JSE Trading System Overview

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Questions and Answers

What is one of the primary obligations of trading members when accessing the JSE trading system?

To allow unrestricted access to all clients.

To ensure all trades are executed during non-business hours.

To execute trades without any agreements.

To obtain approval from the Market Controller. (correct)

Which of the following is NOT a requirement for trading members accessing the JSE trading system?

Entering into and signing necessary agreements.

Ensuring data integrity and efficiency.

Maintaining appropriate security procedures.

Regular audits by independent bodies. (correct)

What responsibility does a trading member hold regarding the data submitted to the JSE trading system?

They must ensure the data is submitted in an approved manner. (correct)

They are not responsible for the accuracy of the data.

They are only responsible for data from their own clients.

They can rely solely on third-party data validations.

What authority must personnel employed by trading members have?

Full authority to act on behalf of the trading member. Signup and view all the answers

Which of the following is essential to prevent unauthorized access to JSE systems?

Maintaining and enforcing appropriate security procedures. Signup and view all the answers

What is the significance of the data submitted to the JSE trading system by trading members?

It is deemed to have been submitted with the knowledge of the trading member. Signup and view all the answers

In what capacity must trading members execute trades in IRC securities?

Either for their own account or for clients' accounts. Signup and view all the answers

Which action must trading members take regarding data integrity?

They must ensure the accuracy and integrity of data submitted. Signup and view all the answers

What must a trading member do with all orders received for a minimum of six months?

Keep a record of them Signup and view all the answers

Which of the following is NOT a method for a trading member to trade as principal?

Matching orders between two independent clients Signup and view all the answers

Under what condition can a trading member deal as principal with a client?

After obtaining consent from the client Signup and view all the answers

What must a trading member do in regard to fees charged to clients?

Present them separately from the transaction Signup and view all the answers

Which scenario qualifies as an off-book transaction?

A transaction reported to the JSE trading system after being executed off the central order book Signup and view all the answers

What happens when an order is entered individually by a trading member?

It carries its own time priority Signup and view all the answers

How can a trading member trade for a client as an agent?

By entering the client's order in their agency suspense account Signup and view all the answers

In what situation can a trading member not make a profit during an agency transaction?

When charging fees or brokerage separately Signup and view all the answers

What is one major difference between matched principal interdealer brokers and name-give-up brokers?

Name-give-up brokers disclose the identities of the principals before deal confirmation. Signup and view all the answers

Which best describes the primary function of interdealer brokers in the trading environment?

To enhance anonymity and efficiency in trading. Signup and view all the answers

What type of market does the secondary bond market in South Africa operate primarily under?

An exchange-traded market for most bonds. Signup and view all the answers

What must occur for an off-book transaction in IRC securities to be considered valid?

It must be reported to the JSE trading system by involved members. Signup and view all the answers

Why might investing institutions prefer not to engage directly with interdealer brokers?

To maintain a good relationship with primary dealers. Signup and view all the answers

What distinguishes matched principal interdealer brokers from name-give-up brokers in terms of resources?

Matched principal brokers have higher levels of capital. Signup and view all the answers

What is a characteristic of transactions conducted in the secondary bond market?

Investors can purchase existing securities from holders. Signup and view all the answers

Why is the role of interdealer brokers significant in financial markets?

They provide anonymity and efficiency for trading activities. Signup and view all the answers

What is the Director: Market Regulation's primary consideration when deciding on an error trade?

The complexity and extent of any consequential trades Signup and view all the answers

Under what conditions may the JSE restrict or suspend trading in IRC securities?

In cases of emergency such as war or changes in law Signup and view all the answers

What factor does the Director: Market Regulation NOT explicitly consider when addressing an alleged error trade?

Market sentiment at the time of the error trade Signup and view all the answers

What could possibly justify the JSE's decision to let an error trade and its consequential trades stand?

The complexity of the error trade and consequential impacts Signup and view all the answers

What action may the Director: Market Regulation take regarding consequential trades from an error trade?

Instruct to execute a trade cancellation or let the trades stand Signup and view all the answers

Which circumstance is NOT listed as a condition that could lead to an emergency suspension of trading by the JSE?

The unexpected resignation of the JSE Executive Signup and view all the answers

What factor is considered when evaluating the merits of an alleged error trade?

The amount of time left before the expiry of relevant contracts Signup and view all the answers

What is NOT a potential outcome of the Director: Market Regulation's decision regarding an alleged error trade?

Adjustment of trade prices retroactively Signup and view all the answers

What action must the JSE Executive take if trading in a security ceases?

Consider cessation of trading in IRC securities. Signup and view all the answers

What is a requirement for transactions recorded in an agency suspense account?

They must be allocated by the end of the business day. Signup and view all the answers

What must a member demonstrate to allocate a trade from an agency suspense account to accounts of interested parties?

