Capital Adequacy in Trading Members
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Questions and Answers

What is included in exchange traded margined transactions?

  • Shipping and handling charges
  • Initial margin and variation margin (correct)
  • Only variation margin
  • Loan agreements and futures contracts

    • Which duration indicates a shortfall of 4 days or more in margin transactions?

  • More than 5 days since shortfall
  • 2-3 days since shortfall
  • 4 days and over since shortfall (correct)
  • 1 day since shortfall

    • Repurchase agreements involve which of the following?

  • Qualifying debt instruments (correct)
  • Only exchange-traded funds
  • Real estate transactions
  • Equity loan programs

    • What is the definition of 'off exchange futures' as referenced in the content?

    <p>Contracts that do not occur on an exchange</p> Signup and view all the answers

    Which of the following is NOT part of the transactions mentioned under point 5?

    <p>Equity mutual funds</p> Signup and view all the answers

    Which element is necessary for determining the credit equivalent amount in transactions?

    <p>Over-the-counter (OTC) options</p> Signup and view all the answers

    Which of the following is NOT included in the calculation of annual operating costs for a trading member?

    <p>Guaranteed remuneration</p> Signup and view all the answers

    What does the term 'variation margin' refer to in margin transactions?

    <p>Margin changes based on market value</p> Signup and view all the answers

    Which type of securities is mentioned as not qualifying for repurchase agreements?

    <p>Other securities</p> Signup and view all the answers

    What calculation method can a trading member use if they do not have audited financial statements?

    <p>Using budgeted accounts or a proportionate basis approved by JSE</p> Signup and view all the answers

    From the following items, which is included in the calculation of a trading member's annual operating costs?

    <p>Fees paid to clearing houses for transaction clearing</p> Signup and view all the answers

    In the operating costs calculation, which of the following would be considered an extraordinary item?

    <p>Losses from foreign currency conversion with prior JSE approval</p> Signup and view all the answers

    What constitutes the total revenue for calculating annual operating costs?

    <p>Revenue plus losses before taxation</p> Signup and view all the answers

    Which of the following activities is NOT directly related to the calculation of operating costs?

    <p>Performance bonuses guaranteed by the previous year’s profits</p> Signup and view all the answers

    When calculating fifteen weeks of operating costs, which factor is essential?

    <p>Inclusion of expenses prior to taxation</p> Signup and view all the answers

    Which component is excluded from the calculation of a trading member's own funds?

    <p>Intangible assets</p> Signup and view all the answers

    From which part of the Schedule is the total own funds calculated?

    <p>Part A, B, C, and D</p> Signup and view all the answers

    Which of the following is likely to increase a trading member's own funds?

    <p>The issuance of ordinary shares</p> Signup and view all the answers

    What must trading members who are not exempt include in their returns?

    <p>A declaration of their own funds</p> Signup and view all the answers

    Which item would be considered a liability rather than a component of own funds?

    <p>Shareholders subordinated loan accounts</p> Signup and view all the answers

    Which of the following could reduce the own funds of a trading member?

    <p>Intangible assets</p> Signup and view all the answers

    What does Part C of the Schedule emphasize regarding own funds?

    <p>Excess of market value over book value of investments</p> Signup and view all the answers

    Which of the following is NOT included in Part B of the owned funds calculations?

    <p>Audited retained earnings</p> Signup and view all the answers

    How are shareholders subordinated loans categorized in the calculations?

    <p>As part of own funds</p> Signup and view all the answers

    Which item is included in the calculation of total own funds?

    <p>Unaudited profits</p> Signup and view all the answers

    What type of swaps deal with qualifying debt instruments specifically?

    <p>Single currency swaps</p> Signup and view all the answers

    Which of the following options typically has a maturity period of under 1 year?

    <p>Cross currency swaps</p> Signup and view all the answers

    Which maturity range indicates a swap that could last between 14 days to 1 year?

    <p>14 days to 1 year</p> Signup and view all the answers

    Which type of swap would typically involve a maturity beyond 1 year?

    <p>Interest rate swaps with long tenors</p> Signup and view all the answers

    For swaps with a maturity of under 14 days, which of the following is true?

    <p>They are typically used for short-term funding.</p> Signup and view all the answers

    Which statement is correct regarding the characteristics of interest rate swaps?

    <p>They typically involve exchanges based on interest rates.</p> Signup and view all the answers

    In relation to the maturity structure of cross currency swaps, what is the maximum often seen?

    <p>1 year</p> Signup and view all the answers

    What is a common characteristic of single currency swaps?

    <p>They solely relate to qualifying debt instruments.</p> Signup and view all the answers

    What must be included in the foreign exchange requirement concerning net spot positions?

    <p>The net spot position of all asset items less all liability items including accrued interest</p> Signup and view all the answers

    Which of the following instruments definitely requires inclusion in the foreign exchange requirement?

    <p>Irrevocable guarantees and any balance sheet asset</p> Signup and view all the answers

    How should positions from foreign exchange options be treated if they are at least 8% in the money?

    <p>Valued at the nominal amount of the contract based on current spot rates</p> Signup and view all the answers

    What additional consent is needed for including future income or expenses in the foreign exchange requirement?

    <p>Prior written consent of the JSE</p> Signup and view all the answers

    Which scenario requires the use of a risk assessment model approved by the JSE?

    <p>When estimating notional forward foreign exchange positions related to options</p> Signup and view all the answers

    What defines a foreign exchange option that is considered less than 8% in the money?

    <p>Options based on nominal amounts valued at current spot rates</p> Signup and view all the answers

    Which of the following is not a requirement for including a position already deducted from financial resources?

    <p>Filing an application for inclusion from the JSE</p> Signup and view all the answers

    How should a trading member report any currency futures in their foreign exchange requirement?

    <p>At the nominal value of the contract</p> Signup and view all the answers

    Study Notes

    Capital Adequacy Requirements of Trading Members

    • Trading members on the JSE must calculate their own funds and thirteen weeks of operating costs.
    • Own funds are calculated based on various components including share capital, reserves, assets, and liabilities.
    • Trading members must include a declaration of their own funds and thirteen weeks of operating costs in their returns to the JSE.
    • Own funds calculation: Part A includes capital and reserves; Part B includes intangible and fixed assets, as well as some liabilities; Part C includes guarantees received and subordinated loans; Part D includes shareholdings in banks or other financial institutions; Part E is the final own funds, calculated as A - B + C - D.
    • Thirteen weeks operating costs calculation: includes total revenue plus any loss before taxation, minus profit before taxation, bonuses, profit shares, commissions, fees, interest payable, abnormal items, and foreign currency conversion losses.
    • Trading members with no audited financial statements can use budgeted or other account information for calculating operating costs.
    • Foreign exchange requirements: Trading members must calculate a foreign exchange requirement for various positions, including spot positions, currency futures, forward contracts, currency options, and irrevocable guarantees.
    • Foreign exchange option treatment: Trading members using risk assessment models need JSE approval. Options that are at least 8% in the money are included based on the nominal amount of the contract valued at current spot rates. Options less than 8% in the money are also included based on the nominal amount valued at current spot rates.

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    Capital Adequacy Requirements PDF

    Description

    This quiz focuses on the capital adequacy requirements that trading members must fulfil on the JSE. Participants will learn about the calculation of own funds and operating costs, including various components such as reserves, assets, and liabilities. Understanding these calculations is crucial for compliance in trading operations.

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