JSE Interest Rate and Currency Derivatives Rules
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Questions and Answers

Which of the following statements about inter-dealer brokers (IDB) is correct?

  • An IDB must trade without taking a proprietary position when acting for clients. (correct)
  • An IDB's business activities are unrestricted in the JSE listed bonds.
  • An IDB may arrange transactions only on a name give-up basis.
  • An IDB can act as a clearing member.

    • What is a requirement for an IRC trading member authorized as an IDB?

  • It can only operate on a matched principal basis.
  • It must conduct proprietary trading as a primary function.
  • It is allowed to impose its own restrictions on trading activities.
  • It must provide a list of clients upon request for matched principal transactions. (correct)

    • In the context of an IDB, which of the following activities is explicitly prohibited?

  • Arranging matched principal transactions.
  • Arranging transactions on a name give-up basis.
  • Trading with or on behalf of two other parties.
  • Taking proprietary positions when trading for clients. (correct)

    • What condition may the JSE impose on an IRC trading member authorized as an IDB?

    <p>Conditions on the specific IRC securities for which services are provided.</p> Signup and view all the answers

    Which of the following best describes the nature of transactions arranged by an IDB?

    <p>They must be conducted on a name give-up basis or matched principal basis.</p> Signup and view all the answers

    What is the primary purpose of the JSE Interest Rate and Currency Derivatives Rules and Directives?

    <p>To establish and regulate fair and efficient markets.</p> Signup and view all the answers

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

    <p>All trading members, their clients, and any person concluding transactions.</p> Signup and view all the answers

    What condition must be met for transactions in IRC securities to be valid?

    <p>They must be concluded subject to the provisions of the Act and the rules.</p> Signup and view all the answers

    What is the role of the clearing house appointed by the JSE?

    <p>To clear and/or settle trades in IRC securities.</p> Signup and view all the answers

    Which markets were integrated to form the basis of the JSE IRC Rules and Directives?

    <p>BESA and Yield-X.</p> Signup and view all the answers

    What terminology is used to describe the updated rules after the integration of Yield-X and BESA?

    <p>JSE Interest Rate and Currency Rules and Directives.</p> Signup and view all the answers

    What was a necessary provision to carry out the integration of the Yield-X and BESA markets?

    <p>Adoption of transitional provisions.</p> Signup and view all the answers

    Why is the framework established by the JSE essential for the business conduct?

    <p>To ensure orderly business operations with compliance.</p> Signup and view all the answers

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

    <p>To limit claims to transactions involving IRC securities.</p> Signup and view all the answers

    Which of the following statements is true regarding the income of the Compensation Funds?

    <p>It includes levy contributions from trading members.</p> Signup and view all the answers

    What authority does the JSE have concerning settlement systems?

    <p>To create and enforce regulations on trading members' use of settlement systems.</p> Signup and view all the answers

    How does the JSE manage claims arising from defaulting trading members?

    <p>Only claims with no defenses from the trading member are honored.</p> Signup and view all the answers

    What is a prerequisite for being classified as a trading member at the JSE?

    <p>Complying with additional requirements as determined by the JSE.</p> Signup and view all the answers

    In what scenario can a trading member recover the levy imposed by the Compensation Funds?

    <p>For transactions conducted on behalf of a buyer or seller of IRC securities.</p> Signup and view all the answers

    What restriction applies to trading members regarding clearing agreements?

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

    What role do trustees play in relation to the Compensation Funds?

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

    What is the minimum notice period required for a trading member to inform the JSE of a change in business infrastructure?

    <p>One month</p> Signup and view all the answers

    Which of the following must accompany the notification of a business change to the JSE?

    <p>A certificate of name change</p> Signup and view all the answers

    What may the JSE request when a trading member notifies them of a change in business?

    <p>Full particulars regarding the change and reasons for it</p> Signup and view all the answers

    Under which circumstance may the JSE require a new application for membership?

    <p>When a merger or transfer occurs</p> Signup and view all the answers

    What does the termination of or change in membership notify to trading members?

    <p>The effective date and time of such termination</p> Signup and view all the answers

    Which of the following options describes a situation that would NOT require notification to the JSE?

    <p>A minor personnel change within the trading member's firm</p> Signup and view all the answers

    What could be a potential consequence of failing to notify the JSE of a change in business one month prior?

    <p>Possible penalties or sanctions</p> Signup and view all the answers

    In the context of informing the JSE, what might the term 'change' include?

    <p>Infrastructural shifts that affect trading</p> Signup and view all the answers

    What is the minimum initial capital required for a trading member who does not receive or hold a client's margins?

