JSE Controlling Body: Powers and Rules

Powers Exercisable by the Controlling Body

• The controlling body manages the affairs of the JSE.
• The controlling body can exercise all powers conferred by the Financial Markets Act (FMA), JSE's Memorandum and Articles of Association, and the Derivatives Rules.
• The controlling body can do anything that can be exercised or done by the JSE.

Purpose of the Derivatives Rules and Directives

• Achieve the objectives of the JSE as outlined in its Memorandum and Articles of Association.
• Establish procedures to regulate fair and efficient markets.
• Ensure the JSE's business is carried out in an orderly manner with regard to the objectives of the FMA.
• Derivatives rules and directives are binding on anyone using a trading member's services or concluding transactions with one.
• The controlling body must notify trading members of decisions made under the derivatives rules and directives.
• Every transaction in derivative securities entered into by a trading member must align with the FMA and derivative rules.
• These rules are available on the JSE website.

Appointment of a Clearing House

• The JSE can appoint a clearing house or central counterparty to clear and/or settle contracts.
• This appointment is made in accordance with derivatives rules.
• The clearing house can provide other functions, duties, services, and/or facilities required by the JSE.

General Membership of the JSE

• To qualify as a trading member, applicants must comply with general requirements in the Rules and Directives.
• Applicants must also comply with the specific requirements for trading members that participate in the commodity derivatives market and the equity derivatives market.
• The JSE must maintain a register of trading members.
• The register should indicate the category or sub-category of authorized user the trading member is authorized to operate in.
• A trading member may trade in one or more product categories or utilize the JSE's operational services, depending on the membership category.

General Requirements for Officers of Trading Members

• Officers of trading members must have full legal capacity, good character, and high business integrity.
• They should not be unrehabilitated insolvents and not have been involved in certain negative activities before the application, subject to any waiver by the JSE.
• Negative Activities to Avoid: Criminal offenses involving fraud, theft, dishonesty, or market abuse, being held civilly or administratively liable for similar misconduct.
• In addition officers must not have contravened legislation regarding market abuse, money laundering, or terrorist activities.

Requirements for Trading Members

• Partnerships must consist of two or more partners who are natural persons and comply with general rules.
• Corporate entities must not employ or associate with officers who don't meet requirements without JSE approval and must have a good reputation and high business standing.
• Trading members seeking admission within a specific membership categoryshall comply with additional requirements for that category.
• Trading members must maintain the necessary procedures, systems, facilities, resources, and expertise.
• This is to ensure effective performance of regulated services
• Also, compliance with the Act, Rules, directives, and the Financial Intelligence Centre Act.
• Furthermore it is important that the management of their own and clients' funds is adequate and in accordance with the Derivatives Rules.
• Accurate record-keeping of positions and timely reporting to clients is paramount.
• Trading members must also comply with all financial resources requirements as prescribed in the Derivatives Rules.

Applications for Membership

• Applications must be made to the JSE in the prescribed manner and form.
• Applications should indicate the desired membership category.
• Trading members who are partnerships, must include a signed copy of the partnership deed.
• The JSE must be satisfied that all partners are jointly and severally liable for debts and obligations.
• Close corporations or corporate entities must include a signed copy of the founding statement or memorandum and articles of association.
• Applicants must also provide registration applications, recent financial statements, details of the auditor, and a completed clearing agreement.
• The JSE can request further information and institute investigations to verify information submitted by an applicant.
• Investigations may involve interviewing the applicant or representatives.
• Upon approval, the trading member gains membership and status in the determined sub-category.
• The JSE will notify trading members of the admission of a new trading member.

Voluntary Changes to, or Termination of, Membership

• Termination: A trading member can terminate membership with 30 days' written notice to the JSE.
• The Membership Committee may accept termination unconditionally or refuse it until all obligations are satisfied.
• If a trading member wishes to change its authorized user status, the provisions of the previous rule apply.
• Changes in name or corporate structure must be promptly communicated to the JSE in writing with necessary information determine from to time.
• A corporate entity changing it's name must include the relevant certificate of name change.
• If a trading member's business is transferred to another legal entity, inform the JSE one month before the change.
• Include all information required for a new membership application
• The JSE will notify trading members of any terminations or membership changes
• Termination becomes effective on the date and time of the notice

Involuntary Termination of Membership

• The Membership Committee may terminate membership if a trading member dies, is placed under curatorship, or their estate is sequestrated.
• Termination can occur if the trading member is placed in liquidation or insolvency proceedings, or compromises with creditors.
• Failing to satisfy a judgment or award, decision by the Disciplinary Committee, or default can also lead to termination.
• Failure to enter a clearing agreement or a decision by the controlling body can also facilitate termination.
• The JSE will notify the trading member in writing of the decision to terminate membership.
• A trading member aggrieved by the JSE's decision to terminate their membership may appeal to the appeal board.

