FMPRR Interest Rate & Currency Clearing 2024

Compensation Funds

• JSE has authority to establish and manage Compensation Funds to cover claims related to trading member defaults.
• Payments from these funds are restricted to specific claim amounts defined in the funds' rules.
• Claims must arise from transactions in IRC securities and are subject to defenses by the defaulting trading member.
• JSE determines a levy on transactions for funding the Compensation Funds, which trading members can recover from clients involved in transactions.
• Trustees manage the assets and income of these Compensation Funds, including contributions from trading members.

Settlement System

• JSE can operate its own settlement systems or contract third parties for the operation of such systems.
• Procedures, requirements, and fees for trading members using settlement systems will be set by the JSE.

General Membership Requirements

• Applicants for trading membership must meet designated criteria and additional requirements determined by the JSE.
• JSE maintains a register of trading members, detailing their categories and authorizations.

Purpose of IRC Rules and Directives

• The rules and directives aim to promote fair, efficient markets, ensuring orderly business practices in alignment with the JSE’s goals.
• All trading members, their clients, and associated securities depositories must adhere to these binding rules and directives.
• Transactions in IRC securities are conditional on compliance with the Act and JSE regulations.

Appointment of Clearing House

• JSE is authorized to appoint a clearing house or a central counterparty for trade clearing and settlement in IRC securities.
• The clearing house must comply with established rules and facilitate other necessary functions.

Transitional Provisions

• Integration of the Yield-X and BESA markets has occurred, merging their rules and directives.
• The combined framework is now referred to as the JSE IRC rules and directives.

Risk Management and Officer Requirements

• Trading members must be overseen by reputable individuals with high business integrity.
• Officers must meet several criteria, including:
  • Full legal capacity and absence of insolvency.
  • No history of criminal offenses related to fraud, theft, or market abuse.
  • Compliance with regulations concerning market integrity, money laundering, and financial service provision.
• JSE may issue waivers for certain criteria, which are revocable upon notification.

Trading Member Obligations

• Trading members must maintain procedures, systems, resources, and expertise for effective regulated service performance.
• Compliance with the Act, relevant rules, and Financial Intelligence Centre Act is mandatory.
• Adequate management of funds belonging to themselves and clients is required; adherence to fund management rules is essential.
• Accurate records of client positions must be maintained at all times.
• Clients' transactions and cash balances must be reported timely when transacting on their behalf.
• Compliance with financial resource requirements relevant to their category of authorized user is necessary.
• A trading member must appoint a clearing member if entering transactions cleared by JSE Clear.
• Appointing a Central Securities Depository Participant (CSDP) is required for bond transactions on the JSE trading system.

Registration of Officers

• Each trading member must ensure the JSE registers a compliance officer, a settlement officer, and an alternate settlement officer.

Capital Adequacy Returns

• Monthly capital adequacy returns must be submitted to the Director: Market Regulation within ten business days post-month-end.
• Failure to timely submit these returns can lead to trading suspension.
• Certain entities (banks, foreign bank branches, state-owned entities, and specific derivative traders) are exempt from this requirement under specific conditions.
• Authorized users of other exchanges can apply for exemptions provided their capital requirements align with those of the JSE and they submit returns to their primary exchange.
• The Director: Market Regulation will evaluate the trading member's activity level on both exchanges when considering exemption requests.
• Exempt members must inform the Director if capital adequacy standards are not met.

General Requirements for Officers

• Officers must be of good reputation and high business standing, as recognized by the JSE.
• Officers need to have full legal capacity and adhere to good character criteria as determined by the JSE.
• Certain disqualifications include being an unrehabilitated insolvent or having prior convictions related to fraud, theft, or market abuse.
• Any claims of civil or administrative liability in relevant areas can lead to disqualification.
• Expulsion from any exchange or being the subject of investigations can disqualify individuals from serving as officers.
• Waivers for certain criteria may be granted by the JSE but can be revoked with one month’s notice.

Trading Member Obligations

• Trading members must maintain procedures, systems, resources, and expertise for effective regulated service performance.
• Compliance with the Act, relevant rules, and Financial Intelligence Centre Act is mandatory.
• Adequate management of funds belonging to themselves and clients is required; adherence to fund management rules is essential.
• Accurate records of client positions must be maintained at all times.
• Clients' transactions and cash balances must be reported timely when transacting on their behalf.
• Compliance with financial resource requirements relevant to their category of authorized user is necessary.
• A trading member must appoint a clearing member if entering transactions cleared by JSE Clear.
• Appointing a Central Securities Depository Participant (CSDP) is required for bond transactions on the JSE trading system.

Registration of Officers

• Each trading member must ensure the JSE registers a compliance officer, a settlement officer, and an alternate settlement officer.

Capital Adequacy Returns

• Monthly capital adequacy returns must be submitted to the Director: Market Regulation within ten business days post-month-end.
• Failure to timely submit these returns can lead to trading suspension.
• Certain entities (banks, foreign bank branches, state-owned entities, and specific derivative traders) are exempt from this requirement under specific conditions.
• Authorized users of other exchanges can apply for exemptions provided their capital requirements align with those of the JSE and they submit returns to their primary exchange.
• The Director: Market Regulation will evaluate the trading member's activity level on both exchanges when considering exemption requests.
• Exempt members must inform the Director if capital adequacy standards are not met.

General Requirements for Officers

• Officers must be of good reputation and high business standing, as recognized by the JSE.
• Officers need to have full legal capacity and adhere to good character criteria as determined by the JSE.
• Certain disqualifications include being an unrehabilitated insolvent or having prior convictions related to fraud, theft, or market abuse.
• Any claims of civil or administrative liability in relevant areas can lead to disqualification.
• Expulsion from any exchange or being the subject of investigations can disqualify individuals from serving as officers.
• Waivers for certain criteria may be granted by the JSE but can be revoked with one month’s notice.

Explore the guidelines set forth in the FMPRR for Interest Rate and Currency Clearing. This quiz will cover the transitional provisions related to the integration of Yield-X and BESA rules. Test your knowledge on the role of the JSE in establishing Compensation Funds.