JSE Compensation Funds Overview

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.