JSE Investments: Mandates & Objectives
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Questions and Answers

What is a key requirement for an arrangement where an ISP manages JSE authorised investments on behalf of a client?

  • It must be approved by the Financial Sector Conduct Authority (FSCA).
  • It must include a clause limiting the ISP's liability.
  • It must be overseen by an external auditor.
  • It must be recorded in a written mandate. (correct)

What is a critical element an ISP must do when managing JSE authorised investments for a client, regarding investment objectives and needs?

  • Guarantee a minimum return on investment.
  • Obtain information regarding the client's financial situation and investment objectives. (correct)
  • Prioritize maximizing the ISP's commission above all else.
  • Only consider investments within a specific sector mandated by the JSE.

What specific action must an ISP take in their books of account regarding client accounts they manage?

  • Commingle client funds with the ISP's operational funds.
  • Anonymize client account details for privacy reasons.
  • Aggregate all client accounts under a single portfolio.
  • Distinguish those client accounts in respect of which the ISP manages investments. (correct)

Under what circumstance can an ISP conduct transactions in derivative instruments on behalf of a client?

<p>Only with the specific prior written consent of the client. (D)</p> Signup and view all the answers

What must an ISP do before obtaining specific consent from a client for derivative instrument transactions?

<p>Advise the client, in writing, of the risks associated with trading in derivative instruments. (B)</p> Signup and view all the answers

When is an ISP permitted to effect transactions in JSE authorised investments other than equity securities on behalf of a client?

<p>When the client has given general consent in the mandate. (A)</p> Signup and view all the answers

What is a mandatory inclusion in the mandate between an ISP and a client regarding foreign investments?

<p>A statement pertaining to the risks associated with foreign investments, with particular reference to any currency risk. (B)</p> Signup and view all the answers

What information must an ISP furnish to a client, upon request, regarding foreign investments made on their behalf?

<p>The name of the licensed external exchange on which the foreign investments are listed, if applicable. (A)</p> Signup and view all the answers

In providing advice to a non-professional client in respect of JSE authorised investments, what should the ISP ensure?

<p>That the client understands any advice that has been provided, as well as the nature and material terms and risks involved. (A)</p> Signup and view all the answers

Under what circumstances may a member provide unsolicited advice to a client to transact in derivative instruments?

<p>When the member has considered whether such investments are appropriate for the client in relation to the client's financial situation, investment experience and investment objectives and advised the client, in writing, of the risks associated with trading in derivative instruments. (B)</p> Signup and view all the answers

Under what condition do the JSE's authorisation rules for ISPs managing JSE authorised investments other than equity securities apply?

<p>If the majority of the member's business activities relate to trading in JSE listed securities as an authorised user of any of the JSE markets. (D)</p> Signup and view all the answers

What is the determining principle for whether the JSE will regulate an ISP's activities in relation to JSE authorised investments other than equity securities?

<p>Whether the member's business is predominantly conducted on the markets provided by the JSE as an authorised user of those markets. (D)</p> Signup and view all the answers

What action is required if a member believes their activities in JSE authorised investments other than equity securities may not be authorised by the JSE?

<p>Advise the Director: Surveillance accordingly. (B)</p> Signup and view all the answers

What factors will the Director: Surveillance consider when determining a member's activity in JSE listed securities as an authorised user of any of the JSE markets?

<p>The value of client assets managed by the member in relation to the respective areas of business activity. (C)</p> Signup and view all the answers

What happens if the Director: Surveillance determines that the JSE will not authorise a member's activities in relation to JSE authorised investments other than equity securities?

<p>The provisions of rules 8.120 and 8.130 will not apply to that member to the extent that those rules relate to such investments, as the member's activities in relation to such investments will instead be regulated under the rules of the other JSE market or the other exchange, or under the FAIS Act, whichever is applicable. (B)</p> Signup and view all the answers

Which of the following is NOT a required element of an investment mandate between an ISP and a client?

<p>A guarantee of specific investment returns. (D)</p> Signup and view all the answers

What primary purpose should discretion exercised by an ISP NOT have when managing investments for a client?

