Financial Markets Regulation in South Africa
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Questions and Answers

What key aspect does the FMA Act address concerning market integrity?

  • Lowering capital requirements for non-centrally cleared contracts
  • Eliminating codes of conduct
  • Encouraging insider trading
  • Prohibition of insider trading (correct)

    • Which of the following is NOT a component of the FMA Act's provisions?

  • Framework for codes of conduct
  • Regulation of financial markets
  • Encouragement of unlisted trading (correct)
  • Licensing and regulation of exchanges

    • How does the FMA Act align with international standards?

  • By simplifying the licensing process
  • By eliminating clearing houses from regulation
  • By prohibiting all forms of trading
  • By replacing outdated regulations for securities services (correct)

    • What is required for OTC derivative contracts according to the FMA?

    <p>They should be traded on exchanges or electronic platforms</p> Signup and view all the answers

    Which authority must authorize OTC derivative providers in South Africa?

    <p>Financial Sector Conduct Authority</p> Signup and view all the answers

    What is a key characteristic of OTC derivatives under the FMA Act?

    <p>They are unlisted derivative instruments</p> Signup and view all the answers

    What regulatory requirement impacts non-centrally cleared contracts under the FMA?

    <p>Higher capital requirements</p> Signup and view all the answers

    Which of the following activities is considered a regulated service under the FMA Act?

    <p>Providing securities services in OTC derivatives</p> Signup and view all the answers

    What must an individual or entity do before advertising as an OTC derivative provider?

    <p>Obtain authorization from the Authority as outlined by the Act.</p> Signup and view all the answers

    An authorised OTC derivative provider is obligated to report transactions to whom?

    <p>A licensed trade repository or licensed external trade repository.</p> Signup and view all the answers

    What criteria may the Authority determine for OTC derivative transactions under mandatory clearing?

    <p>The eligibility criteria for transactions.</p> Signup and view all the answers

    What should an authorised OTC derivative provider ensure regarding transactions eligible for clearing?

    <p>They are cleared through a licensed central counterparty.</p> Signup and view all the answers

    Which aspect does the Authority NOT consider when determining eligibility for mandatory clearing?

    <p>The geographical distribution of counterparties.</p> Signup and view all the answers

    What is necessary for a licensed central counterparty when accepting OTC derivative transactions?

    <p>It must report those transactions to the appropriate repositories.</p> Signup and view all the answers

    What is primarily assessed by the Authority when determining if a transaction is suitable for mandatory clearing?

    <p>The interconnectedness between counterparties.</p> Signup and view all the answers

    What must an applicant include when seeking authorization as an OTC derivative provider?

    <p>Information prescribed by the Authority.</p> Signup and view all the answers

    What is a requirement for the auditor appointed by a regulated person?

    <p>The auditor must have no financial interest in the business.</p> Signup and view all the answers

    Which of the following is NOT a duty of a regulated person concerning their accounting records?

    <p>Audit their financial health quarterly.</p> Signup and view all the answers

    Under what condition can the Authority withdraw approval of an appointed auditor?

    <p>If it is deemed necessary by the Authority.</p> Signup and view all the answers

    What must the auditor do despite any contrary provisions of law?

    <p>Provide necessary reports or information.</p> Signup and view all the answers

    For how long should a regulated person preserve their records?

    <p>At least five years.</p> Signup and view all the answers

    What triggers the Authority's power to request an audit of a regulated person's accounts?

    <p>A written notice from the Authority.</p> Signup and view all the answers

    What is a critical qualification for the firm of auditors appointed by a regulated entity?

    <p>No member should hold any financial interest in the regulated person.</p> Signup and view all the answers

    What is the primary purpose of maintaining accounting records and preparing annual financial statements for a regulated person?

    <p>To achieve regulatory compliance and transparency.</p> Signup and view all the answers

    What is one of the primary aims of the Act concerning South African financial markets?

    <p>To establish fairness, efficiency, and transparency in the financial markets.</p> Signup and view all the answers

    Which of the following is NOT explicitly regulated under the Act?

    <p>Collective Investments</p> Signup and view all the answers

    What financial aspect must applicants for authorization as an OTC Derivative Provider (ODP) demonstrate?

    <p>Financial soundness and adequate business conduct standards.</p> Signup and view all the answers

    Which of the following is a goal of the Act in relation to systemic risk?

    <p>To establish a regulatory framework to mitigate systemic risk.</p> Signup and view all the answers

    What must all ODPs maintain as part of their regulatory compliance?

    <p>Documented policies and procedures for client and counterparty categorization.</p> Signup and view all the answers

    Which of the following activities is applicable under the scope of the Act?

    <p>Market abuse that affects regulated financial markets.</p> Signup and view all the answers

    In what manner does the Act aim to enhance confidence in the South African financial markets?

