it is not legally required?
Why are issuers likely to list debt securities on the JSE-Debt Market, even though it is not legally required?
In an OTC bond market, what risk arises from the possibility of a deal not being settled promptly?
In an OTC bond market, what risk arises from the possibility of a deal not being settled promptly?
Which of the following scenarios best illustrates 'counterparty risk' in an OTC bond market?
Which of the following scenarios best illustrates 'counterparty risk' in an OTC bond market?
What protection does the JSE-Debt Market offer investors against member fraud, beyond surveillance?
What protection does the JSE-Debt Market offer investors against member fraud, beyond surveillance?
How does dematerialization, facilitated by STRATE, specifically reduce risks associated with bond transactions?
How does dematerialization, facilitated by STRATE, specifically reduce risks associated with bond transactions?
Flashcards
Bond Trading
Bond Trading
Buying and selling of bonds, often through brokers or trading platforms like the JSE.
JSE-Debt Market
JSE-Debt Market
A market where bond trading occurs under the rules and surveillance of the Johannesburg Stock Exchange (JSE).
Advantages of JSE-Debt Market
Advantages of JSE-Debt Market
Reduced risk of trading, efficiency, and surveillance of members.
Counterparty Risk
Counterparty Risk
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Settlement Risk
Settlement Risk
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Over-the-Counter (OTC) Market
Over-the-Counter (OTC) Market
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Securities Lending and Borrowing
Securities Lending and Borrowing
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Financial Sector Conduct Authority (FSCA)
Financial Sector Conduct Authority (FSCA)
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Central Securities Depository (CSD)
Central Securities Depository (CSD)
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Study Notes
- Bond trading in South Africa takes place on different platforms, like the Johannesburg Stock Exchange (JSE).
- Investors use brokers or trading platforms to trade bonds.
- The JSE serves as a main location for secondary market trading of bonds.
JSE-Debt Market
- The JSE-Debt Market was created to facilitate the issuance and trading of bonds.
- Issuers often list debt securities on the JSE-Debt Market because a listing increases demand.
- The JSE-Debt Market is an exchange-driven market.
- Exchange-driven markets like the JSE-Debt Market reduce trading risks and improve trading efficiency.
Risk Reduction in JSE-Debt Market
- Counterparty risk is reduced since investors deal with JSE-Debt Market members who are under constant surveillance.
- Settlement risk is reduced because deals are settled efficiently by the exchange / CSD (STRATE) in a dematerialized environment.
- Member fraud risk is reduced because of surveillance; the exchange's guarantee fund covers investor losses.
- Tainted scrip risk is eliminated in a dematerialized market.
Over-the-Counter (OTC) Markets
- OTC markets are informal or non-exchange-driven markets.
- OTC markets have risks like settlement risk, counterparty risk, member fraud risk and tainted scrip risk.
- Settlement risk is the risk of a deal not being settled promptly.
- Counterparty risk is the risk of one of the principal parties backing out of a deal.
- Member fraud risk is the risk of the intermediary accepting funds from the buyer and not paying the seller.
- Tainted scrip risk is the risk of non-valid securities certificates being introduced into the market.
Securities Lending and Borrowing
- Securities lending and borrowing occur in the bond market.
- Market participants borrow bonds for purposes like short selling.
- Strate provides the infrastructure to facilitate and support these transactions.
Regulatory Framework
- The Financial Sector Conduct Authority (FSCA) regulates the bond market in South Africa.
- The FSCA sets rules and regulations to ensure the integrity and stability of the financial markets.
Central Securities Depository (CSD)
- Strate is the central securities depository for South Africa.
- Strate provides a centralized platform for the immobilization and dematerialization of securities.
- This minimizes the physical movement of paper certificates.
- This enhances the efficiency of securities transactions.
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