<p>Maximizing the ISP's commission income. (D)</p> Signup and view all the answers

If a client provides general consent for an ISP to effect transactions in JSE authorised investments, what additional step is required before derivative instruments can be traded?

<p>Specific prior consent of the client, in writing. (B)</p> Signup and view all the answers

What specific information regarding risks must an ISP disclose to a client before obtaining consent for derivative transactions?

<p>The risks associated with trading in derivative instruments. (C)</p> Signup and view all the answers

An ISP manages foreign investments must, on request by a client, furnish the client with the following information.

<p>The name of the licensed external exchange on which the foreign investments are listed, if applicable. (D)</p> Signup and view all the answers

Which of the following best describes the 'overriding principle' used to determine JSE regulation of ISP activities related to non-equity JSE authorised investments?

<p>Whether the ISP's business is primarily conducted on JSE markets as an authorised user. (D)</p> Signup and view all the answers

According to the rules, what should an ISP prioritize when managing JSE authorised investments on behalf of a client?

<p>Suiting the clients risk profile and financial needs. (A)</p> Signup and view all the answers

An ISP is considering investing a client's funds in foreign markets. Which of the following steps is MOST critical BEFORE proceeding?

<p>Ensuring the mandate stipulates authority to invest in foreign investments and contains a statement pertaining to currency risk. (A)</p> Signup and view all the answers

A client requests that their ISP provide details about the specific regulator overseeing the foreign financial services provider used for their investments. What is the MOST likely reason for this request?

<p>The client wishes to verify the legitimacy and regulatory compliance of the foreign provider. (C)</p> Signup and view all the answers

An ISP's primary business involves managing JSE-listed equity securities. However, they plan to expand into managing other JSE-authorised investments. What is a KEY factor the JSE's Surveillance Director will assess to determine which regulatory framework applies?

<p>Whether the value of transactions in JSE-listed equities exceeds the value in other JSE-authorised investments. (B)</p> Signup and view all the answers

An ISP advises a client on JSE Authorised Investments. According to the rules, all of the following must be obtained from the client EXCEPT:

<p>A written guarantee to hold investments for a minimum time period. (B)</p> Signup and view all the answers

In the context of an ISP providing advice to a client, what does 'sound advice' primarily entail? Consider regulatory expectations and client welfare.

<p>Advice based on thorough understanding of the client's circumstances, enabling informed decisions. (C)</p> Signup and view all the answers

An ISP wants to offer JSE authorised investments beyond equity securities to clients. The Director: Surveillance is evaluating whether JSE rules should apply. What would be the MOST significant factor leading the Director to conclude that the FAIS Act should govern these activities instead?

<p>The ISP's revenue from non-equity JSE investments far exceeds that from equity securities. (C)</p> Signup and view all the answers

An ISP decides to cease managing foreign investments for a client. Which action is MOST essential to undertake promptly?

<p>Advising the client and ensuring the client is aware authority to invest would expire, in line with regulations. (B)</p> Signup and view all the answers

An ISP is developing a new investment strategy involving complex derivative instruments and wants to promote it to attract new clients. What specific step should the ISP take to ensure compliance with regulations related to unsolicited advice?

<p>Fully assess the appropriateness of such investments for individual clients beforehand and fully disclose all associated risks in writing. (D)</p> Signup and view all the answers

Your firm, an ISP, manages a client's portfolio that includes foreign investments. The client unexpectedly passes away. What immediate action MUST you take regarding the foreign investments to ensure compliance with regulatory requirements?

<p>Obtain legal clarification on the authority to continue managing the investments and inform the relevant parties. (A)</p> Signup and view all the answers

Imagine you are an auditor reviewing the practices of an ISP. You discover that the ISP is heavily promoting a relatively new JSE-authorised investment product they barely understand themselves. What regulatory concern should you MOST urgently raise with the ISP's compliance officer?

<p>The ISP may not be adequately assessing the suitability of the product for their clients, potentially leading to mis-selling. (A)</p> Signup and view all the answers

You're an ISP managing investments for a South African client who is temporarily working abroad. The client requests that you transfer their foreign investments to a bank account in their current country of residence. What specific regulatory consideration MUST you address BEFORE fulfilling this request?

