JSE Compensation Funds Overview
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Questions and Answers

Which requirement is necessary for a trading member intending to conduct regulated services?

  • Maintain appropriate procedures and systems for fund management. (correct)
  • Ensure compliance with international trading regulations.
  • Outsource all compliance-related activities.
  • Receive approval for all transactions from clients.

    • What must a trading member do if they wish to transact in bonds on the JSE trading system?

  • Ensure their clients' funds are segregated globally.
  • Obtain authorization as a trading member.
  • Appoint a compliance officer with the industry experience.
  • Appoint a Central Securities Depository Participant (CSDP). (correct)

    • What must trading members ensure regarding the cash balances of their clients?

  • They are reported to clients immediately and accurately. (correct)
  • They are pooled with the trading member's own funds.
  • They are secured by third-party guarantees.
  • They are invested in long-term securities.

    • Which of the following officers must each trading member ensure is registered with the JSE?

    <p>Compliance officer.</p> Signup and view all the answers

    What is a requirement for a trading member that intends to enter into transactions cleared by JSE Clear?

    <p>Appoint a clearing member or be authorized as one.</p> Signup and view all the answers

    What was the primary purpose of integrating the Yield-X and BESA markets?

    <p>To establish a singular set of rules governing interest rate securities and currency derivatives</p> Signup and view all the answers

    Who is bound by the JSE Interest Rate and Currency Derivatives Rules?

    <p>All persons engaging in transactions through trading members</p> Signup and view all the answers

    Which function is specifically mandated for the clearing house appointed by the JSE?

    <p>Clearing and settling trades in IRC securities</p> Signup and view all the answers

    What does the transitional provision address in the context of the JSE rules?

    <p>The integration of former competing markets into a single framework</p> Signup and view all the answers

    Which of the following best describes the nature of transactions subject to the JSE IRC Rules?

    <p>Transactions in IRC securities conditioned on compliance with specific regulations</p> Signup and view all the answers

    What is the primary source of regulations for the integrated JSE markets?

    <p>Yield-X rules and directives</p> Signup and view all the answers

    Which body is responsible for notifying trading members of decisions made under these rules?

    <p>The controlling body of the JSE</p> Signup and view all the answers

    How do the rules and directives of the JSE facilitate market operations?

    <p>By regulating transactions to ensure fairness and efficiency</p> Signup and view all the answers

    What is the primary purpose of the Compensation Funds established by the JSE?

    <p>To pay claims arising from liabilities of trading members before their default.</p> Signup and view all the answers

    Which of the following describes the role of trustees in relation to the Compensation Funds?

    <p>They acquire, incur, and manage the assets and liabilities of the Funds.</p> Signup and view all the answers

    What must an applicant do to qualify as a trading member of the JSE?

    <p>Comply with the specified requirements and those determined by the JSE.</p> Signup and view all the answers

    How does a trading member manage levies imposed by the JSE on transactions?

    <p>The trading member can recoup the levy from the buyer or seller of IRC securities.</p> Signup and view all the answers

    What limitation is placed on Inter-dealer Brokers (IDB) regarding their membership with the JSE?

    <p>They cannot be classified as a clearing member.</p> Signup and view all the answers

    What determines the income generated by the Compensation Funds?

    <p>The contributions of levies paid by trading members.</p> Signup and view all the answers

    Which statement about the clearing agreements for trading members is correct?

    <p>A trading member can only have a clearing agreement with one clearing member.</p> Signup and view all the answers

    What allows the JSE to enforce specific regulations regarding the categories of trading members?

    <p>The JSE's inherent authority to create and manage membership rules.</p> Signup and view all the answers

    What is the maximum duration for which a senior director can temporarily assume the responsibilities of a compliance officer in the absence of a duly appointed officer?

    <p>2 months</p> Signup and view all the answers

    What must a trading member do to trade without having a trader present at their place of business?

    <p>Obtain temporary registration for 15 business days</p> Signup and view all the answers

    What must an applicant satisfy to be registered as a registered officer with the JSE?