    <p>By mandating fair and transparent provision of securities services.</p> Signup and view all the answers

    Under what condition can the Minister consider additional persons as regulated under the Act?

    <p>If their services are not already regulated and align with the Act's objectives.</p> Signup and view all the answers

    Which actions are prohibited for individuals acting as authorised users?

    <p>Providing services for unlisted securities without proper authorisation.</p> Signup and view all the answers

    What must a participant be in order to provide securities services?

    <p>Authorised by a licensed central securities depository.</p> Signup and view all the answers

    Which of the following is NOT a criterion for individuals carrying out securities-related activities?

    <p>Must have a financial background.</p> Signup and view all the answers

    What is required for a person to act as a clearing member?

    <p>Authorization from a licensed exchange or independent clearing house.</p> Signup and view all the answers

    Which section outlines the requirements for services provided by an authorised user?

    <p>Section 24.</p> Signup and view all the answers

    What action is specifically prohibited for individuals advertising for securities services?

    <p>Canvassing without being an authorized member.</p> Signup and view all the answers

    Under what condition can a participant provide securities services?

    <p>With authorisation from a licensed central securities depository.</p> Signup and view all the answers

    What is the primary role of conduct standards under Section 74 of the Act?

    <p>To prescribe requirements for regulated persons.</p> Signup and view all the answers

    What must an authorised OTC derivative provider do with accepted OTC derivative transactions?

    <p>Report them to a licensed trade repository.</p> Signup and view all the answers

    Which of the following factors is NOT considered by the Authority when determining eligibility for mandatory clearing of OTC derivative transactions?

    <p>The type of business the provider operates.</p> Signup and view all the answers

    What must an OTC derivative provider do before advertising itself as a provider?

    <p>Obtain authorization from the relevant Authority.</p> Signup and view all the answers

    What requirement is placed on an authorised OTC derivative provider in terms of transaction reporting?

    <p>They must report in a manner prescribed by the Authority.</p> Signup and view all the answers

    Which of the following considerations is important for the Authority when assessing the suitability of an OTC derivative transaction for clearing?

    <p>The level of liquidity of the relevant transactions.</p> Signup and view all the answers

    What must happen to an OTC derivative transaction that the Authority has determined as eligible for clearing?

    <p>It must be cleared through a licensed central counterparty.</p> Signup and view all the answers

    What is the role of the Prudential Authority in relation to OTC derivative transactions?

    <p>It collaborates with the Authority on eligibility criteria for mandatory clearing.</p> Signup and view all the answers

    The Authority's considerations about the effect on financial system stability involve which of the following aspects?

    <p>The effect on the interconnectedness between counterparties.</p> Signup and view all the answers

    Which requirement must be met for a person to act as an authorised user?

    <p>They must be authorised by a licensed exchange.</p> Signup and view all the answers

    What service can an authorised user NOT provide?

    <p>Securities services beyond their authorisation.</p> Signup and view all the answers

    Which condition must a participant fulfill to provide securities services?

    <p>They must be authorised by a licensed central securities depository.</p> Signup and view all the answers

    What constitutes a violation for a person acting as a clearing member?

    <p>Advertising services without authorisation.</p> Signup and view all the answers

    What is required of a person operating as a nominee under the Act?

    <p>They must be approved under section 76.</p> Signup and view all the answers

    Which of the following is a direct consequence of acting without proper authorisation?

    <p>Legal action for violation of trading standards.</p> Signup and view all the answers

    What authority is needed to perform functions as a trade repository?

    <p>Licensing under section 56 of the Act.</p> Signup and view all the answers

    Which statement about advertising for securities services is correct?

    <p>Only authorised persons may advertise such services.</p> Signup and view all the answers

    What is a required principle for conduct standards applicable to authorised users, participants, or clearing members of independent clearing houses?

    <p>Act honestly and fairly, with due skill, care, and diligence.</p> Signup and view all the answers

    What additional obligation does an authorised user have as per the conduct standards?

    <p>Seek relevant information regarding a client's financial position.</p> Signup and view all the answers

    Which of the following is NOT part of a conduct standard for regulated persons?

    <p>Employ aggressive sales tactics.</p> Signup and view all the answers

    Under the conduct standards, what must be avoided in marketing practices?

    <p>Fraudulent and misleading advertising.</p> Signup and view all the answers

    In terms of safeguarding client interests, what does the conduct standard emphasize regarding transaction documents?

    <p>Proper safekeeping of transaction documents is essential.</p> Signup and view all the answers

    Which principle is central to the expectations of conduct standards for regulated persons?

    <p>Exhibit due skill, care, and diligence in their conduct.</p> Signup and view all the answers

    What does a conduct standard allow in terms of communication with clients?

    <p>Disclosure of actual or potential own interests.</p> Signup and view all the answers

    When dealing with potential conflicts of interest, what action must an authorised user take?