    <p>R200 000</p> Signup and view all the answers

    Which scenario may lead to the suspension of a trading member by the JSE?

    <p>Deficiency in capital adequacy</p> Signup and view all the answers

    How long must a trading member give notice to terminate its membership?

    <p>30 days</p> Signup and view all the answers

    What must be fulfilled before the termination of membership is accepted by the Membership Committee?

    <p>No outstanding obligations</p> Signup and view all the answers

    What is the initial capital requirement for a trading member who holds client margins?

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

    What must a trading member do in case of changes in name or corporate structure?

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

    What consequence can arise from the JSE's decision regarding membership termination?

    <p>Acceptance based on conditions deemed fit</p> Signup and view all the answers

    What must happen for a trading member to change sub-categories of authorized users?

    <p>Apply mutatis mutandis</p> Signup and view all the answers

    What limitation is placed on claims paid from the Compensation Funds?

    <p>Claims limited to transactions in IRC securities with other persons</p> Signup and view all the answers

    What is required for a trading member to recover the levy imposed by the Compensation Funds?

    <p>The trading member may recover the levy from the buyer or seller</p> Signup and view all the answers

    What authority do trustees have concerning the assets of the Compensation Funds?

    <p>Trustees acquire, incur, and administer the assets and liabilities</p> Signup and view all the answers

    What is the nature of the fees that trading members must pay for using settlement systems?

    <p>The fees are determined by the JSE without negotiation</p> Signup and view all the answers

    What category of member can trade for and on behalf of clients?

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

    Which statement is true regarding the general membership requirements for trading members?

    <p>Only applicants who meet specified criteria can become trading members</p> Signup and view all the answers

    How are the claims against defaulting trading members handled?

    <p>Clauses must clarify the member's defenses against claimants</p> Signup and view all the answers

    What is true about a trading member's clearing agreement?

    <p>A trading member must clear all transactions through the same clearing member</p> Signup and view all the answers

    What is the primary purpose of the JSE Interest Rate and Currency Derivatives Rules and Directives?

    <p>To regulate fair and efficient markets</p> Signup and view all the answers

    Which entities are considered bound by the JSE Interest Rate and Currency Derivatives Rules and Directives?

    <p>All designated trading members, their staff, and clients</p> Signup and view all the answers

    What condition must be met for a transaction in IRC securities to be valid?

    <p>It must be in accordance with specific provisions as outlined by related rules</p> Signup and view all the answers

    What function does the JSE appoint a clearing house or CCP to perform?

    <p>To clear and settle trades in IRC securities</p> Signup and view all the answers

    What was the significant change involving Yield-X and BESA in relation to the JSE?

    <p>Yield-X and BESA rules were combined and renamed</p> Signup and view all the answers

    Which statement correctly describes the transitional provisions regarding the JSE markets?

    <p>They were essential to ensure the integration was carried out effectively</p> Signup and view all the answers

    How does the JSE ensure that trading is conducted efficiently and orderly?

    <p>Through established rules and directives that regulate conduct</p> Signup and view all the answers

    What is implied by the requirement that every IRC securities transaction must be concluded subject to the JSE Rules?

    <p>It creates a binding legal obligation to follow specific regulations</p> Signup and view all the answers

    What is included in the capital adequacy requirements that a trading member must satisfy?

    <p>Fixed operating costs, position risk, counterparty risk, large exposure risk, and foreign exchange risk</p> Signup and view all the answers

    Which statement correctly describes the capital adequacy requirements for trading members that are external companies?

    <p>Their foreign parent must confirm compliance with similar capital adequacy requirements in writing.</p> Signup and view all the answers

    In which scenario is a trading member exempt from submitting monthly capital adequacy returns?

    <p>When it trades derivatives solely for its own account and does not trade bonds</p> Signup and view all the answers

    What must the capital adequacy requirements for a trading member that is a branch of a foreign bank adhere to?

    <p>Capital adequacy requirements under the Banks Act, 1990 and its regulations</p> Signup and view all the answers

    Which of the following is NOT a requirement stated for a trading member that trades derivatives?

    <p>Monthly capital adequacy returns to the Director: Market Regulation</p> Signup and view all the answers

    What is the requirement regarding the operating costs for external companies as trading members?

    <p>Thirteen weeks fixed operating costs must be maintained.</p> Signup and view all the answers

    What is required from the foreign parent company of a local branch regarding capital adequacy?

    <p>Written confirmation stating compliance with similar capital adequacy requirements</p> Signup and view all the answers

    Which of the following risks is NOT part of the capital adequacy requirements for trading members?

    <p>Operational risk</p> Signup and view all the answers

    What is the minimum initial capital a trading member must hold if they receive client margins?