    <p>Pass in specified qualifications</p> Signup and view all the answers

    In what circumstance may a trading member terminate the registration of a registered officer?

    <p>After providing written justification to the JSE</p> Signup and view all the answers

    What becomes effective on the date stipulated in the written notification by the JSE to the trading member?

    <p>The termination of the registration of a registered officer</p> Signup and view all the answers

    What is the primary limitation on claims from the Compensation Funds concerning trading members?

    <p>Claims are limited to defaults arising from transactions in IRC securities.</p> Signup and view all the answers

    Which category of trading member is explicitly prohibited from being a clearing member?

    <p>Inter-dealer brokers (IDB)</p> Signup and view all the answers

    How may a trading member recoup the levy imposed by the JSE on transactions?

    <p>By imposing the levy on the buyer or seller involved in the transaction.</p> Signup and view all the answers

    What role do the trustees of the Compensation Funds play?

    <p>They acquire, incur, and administer the assets and liabilities of the funds.</p> Signup and view all the answers

    Which factor is NOT considered when determining the income of the Compensation Funds?

    <p>Claims disbursed to claimants</p> Signup and view all the answers

    What is required of a trading member in terms of clearing agreements?

    <p>They may only have one clearing agreement with a single clearing member.</p> Signup and view all the answers

    Who determines the specific requirements for an applicant to qualify as a trading member?

    <p>The JSE</p> Signup and view all the answers

    What does the Compensation Fund payment limit apply to?

    <p>Claims arising only from IRC securities transactions</p> Signup and view all the answers

    What minimum initial capital is required for a trading member who holds client margins?

    <p>R400,000</p> Signup and view all the answers

    Which of the following statements about a trading member exempt from submitting monthly capital adequacy returns is true?

    <p>It must adhere to capital requirements as per the Banks Act.</p> Signup and view all the answers

    What action can the JSE take if a trading member has a deficiency in capital adequacy?

    <p>Suspend the trading member.</p> Signup and view all the answers

    For a trading member that does not trade in bonds, what must be true regarding their assets and liabilities?

    <p>Liabilities should be less than assets excluding subordinated loans.</p> Signup and view all the answers

    Which circumstance must a trading member immediately report to the JSE?

    <p>The revocation of a business license</p> Signup and view all the answers

    Which requirement applies to trading members authorized by another exchange?

    <p>They must comply with the capital adequacy requirements of that exchange.</p> Signup and view all the answers

    What reputation criteria must be met by those managing a trading member?

    <p>They must have a good reputation and high business standing.</p> Signup and view all the answers

    What is required to be reported if a trading member’s officer is found guilty of improper conduct?

    <p>Details regarding any officer's misconduct</p> Signup and view all the answers

    What happens to a trading member that does not meet the capital adequacy requirements set by the JSE?

    <p>They may be suspended by the JSE.</p> Signup and view all the answers

    Which action must a trading member take regarding shareholding changes?

    <p>Report any person holding 20% or more of shares</p> Signup and view all the answers

    What type of conduct must lead to the reporting of an employee’s dismissal?

    <p>Engaging in actions deemed fraudulent or disgraceful</p> Signup and view all the answers

    What is excluded when determining the assets of a trading member that trades solely for its own account?

    <p>Goodwill and other intangible assets</p> Signup and view all the answers

    What financial document must a trading member submit yearly?

    <p>Audited annual financial statements</p> Signup and view all the answers

    When must a trading member notify the JSE about director changes?

    <p>Immediately after a change occurs</p> Signup and view all the answers

    What should a trading member do if it has a beneficial interest in a client's share capital?

    <p>Inform the JSE in writing</p> Signup and view all the answers

    Which type of offence necessitates reporting if a trading member is convicted?

    <p>Any fraudulent activity or dishonesty</p> Signup and view all the answers

    What is the primary responsibility of a Compliance Officer?

    <p>To ensure compliance with the provisions of the Act and these rules.</p> Signup and view all the answers

    Which of the following is NOT a responsibility of the Settlement Officer?