    <p>Disclose the conflict to clients.</p> Signup and view all the answers

    Which of the following is a regulatory requirement for OTC derivative contracts under the FMA?

    <p>They should be reported to trade repositories.</p> Signup and view all the answers

    What must a person do to legally act as an OTC derivative provider in South Africa?

    <p>Obtain authorization from the Financial Sector Conduct Authority.</p> Signup and view all the answers

    What does the FMA Act prohibit concerning trading practices?

    <p>Market manipulation through price fixing.</p> Signup and view all the answers

    Which framework does the FMA Act establish for market participants?

    <p>A framework for codes of conduct among regulated persons.</p> Signup and view all the answers

    What is a requirement for OTC derivative providers who work with non-centrally cleared contracts?

    <p>They are subject to higher capital requirements.</p> Signup and view all the answers

    What aspect of OTC derivatives does the FMA primarily regulate?

    <p>The trading and reporting of standardized contracts.</p> Signup and view all the answers

    Which component does the FMA Act cover regarding unlisted securities?

    <p>Regulations for OTC derivatives are aimed at ensuring market integrity.</p> Signup and view all the answers

    What is NOT considered a regulated activity under the FMA Act?

    <p>Trading foreign exchange spot contracts.</p> Signup and view all the answers

    What must a regulated person do to ensure the appointment of their auditor complies with the law?

    <p>The auditor must engage in public practice and have no financial interest in the business.</p> Signup and view all the answers

    For how long must a regulated person preserve their accounting records?

    <p>At least five years from the date of the last entry.</p> Signup and view all the answers

    What authority has the power to approve the appointment of an auditor for a regulated person?

    <p>The Authority overseeing market infrastructure.</p> Signup and view all the answers

    What requirement exists regarding the firm of auditors for a regulated person?

    <p>The firm must be independent and cannot have any financial interest in the regulated person.</p> Signup and view all the answers

    What is a potential consequence for an auditor failing to comply with the provisions of the Act?

    <p>They will face deregistration from the professional body.</p> Signup and view all the answers

    What must the auditor provide despite any conflicting provisions of law or codes of conduct?

    <p>A report or information as required by the Act.</p> Signup and view all the answers

    What action must a regulated person take when requested by the Authority for an audit?

    <p>Comply and have their accounts audited within the specified time.</p> Signup and view all the answers

    What type of records must a regulated person maintain according to the outlined requirements?

    <p>Accounting records determined in joint standards.</p> Signup and view all the answers

    Study Notes

    ### FMA Act: Regulation of Financial Markets

    • The Act provides for the regulation of financial markets in South Africa.
    • It covers licensing and regulation of exchanges, clearing houses and trade repositories.
    • It addresses securities trading, clearing, settlement, and custody.
    • The Act tackles insider trading and other market abuses.
    • It sets the framework for codes of conduct and provides for the replacement of the Securities Services Act, 2004.

    OTC Derivatives Regulation

    • The FMA regulates OTC derivatives, including unlisted derivatives, excluding foreign exchange spot contracts and physically settled commodity derivatives.
    • Standardized OTC derivative contracts are required to be traded on exchanges or electronic platforms and cleared through central counterparties.
    • OTC derivative contracts must be reported to trade repositories.
    • Non-centrally cleared contracts have higher capital requirements.
    • Providing securities services in OTC derivatives is a regulated activity.
    • OTC derivative providers (ODPs) are regulated persons conducting regulated activity.
    • The FSCA authorizes ODPs in South Africa.

    Requirements for the Regulation of OTC Derivatives

    • Authorization: A person cannot act as an ODP without authorization from the FSCA.
    • Reporting Obligations: Authorized ODPs report OTC derivative transactions to a licensed trade repository or a licensed external trade repository.
    • Clearing: The FSCA can determine eligibility criteria for mandatory clearing of OTC derivative transactions. Authorized ODPs must clear eligible transactions through a licensed central counterparty or a licensed external central counterparty.
    • Category of Regulated Person: Authorized ODPs are regulated persons under the Act.

    Objects of the Act

    • The Act aims to ensure fair, efficient, and transparent South African financial markets.
    • It promotes confidence in the financial markets by requiring fair securities services, contributing to market stability, protecting regulated persons, clients, and investors, reducing systemic risk, and promoting international and domestic competitiveness of the South African financial markets.

    Applicability of the Act

    • Applies to regulated persons and services, issuers, clients, market abuse, and incidental matters.
    • Does not apply to collective investments, activities regulated by FAIS, gambling or wagering, or activities of a regulated person relating to goods and services subject to the Consumer Protection Act.