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

    What action may the JSE take if a trading member has capital adequacy deficiencies?

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

    What must a trading member do to terminate its membership?

    <p>Provide 30 days written notice</p> Signup and view all the answers

    What should a trading member do upon a change in their corporate structure?

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

    What happens if a trading member's request for termination is not accepted by the Membership Committee?

    <p>The member must continue to trade</p> Signup and view all the answers

    Who has the authority to determine the minimum capital requirements for trading members?

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

    Which of the following is NOT a condition for a trading member's termination of membership?

    <p>Approval from the trading member's clients</p> Signup and view all the answers

    Which initial capital amount is required for a trading member who does not handle any client's assets?

    <p>R200 000</p> Signup and view all the answers

    What is the minimum time frame for a trading member to inform the JSE of a business transfer?

    <p>One month</p> Signup and view all the answers

    Which requirement must accompany a notification of changes in business to the JSE?

    <p>Relevant certificate of name change</p> Signup and view all the answers

    What discretion does the JSE have regarding a trading member's change in business?

    <p>To require additional documentation</p> Signup and view all the answers

    What is the effect of the JSE's notification to a trading member regarding membership termination?

    <p>It becomes effective immediately unless specified otherwise.</p> Signup and view all the answers

    In what scenario may the JSE require a trading member to submit a new application for membership?

    <p>If the trading member's business structure is significantly altered</p> Signup and view all the answers

    What types of business changes must a trading member inform the JSE about?

    <p>Any transfer to another legal entity including mergers and restructuring</p> Signup and view all the answers

    What could happen if a trading member fails to notify the JSE of a business change within the stipulated time frame?

    <p>The member’s trading privileges may be suspended.</p> Signup and view all the answers

    What type of information must be provided to the JSE alongside the notification of a business change?

    <p>Details akin to a new application for membership</p> Signup and view all the answers

    Study Notes

    Purpose of the JSE Interest Rate and Currency Derivatives (IRC) Rules and Directives

    • To establish and regulate fair and efficient markets
    • To ensure the business of the JSE is carried out in an orderly manner, with due regard to the objects of the Act

    Who are the Rules and Directives Binding Upon

    • Trading members
    • Officers of trading members
    • Employees of trading members
    • Clients of a trading members
    • Any other person who concludes a transaction with a trading member in the course of that trading member's business
    • CSDP's acting on behalf of trading members and their clients

    Transaction in IRC Securities

    • Every transaction in IRC securities requires the transaction to be entered into subject to the provisions of:
      • The Act
      • The JSE Interest Rate and Currency Derivatives (IRC) Rules and Directives
      • The Directives

    Clearing Houses

    • The JSE may appoint a clearing house or a clearing house and central counterparty (CCP)
    • Purpose: to clear and / or settle trades in IRC securities on the JSE in accordance with the Rules

    Transitional Provisions

    • JSE markets Yield-X and BESA were integrated

    • Yield-X's rules and directives form the basis of the rules and directives for the integrated markets, with amendments having been made to give effect to the integration.

    • The integrated markets were re-named as the JSE Interest Rate and Currency ("IRC") Rules and Directives

    Compensation Funds

    • The JSE has the power to establish and maintain one or more Compensation Funds:
      • To pay claims in respect of liabilities arising prior to the default of a trading member
      • The payment is limited to claims arising out of transactions in IRC securities with or on behalf of other persons by such trading member and such other liabilities as may be specified in the rules of the Compensation Funds
      • The payment is subject to any defences which the defaulting trading member may have against a claimant
    • The JSE has the power to determine a levy to be payable by every trading member to the Compensation Funds on transactions in IRC securities.

    Settlement Systems

    • The JSE may operate, or contract with a third party to operate, one or more settlement systems.
    • The JSE may prescribe:
      • Procedures and requirements with which trading members must comply when using such settlement systems
      • The fees payable by trading members for the use of such settlement systems

    General Membership Requirements

    • In order to qualify to be a trading member, an applicant must comply with the requirements set out in this rule and such other requirements as the JSE may determine.
    • The JSE keeps a register of all trading members indicating in which category or sub-category of authorised user the trading member has been authorised to operate.

    Categories of Membership

    • A trading member may only enter into a clearing agreement with one clearing member to perform the clearing and settlement of the transactions of that trading member.
    • A trading member may be a clearing member and may trade for and on behalf of clients.
    • An "inter-dealer broker" (IDB) is a sub-category of trading member:
      • That is subject to the rules pertaining to IDBs
      • That may not be a clearing member.