<p>Ensuring the client understands the tax implications and reporting requirements in both South Africa and their country of residence. (D)</p> Signup and view all the answers

An ISP has identified a potential conflict of interest where the ISP's own financial interests could be prioritized over the client's. What action MUST the ISP take to comply with regulatory requirements?

<p>Implement internal controls to mitigate the conflict and fully disclose the conflict to the client. (A)</p> Signup and view all the answers

A client, new to investing, approaches your firm (an ISP) requesting advice on JSE Authorised Investments. The client emphasizes a desire for high returns with minimal risk. As a responsible advisor, what is your MOST appropriate course of action considering regulatory expectations and ethical obligations?

<p>Gently explain the inherent relationship between risk and return, conduct a thorough risk assessment, and recommend investments aligned with the client's actual risk tolerance and financial needs, even if it means lower potential returns. (D)</p> Signup and view all the answers

An ISP manages foreign investments on behalf of several clients. Recent political instability in a specific country where these investments are held raises concerns about potential losses. The ISP's risk management department recommends divesting from that country immediately. However, doing so would likely result in significant short-term losses for clients. What is the ISP's MOST ETHICALLY SOUND course of action?

<p>Communicate transparently with clients about the situation, the potential risks and benefits of both divesting and maintaining the investment, and allow them to make the final decision based on their individual risk tolerance and investment objectives. (A)</p> Signup and view all the answers

Flashcards

Investment Mandate

A written agreement that outlines how an ISP will manage JSE authorised investments on behalf of a client, including JSE requirements and client acceptance.

Investment Objectives and Needs Analysis

An ISP must gather client information, analyze it, identify suitable investments, and not prioritize maximizing their own income.

Identification of investment management accounts

ISPs must clearly distinguish client accounts they manage.

Consent for Derivative Instruments

Separate, written consent from the client is required before an ISP can invest in derivative instruments.

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Derivative Investment Considerations

Before investing in derivatives, assess the client's suitability and disclose the risks in writing.

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Consent for Non-Equity Securities

An ISP needs general client consent to conduct transactions in non-equity securities.

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Due Regard for Client Interests

Consider the general standards of client conduct, disclosure, investment objectives, and needs analysis.

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Foreign Investment Mandate Requirements

ISPs must state authorization to invest in foreign investments, risks, jurisdictional restrictions, and how the investments will be made.

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Tax Clearance for Foreign Investments

Client must have a tax clearance certificate.

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Information on Foreign Investments

Licensed exchange, country of registration and licensing authority.

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Foreign Services Provider Info

Foreign financial services provider and its regulator.

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Requirements for Giving Investment Advice

An ISP must take steps to gather client's financial details, assess the data, determine suitable JSE investments, verify client understanding, and avoid maximizing ISP income.

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Unsolicited Advice on Derivatives

An ISP must consider client suitability and disclose the risks in writing before making unsolicited advice to trade derivatives.

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JSE Authorization Prerequisite

For JSE authorization to apply, the member's main activities must be JSE-listed securities.

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Overriding Principle of JSE Regulation

The JSE will regulate activities if the member's business is mainly on JSE markets.

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Member's Duty to Inform Surveillance

The member must advise the Director: Surveillance if they believe activities may not be authorised.

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Surveillance Factor examples

Client asset value, transaction value and revenue earned.

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Study Notes

Management of JSE Authorised Investments

Investment Mandates

  • An ISP's management of JSE authorised investments on behalf of a client must be documented in a written mandate.
  • The mandate must adhere to JSE's minimum requirements.
  • Clients must accept the mandate terms before any JSE authorised investments are accepted.
  • Acceptance can be communicated electronically.
  • If acceptance is not electronic, the client's physical signature is required.
  • ISPs must maintain a register of each investment mandate as prescribed by the JSE.

Investment Objectives and Needs Analysis

  • When managing JSE authorised investments, an ISP must obtain client information on financial situation, investment experience, needs, and objectives.
  • Conduct an analysis based on the obtained information.
  • Identify JSE authorised investments suitable for the client's risk profile and financial needs, within the mandate terms.
  • Discretion should not primarily aim to maximize the member's income.