    Prohibitions Enforced by the Act

    • Acting as an authorized user without authorization from a licensed exchange.
    • Trading listed securities without complying with section 24.
    • Providing securities services for unlisted securities in contravention of conditions imposed or prescribed under section 6(7).
    • Acting as a participant without authorization from a licensed central securities depository.
    • Acting as a clearing member without authorization from a licensed exchange or a licensed independent clearing house.
    • Acting as a nominee without approval under section 76.
    • Operating as a trade repository without a license.
    • Advertising or canvassing for the business of an authorized user, participant or clearing member without authorization.

    Conduct Standards

    • Conduct standards may prescribe requirements for any matter necessary or expedient for the achievement of the Act's objects.

    Auditing

    • Regulated persons must appoint an auditor engaging in public practice with no financial interest in the business.
    • No firm of auditors can be appointed if a regulated person, director, officer or employee has a financial interest in the firm.
    • The FSCA must approve the appointment of auditors of market infrastructure and can withdraw approval if necessary.

    Accounting Records and Audit

    • Regulated persons must:
      • Maintain accounting records determined in joint standards.
      • Prepare annual financial statements conforming to financial reporting standards prescribed under the Companies Act.
      • Have accounting records and financial statements audited by an appointed auditor.
      • Preserve records for at least five years.

    Auditor's Duty to Furnish Information

    • Auditors must provide reports and information as required by the Act, regardless of any contrary law or code of professional conduct.

    Authority's Power to Request Audit

    • The FSCA can direct a regulated person to have its accounts, records, and financial statements audited and to submit the results.

    FMA Act - Financial Markets Act

    • The FMA Act is a comprehensive legislation that regulates financial markets in South Africa.
    • It covers licensing and regulation of exchanges, clearing houses, and trade repositories
    • The Act aims to:
      • Prevent insider trading and market abuses
      • Provide a framework for codes of conduct
    • The FMA Act updated and replaced the Securities Services Act of 2004 to align with international standards.

    OTC Derivatives Regulation

    • The FMA regulates the OTC (over-the-counter) derivatives market and related infrastructure like clearing houses and trade repositories.
    • Standardized OTC derivative contracts should be traded on exchanges or electronic trading platforms and cleared through central counterparties.
    • OTC derivative contracts must be reported to trade repositories.
    • Non-centrally cleared contracts face higher capital requirements.

    Authorisation and Reporting Requirements for OTC Derivative Providers (ODPs)

    • An ODP must be authorized by the FSCA (Financial Sector Conduct Authority) according to section 6(8) of the FMA Act.
    • Authorised ODPs must report OTC derivative transactions to a licensed trade repository.
    • The FSCA has power to determine eligibility criteria for OTC derivative transactions for mandatory clearing.

    Chapter II: Requirements for the Regulation of OTC Derivatives

    • Section 2 of the Regulations:
      • No person can act as an ODP or advertise as one without authorization.
      • Applications for authorisation must be submitted in a prescribed manner and contain necessary information.
    • Section 3 of the Regulations:
      • Authorized ODPs are required to report transactions to licensed trade repositories.
      • Clearing houses must report cleared transactions to trade repositories.
    • Section 4 of the Regulations:
      • The FSCA, in conjunction with the Prudential Authority, may determine eligibility criteria for mandatory clearing.
      • Authorized ODP's must ensure eligible transactions are cleared through licensed central counterparties.

    Chapter IV: Prohibitions and Authorisation

    • No person can act as an authorised user, participant, or clearing member without authorisation.
    • Authorised users can only provide securities services for which they are authorized by a licensed exchange.
    • Participants can only provide securities services authorized by a licensed central securities depository.
    • Clearing members can only provide clearing or settlement services for which they are authorized by a licensed exchange or independent clearing house.

    Chapter VIII Conduct Standards

    • The FMA mandates conduct standards for regulated persons:
      • Authorized users, participants, and clearing members of independent clearing houses or central counterparties.
      • Other regulated persons where conduct standards are not prescribed by other laws.
    • Conduct standards are binding on regulated persons, their officers, employees, and clients.
    • Conduct standards are based on principles of honesty, fairness, due skill, care, and diligence, and upholding the integrity of the financial markets.

    Chapter XI: Auditing

    • Regulated persons must appoint an independent auditor with no financial interest in the business.
    • The FSCA approves the appointment of auditors for market infrastructure.
    • Regulated persons must maintain accounting records and prepare annual financial statements conforming to prescribed financial reporting standards.
    • Auditors must preserve records for at least five years.
    • The FSCA has the power to request an audit of a regulated person's accounts, records, and financial statements.

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    Financial Markets Act (FMA) PDF

    Description

    This quiz covers the Financial Markets Act (FMA) and its regulations pertaining to financial markets in South Africa. It addresses licensing, securities trading, insider trading, and the regulation of OTC derivatives. Test your understanding of how the FMA shapes market conduct and compliance.

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