Duty to Furnish Information

• Trading members must inform the JSE in writing of various events, including:
  • Granting or revocation of recognition under statutory enactments;
  • Commission or conviction of any offense;
  • Changes in directors or partners as they relate to the organization;
  • Changes in office address, telephone, or electronic addresses;
  • Any misconduct or change in an officer's particulars.
• Furthermore, trading members are obligated to notify the JSE in writing for matters relating to:
  • Any dismissal of an employee for committing a dishonest act
  • The holding of beneficial interest of 20% or more of any class of share capital.

Financial Reporting

• Within three months of its financial year-end, trading members must submit a copy of audited financial statements and the required audit report to the Director: Market Regulation.

Capital Adequacy

• Trading members must submit the prescribed monthly capital adequacy return to the Director: Market Regulation within ten business days of the month's end.
• A member shall comply with capital adequacy requirements, failure to submit this return timeously may result in suspension.
• Certain trading members, such as banks or branches of foreign banks trading solely for their own account, may be exempt from submitting the monthly return.
• This exemption is conditional on advising the JSE in writing that they meet the requirements.
• Authorized users of another exchange may apply in writing to the Director: Market Regulation.
• Requests can be made for exemption from submitting the monthly return.
• This is possible if the capital requirements of the other exchange are similar to the JSE's.
• The Director will consider activity undertaken by the trading member on both exchanges to determine a lead regulator.
• If an exemption is granted, the trading member may still be required to submit a copy of the capital adequacy return submitted to the other exchange at any time.
• Despite being exempt from submitting monthly returns, trading members must advise the Director: Market Regulation if they fail to meet capital adequacy requirements.

Fees, Levies and Charges

• Trading members using JSE services must pay fees and charges prescribed by the JSE.
• The JSE may prescribe subscriptions paid by trading members via directive.
• Subscriptions are paid annually in advance during January for each JSE financial year.
• New trading members will begin payments from the month of admission.
• Fees are not refundable to trading members ceasing to be a trading member.
• Changes in subscription amounts apply from the date the change occurred.
• The JSE may impose a levy on every trading member.
• This levy is in addition to fees and charges, which the trading member may recover from clients.
• Subscriptions, fees, charges, contributions, or levies must be paid.
• Failure to make due payment within one month after written demand may result in the trading member ceasing to be a trading member.

Consent Required for Employment of Certain Persons

• Trading members must obtain written consent from the JSE before employing certain individuals.
• These individuals are partners, officers, or employees of a trading member expelled from the JSE.
• Employment without written consent can also not be provided to;
  • A sole proprietor or partner whose membership has been terminated by the JSE
  • Any person refused approval to operate as a financial services provider
  • Someone previously expelled from another exchange
  • Any person who is an unrehabilitated insolvent or has been a defaulter or has been convicted of theft, fraud, forgery, or any other crime involving dishonesty

Trading Name

• The JSE can refuse membership based on the trading name if it deems the propose name as inappropriate or unacceptable.

Notices

• Notice to the JSE by trading members: They must provide a business and postal address, along with a secured electronic delivery mechanism address for receiving notices.
• Notice to trading members: The JSE will provide any notice in writing.
• Notices can be delivered electronically, physically, or by registered post.
• Physical notices delivered before 16:00 on a business day are deemed received on that day.
• Those sent before 16:00 via electronic means are also considered received on that day.

Derivatives Membership

• Trading members can be authorized to trade in the equity or commodity derivatives market or both.
• Clearing members can be authorized to perform clearing in the equity or commodity derivatives market or both.