    Specific Requirements Applicable to Inter-Dealer Brokers (IDB)

    • Business activities in the JSE listed bonds must be limited to:
      • Arranging transactions between two counterparties on a name give-up basis
      • Trading with or on behalf of two other parties on a matched principal basis
    • When transacting in bonds with or on behalf of other trading members or clients on a matched principal basis, it may not take a proprietary position against the other trading member or the client
    • It must, on request from any trading member with or on whose behalf it is going to trade in bonds as a matched principal, provide the list of clients who may be the opposite counterparties to such transactions.

    Trading Member Capital Requirements

    • A trading member who trades on behalf of clients but does not receive a client's margins or hold the client's margins or who does not receive any other assets of a client with respect to the client's buying and selling of JSE authorised investments, shall have an initial capital of at least R200 000 or such other minimum amount that the JSE may decide.
    • A trading member who receives a client's margins or holds the clients' margins, or that receives any other assets of a client with respect to the client's buying and selling of JSE authorised investments, shall have an initial capital of at least R400 000, or such other minimum amount that the JSE may decide.
    • The JSE may suspend a trading member if there is a deficiency in the capital adequacy of the trading member.

    Voluntary Changes to, or Termination of, Membership

    • A trading member wishing to change its authorised user status or wishes to obtain authorisation to operate in another sub-category of authorised user, shall apply mutatis mutandis.
    • A trading member undergoing any of the changes in name or corporate structure:
      • Shall forthwith inform the JSE in writing of the change
      • The notification shall be accompanied by the relevant certificate of name change
      • If a trading member's business or infrastructure relating to trading in IRC securities is transferred to another legal entity, the notification shall be accompanied by such information as would be required in the case of a new application for membership.
    • A trading member may apply to terminate its membership by giving 30 days written notice to the JSE.
    • The Membership Committee may accept the termination unconditionally or subject to such conditions as it may deem fit or may refuse to accept the termination until it is satisfied that all outstanding contractual or other obligations of the trading member have been met.
    • The JSE shall notify trading members of the termination of or change in membership, and the termination shall become effective on the date and time of the notice, unless stated otherwise in the notice.

    Purpose of the JSE IRC Rules

    • The JSE IRC rules establish and regulate fair and efficient markets for interest rate and currency derivatives.
    • The rules are designed to ensure all business of the JSE is conducted in an orderly manner.

    Binding Parties

    • All trading members are required to follow the rules.
    • This extends to trading members' employees, clients, and any other individual who has concluded a deal with a trading member.
    • Central Securities Depositories (CSDP's) who act for trading members and their clients are subject to the rules.

    Application of the Rules

    • All dealings in IRC securities by trading members are subject to the provisions of the Act, JSE IRC Rules, and issued directives.

    Clearing House Appointment

    • The JSE may appoint a clearing house or a clearing house and central counterparty (CCP).
    • These bodies are responsible for clearing and settling trades in IRC securities on the JSE.

    Integration of Yield-X and BESA

    • The Yield-X and BESA markets were integrated, merging the rules and directives of the two exchanges.
    • The integrated rules and directives are now referred to as the JSE Interest Rate and Currency (IRC) Rules and Directives.

    Compensation Funds

    • The JSE has the authority to establish and maintain compensation funds.
    • These funds cover claims arising from trading member defaults up to a specified limit.
    • Trading members are subject to a levy on transactions in IRC securities, with the income of the funds administered by trustees.

    Settlement System

    • The JSE may operate, or contract with a third party to operate, one or more settlement systems.
    • The JSE sets procedures for trading members using these systems, including fees payable.

    General Membership Requirements

    • Applicants for trading membership must meet specific requirements established by the JSE.
    • A register records all trading members and their authorized user status.

    Categories of Membership

    • A trading member can only have a clearing agreement with a single clearing member for the clearing and settlement of their trading activities.
    • Trading members can be clearing members themselves and act on behalf of clients.

    Capital Adequacy Requirements

    • Trading members must maintain a specific level of own funds, calculated based on various components (initial capital, operating costs, risk requirements).
    • A formula is used to ensure these requirements are met.
    • Different requirements apply to trading members that are external companies, branches of foreign banks, authorized users of other exchanges, and those trading solely for their own account.
    • The JSE may suspend a trading member if there is a deficiency in their capital adequacy.

    Voluntary Changes and Termination of Membership

    • Trading members may apply to change their authorized user status or terminate their membership.
    • The JSE will notify trading members of membership termination or changes. The termination becomes effective on the date and time specified in the notice.

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    This quiz covers the purpose, binding parties, and transaction regulations related to the JSE Interest Rate and Currency Derivatives (IRC) Rules and Directives. Understand how these rules ensure fair markets and orderly transactions. Perfect for those studying financial regulations and market operations.

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