Identification of Investment Management Accounts

  • ISPs must clearly distinguish client accounts for investment management in their books.

Management of Investments in Derivative Instruments

  • Even with a client's general consent to effect transactions in JSE authorised investments, an ISP needs the client's prior consent to conduct transactions in derivative instruments.
  • Consent must be written and specifically state authorization to invest in derivative instruments.
  • The consent must indicate any specific conditions or restrictions applicable to such investments not already in the mandate.
  • Specific consent for derivative transactions can only be obtained after the ISP has considered the client's financial situation, investment experience and investment objectives.
  • The client must be advised, in writing, of derivative trading risks.

Management of JSE Authorised Investments Other Than Equity Securities

  • An ISP managing JSE authorised investments other than equity securities needs the client's general consent to effect such transactions.
  • Decisions to invest in these securities must consider general conduct standards, client disclosure rules, investment objectives, and needs analysis.

Management of Foreign Investments

  • An ISP managing foreign investments may only transact if specified criteria are met.
  • Rule 8.120.1 requires mandates to authorize foreign investments.
  • Mandates must include risks, jurisdictional restrictions, and investment specifics.
  • Client must obtain a tax clearance certificate from the South African Revenue Service.
  • ISPs may apply to the Exchange Control Department to acquire Foreign Portfolio Investments.
  • Foreign Portfolio Investments must comply with departmental regulations.
  • Regulations regarding the tax clearance certificate are not applicable to Foreign Portfolio Investments authorized by the Exchange Control Department.
  • ISPs must provide a client with information on foreign investments, including:
    • The name of the licensed external exchange, if applicable.
    • The country, licensing or registration details, and authority information.
    • ISP's foreign financial services provider details.
    • Regulator details for the ISP's foreign financial services provider.

Advice on JSE Authorised Investments

  • When advising a non-professional client on JSE authorised investments, an ISP must take steps to obtain information on a client's circumstances to provide sound advice.
  • An analysis based on information must be conducted.
  • Identify suitable JSE authorised investments considering the mandate.
  • Take steps to ensure that the client understands the provided advice, terms, nature and risks to enable them to make an informed decision.
  • Advice should not aim to maximize the member's income.
  • Unsolicited advice encouraging derivative transactions is prohibited unless the member has:
    • Considers if investments are appropriate.
    • Advised the client, in writing, of derivative investments risks.

Authorisation of Investments Other Than Equity Securities Under Other Regulation

  • JSE authorization is not an option if the member is already an authorised user of another JSE market or exchange, or if a majority of their business activities relate to trading in JSE listed securities.
  • For members authorised on other JSE markets or exchanges, trading activity in securities listed there is governed by those markets' rules.
  • Whether the JSE regulates an ISP's activities regarding JSE authorised investments other than equity securities depends on the member's business.
  • The JSE will oversee a member's investments if their business predominantly involves trading in JSE markets as an authorised user.
  • If the Director: Surveillance determines the member's primary business activities do not relate to the trading of JSE listed securities, the member needs a FAIS Act license for providing advice or intermediary services.
  • Members advising the Director that their activities could have issues being authorised by the JSE under these rules, the Director can request information from the member.

Director Surveillance

  • The Director: Surveillance considers specific factors to determine the member's activity in JSE listed securities: Value of client assets and transactions managed.
    • Revenue earned in the respective business areas.
    • Any other factors deemed relevant.
  • After information review, the Director: Surveillance will notify the member whether their JSE-authorised investments activities will be regulated by JSE.
  • If the Director: Surveillance considers that the member's activity may constitute most the members business activity. The Director: Surveillance may make a decision based on the provisions provided.
  • If the JSE does not authorise a member's activities related to JSE authorised investments other than equity securities, rules 8.120 and 8.130 will not apply to those activities.
  • The activities will instead be regulated under other JSE market rules, exchange regulations, or the FAIS Act.

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Learn about managing JSE authorised investments, including the necessity of a documented investment mandate adhering to JSE's requirements. Understand the importance of the ISP obtaining client information and performing a needs analysis to align investments with the client's risk profile and financial needs.

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