Interest Rate Market

• The interest rate market allows participants to trade interest rate derivatives.
• The JSE has listed multiple interest rate derivatives, including futures and options on government and state-owned company debt.
• The JSE has listed Short Term Interest Rate (STIRs) Futures (Jibar Futures) and Long Term Interest Rate (LTIRs) Futures (Swap Futures).
• The Interest Rate Derivatives Market facilitates both on- and off-screen trades.
• All exchange-traded Interest Rate Derivative positions are margined and cleared by JSE Clear, reducing counterparty credit risk.
• The regulatory team ensures fair pricing and compliance with JSE rules through real-time surveillance of transactions

How to Participate in the Interest Rate Derivatives Market

• Membership is open to all market participants who actively trade in securities.
• Members must comply with the JSE's Interest Rate and Currency market requirements.

Clearing Agreement

• A trading member may enter into a clearing agreement with only one clearing member to perform clearing and settlement.
• To enter an agreement, members: Must be a clearing member, shall not be a natural person, and maintain administrative systems and expertise.
• They must also ensure; proper management of funds, accurate tracking of positions, and timely reporting of clients trades.

Capital Adequacy Requirements

• A trading member must have own funds equal to the greater of specified items.
• These include initial capital, thirteen weeks of operating costs, position risk requirement, settlement risk requirement, large exposure risk requirement, and foreign exchange risk requirement.
• The final calculation also has to satisfy a formula using the above requirements and considerations.
• The formula that the requirements need to satisfy are: ONF > CAR and CAR = (greater of ICR or AOC/4) + PRR + CRR + FXR + LPR
• Where variables in the formula stand for various factors in the business such as own funds, capital, or annual operating costs
• An external company must submit proof of compliance with Section 23 of the Companies Act by providing the JSE with the certificate of registration.
• The own funds of the local branch must be equal to or greater than the amount provided for in JSE Derivative Rules.
• The foreign parent must confirm in writing that it complies with similar capital adequacy requirements and reports to an appropriate foreign regulator.
• The thirteen-week operating costs requirement relates to the operating costs of the local branch.

Capital Adequacy exemptions

• A trading member that is a branch of a foreign bank and is exempt from the requirement to submit monthly capital adequacy returns doesn't need to comply with the Capital Adequacy Rules
• The previous trading member rather requires compliance due to them having requirements as prescribed by the Banks Act, 1990 (Act No. 94 of 1990) and the regulations made under that Act.
• A trading member trading solely for its own account and is exempt from submitting monthly capital adequacy returns.
• It must ensure its assets exceed liabilities.
• Exceptions; excluding goodwill, other intangible assets, and loans validly subordinated in favor of other creditors
• An authorized user of another exchange and is exempt from submitting monthly capital adequacy returns need only comply with the requirements of such other exchange.
• A trading member, who is an authorised user of another exchange that trades on behalf of clients but does not receive or hold any assets of a client need only have an initial capital of at least R200,000.
• Capital will be at a minimum amount decided on by the JSE.
• A trading member; who receives client's margins or holds clients' margins or that receives any other assets of its client must start at at least R400 000, again, this is the minimum amount that the JSE may decide.
• The JSE can suspend a trading member if there is a deficiency in capital adequacy.

Registered Officers

• Trading Members' must ensure registration of Officers with JSE that will serve as Compliance Officers, with a certain requirement.
• Compliance officers are responsible for ensuring compliance with the provisions of the Act and these Derivatives Rules.
• They must have qualifications required by the JSE.
• In response to derivatives rules breach compliance officers must take steps to rectify any breach or query from JSE upon it's initial request.
• Compliance Officers must receive all notices to the tradimember
• Ensure that member are compliant with all of the Derivatives Rules
• Trading members must appoint Compliance Officers, where the post has become vacant, it will by default be; the sole proprietor, or the senior partner, or the senior director.
• Whoever takes the roll shall only assume the responsibility of the compliance officer no longer than 2 months.
• Make sure that JSE of traders will give all of the members benefits and that these members will be for or on or in behalf of the companies clients.
• Members must receive all of the above qualifications to properly take on the role by JSE

Terminations

• To note, It will still happen that traders do not associate with another Trader.
• Where No trader shall trade with a person whom the respective Trader knows is not registered as trading member
• The Trading member shall make JSE notifcations via writing for any termination of registration for Officers.
• To add to this , termination may even trigger a follow-up JSE response to know every underlying problem of a incident.

Explore the powers of the JSE's controlling body in managing affairs and ensuring orderly business. Understand the purpose of derivatives rules and directives in regulating fair markets and ensuring compliance with the Financial Markets Act. Learn how these regulations impact trading members and their transactions.