    <p>Handling queries by the JSE in relation to compliance.</p> Signup and view all the answers

    What must a trading member do if they wish to continue business beyond two months without a compliance officer?

    <p>Register a Compliance Officer, Settlement Officer, and an Alternate Settlement Officer.</p> Signup and view all the answers

    In the absence of a Settlement Officer, which responsibilities does the Alternate Settlement Officer NOT handle?

    <p>Rectifying compliance breaches reported to the JSE.</p> Signup and view all the answers

    What qualifications must the Compliance Officer possess?

    <p>A qualification as required by the JSE.</p> Signup and view all the answers

    Which of the following statements correctly reflects the role of the Compliance Officer during a breach of the rules?

    <p>They need to take immediate steps to rectify a breach upon JSE request.</p> Signup and view all the answers

    What must all transactions settled by the Settlement Officer adhere to?

    <p>The rules and directives outlined by the JSE.</p> Signup and view all the answers

    What key role does the Alternate Settlement Officer serve?

    <p>To handle settlement queries and operations in the absence of the Settlement Officer.</p> Signup and view all the answers

    Study Notes

    JSE Compensation Funds

    • The JSE establishes and maintains compensation funds that pay claims arising from trading member defaults.
    • These funds cover liabilities arising from transactions in IRC securities, limited to transactions with or on behalf of other persons.
    • The JSE determines levies payable by trading members on IRC security transactions.
    • Trading members who effect transactions on behalf of others can recover the levy from the buyer or seller.
    • Trustees manage the compensation funds, including assets, liabilities, and income.

    JSE Membership Requirements

    • Trading members must comply with the rule requirements and any additional conditions set by the JSE.
    • The JSE maintains a register of all trading members, indicating their authorized user category.
    • A trading member can only have one clearing agreement with a clearing member for transaction settlement.
    • Trading members can be clearing members, including trading for and on behalf of clients.
    • Inter-dealer brokers (IDB) are a sub-category of trading members subject to IDB rules, but cannot be clearing members.

    JSE Rules and Directives

    • JSE IRC Rules and Directives aim to establish fair and regulated markets, ensuring orderly business practices according to the JSE's objectives and the Act.
    • These rules bind all trading members, officers, employees, clients, persons transacting with members, and CSDPs acting on behalf of members and clients.
    • All IRC security transactions by trading members are subject to the provisions of the Act, the Rules, and the Directives.

    JSE Clearing House

    • The JSE may appoint a clearing house or a clearing house and central counterparty (CCP) to clear and/or settle trades in IRC securities.
    • The clearing house/CCP plays a key role in ensuring efficient market operations by facilitating trade settlement and providing relevant services.

    JSE Market Integration

    • The JSE integrated its Yield-X and BESA markets, leading to a unified system for interest rate securities and currency derivatives.
    • It merged the Yield-X and BESA rules and directives, creating new JSE Interest Rate and Currency ("IRC") rules and directives.
    • All trading members are required to have the necessary systems, resources, and expertise for effective service delivery.

    JSE Trading Member Obligations

    • Trading members must ensure their compliance with the Act, relevant rules and directives, and the Financial Intelligence Centre Act.
    • Trading members must have adequate systems for managing their own and clients' funds.
    • Trading members must maintain accurate records of their own and clients' positions.
    • Trading members are responsible for reporting clients' transactions, cash balances, and positions to their clients in a timely manner.
    • Trading members must maintain financial resources conforming to their authorized user category requirements.
    • Trading members intending to enter transactions cleared by JSE Clear must appoint a clearing member or be authorized as one.
    • Trading members aiming to trade bonds through the JSE trading system must appoint a CSDP.

    JSE Officer Registration

    • Each trading member is obligated to ensure the registration with the JSE of a compliance officer, a settlement officer, and an alternate settlement officer.

    Compensation Funds

    • The JSE can establish compensation funds to pay claims up to a specified amount for liabilities arising before a trading member defaults.
    • Claims are limited to transactions in IRC securities with or on behalf of other persons by the trading member.
    • The JSE can determine a levy payable by trading members on transactions in IRC securities.
    • The trustees of the Compensation Funds administer the assets and liabilities of the funds including income from levies.

    General Membership Requirements

    • A trading member must comply with JSE requirements to be authorized to operate.
    • A trading member must enter into a clearing agreement with one clearing member for the clearing and settlement of transactions.
    • A trading member can be a clearing member and trade for and on behalf of clients.
    • Inter-dealer brokers (IDBs) are a sub-category of trading members subject to specific rules and cannot be clearing members.
    • A trading member that is a branch of a foreign bank and is exempt from submitting capital adequacy returns must comply with the Banks Act, 1990.
    • A trading member that does not trade in bonds, trades in derivative instruments listed on the JSE solely for its own account, and is exempt from monthly capital adequacy returns must ensure its assets exceed its liabilities (excluding loans).
    • A trading member that is an authorized user of another exchange and exempt from monthly capital adequacy returns must comply with the capital adequacy requirements of that exchange.
    • A trading member trading on behalf of clients but not receiving or holding clients' margins, or receiving other client assets, must have an initial capital of at least R200,000 or a higher amount determined by the JSE.
    • A trading member that receives or holds clients' margins, or receives other client assets, must have an initial capital of at least R400,000 or a higher amount determined by the JSE.
    • The JSE can suspend a trading member if its capital adequacy falls below the required level.

    General Requirements of Officers

    • A trading member must be managed and controlled by persons with a good reputation and high business standing.
    • A compliance officer must ensure compliance with the Act and rules, obtain required qualifications, rectify breaches and problems on request, receive and comply with notices from the JSE or JSE Clear or its clearing member, and ensure compliance with all prescribed agreements.
    • A settlement officer must obtain required qualifications, deal with JSE queries regarding settlement, ensure all transactions are settled according to rules, advise the JSE of potential settlement issues, and cooperate with the Settlement Authority.
    • An alternate settlement officer must have the same responsibilities as the settlement officer in their absence.
    • A trading member cannot carry on business for more than two months in any 12-month period unless it registers a compliance, settlement, and alternate settlement officer.
    • In the absence of an officer, a senior director can temporarily assume their responsibilities for no longer than two months.
    • A trading member must register traders with the JSE who are the only persons entitled to trade for the trading member's own account and on behalf of clients.
    • A trading member cannot trade without at least one trader present at the trading member's place of business unless the JSE grants temporary registration to a nominated person for 15 business days.

    Registration of Officers by the JSE

    • Applications for registration as a registered officer are made to the JSE in a prescribed manner.
    • Individuals seeking registration must satisfy general requirements and obtain a pass in relevant qualifications.
    • A trading member must notify the JSE in writing of its decision to terminate the registration of a registered officer.
    • The registration or termination of registration is effective on the date stipulated in the JSE's written notification to the trading member.

    Duty to Furnish Information

    • A trading member must immediately advise the JSE in writing of the granting, revocation, or recognition under any statutory enactment of any registration, authorization, or licence related to its business.
    • It must also inform the JSE of convictions of the trading member or its officers of any offenses related to banking, financial services, companies, insolvency, insurance, pensions, or fraud, as well as any changes in directors, office addresses, telephone or facsimile numbers, electronic mailing addresses, and changes in the particulars of officers.
    • A trading member must notify the JSE of any person holding or having a beneficial interest in 20% or more of any class of the share capital of the trading member, and of any changes in such holdings.
    • A trading member must inform the JSE if it or any employee holds or has a beneficial interest in any class of share capital of a client that is a company or in the membership interest of a client that is a close corporation.
    • A trading member must submit audited annual financial statements and audit reports to the Director: Market Regulation within three months after the end of its financial year.

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    Related Documents

    JSE Rules and Directives PDF
    JSE Rules and Directives PDF

    Description

    This quiz covers the fundamental aspects of the JSE Compensation Funds, including their purpose, management, and the levies determined by the JSE. Additionally, it delves into the requirements for trading members and their obligations within the trading system. Perfect for those interested in the trading processes of the Johannesburg Stock Exchange.

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