That no client is prejudiced by the allocation. Signup and view all the answers

What is the purpose of having separate suspense accounts for interested party trades?

To prevent the prejudice of clients. Signup and view all the answers

What must be done to trades not allocated to clients by the close of business?

They must be transferred to a misdeals account the next business day. Signup and view all the answers

Which of the following accurately defines an interested party trade?

A trade involving a direct or indirect beneficial interest of a member or their employees. Signup and view all the answers

What is the role of adequate segregation of duties over accounts?

To ensure interested parties have no influence over trading or allocation instructions. Signup and view all the answers

What restriction is placed on a member regarding profits or losses in a suspense account?

Members cannot realize any profit or loss. Signup and view all the answers

What distinguishes interdealer brokers from primary dealers in the JSE-Debt Market?

Interdealer brokers only facilitate transactions between institutional members. Signup and view all the answers

Which of the following best explains the role of market makers in the bond market?

They quote both buying and selling rates simultaneously. Signup and view all the answers

What is a possible reason for the understanding among JSE-Debt Market members to avoid dealing with investing institutions through interdealer brokers?

To prevent conflicts of interest in pricing. Signup and view all the answers

How do interdealer brokers add value to electronic trading platforms in the bond market?

By providing real-time pricing and transaction volume data. Signup and view all the answers

Which statement accurately describes the participation of primary dealers in the JSE-Debt Market?

They buy newly issued securities and trade them later. Signup and view all the answers

What is a key difference between the roles of primary dealers and interdealer brokers in the financial markets?

Interdealer brokers do not engage directly with issuers. Signup and view all the answers

Which factor is critical in the relationship between primary dealers and the government concerning new securities?

Primary dealers must provide liquidity in both primary and secondary markets. Signup and view all the answers

What is the main characteristic of transactions facilitated by interdealer brokers?

They frequently occur between different financial institutions. Signup and view all the answers

How do name-give-up brokers ensure the legitimacy of transactions between two principals?

By disclosing the identities of the principals prior to deal confirmation. Signup and view all the answers

What is a significant characteristic of matched principal interdealer brokers compared to name-give-up brokers?

They possess higher levels of capital, providing comfort in settlement. Signup and view all the answers

Which of the following accurately describes a secondary bond market?

It facilitates the buying and selling of previously issued securities. Signup and view all the answers

What is the process for an off-book transaction in IRC securities to be considered valid?

It must be reported to the JSE trading system by the involved trading members. Signup and view all the answers

What is a primary reason investing institutions might avoid direct engagement with interdealer brokers?

To strengthen relationships with primary dealers. Signup and view all the answers

What is a key requirement for trading members executing transactions in IRC securities on another exchange?

They must act as authorized users of the exchange. Signup and view all the answers

Which of the following statements about the secondary bond market in South Africa is incorrect?

All bonds traded are required to be listed. Signup and view all the answers

Which brokerage method is most widely used among interdealer brokers?

Matched principal method. Signup and view all the answers

What action can trading members take if an off-book transaction has been reported to the JSE trading system in error?

They may cancel the erroneous trade or report an equal and opposite cancellation trade. Signup and view all the answers

Under what circumstance can the Director: Market Regulation cancel a trade executed in error without a request from a market participant?

If it materially impacts the integrity or statistics of the market. Signup and view all the answers

What is a requirement for a trading member to request the cancellation of a trade resulting from a technical issue?

The trading member must prove that they had no intention to execute the order. Signup and view all the answers

In determining whether a trade qualifies for cancellation, what specific criteria does the Director: Market Regulation prioritize?

Whether the trade's price was outside the no cancellation range relative to the reference price. Signup and view all the answers

What is the time limit for a trading member to submit a cancellation request after receiving confirmation of a trade?

Within 20 minutes of confirmation. Signup and view all the answers

What action may the JSE take when it encounters technical problems that lead to unintended matched trades?

Permit cancellation requests if trading members were unable to amend their orders. Signup and view all the answers

What must trading members demonstrate to resolve an error trade concerning price discrepancies?

That the price was outside the no cancellation range relative to a reference price. Signup and view all the answers

What condition might trigger the Director: Market Regulation to address a trade as an error trade?

The trading member did not intend to keep the order in the central order book. Signup and view all the answers

What is the minimum duration for which a trading member must keep a record of an order received?

Six months Signup and view all the answers

Which statement is true when a trading member enters a client's order into the JSE trading system as an agent?

The order can be entered for the trading member's agency suspense account. Signup and view all the answers

Under what conditions can a trading member deal with a client as a principal?

If the member has obtained prior consent from the client. Signup and view all the answers

Which scenario accurately describes an agency trade executed between two clients?

It must be reported to the JSE trading system as an off-book transaction. Signup and view all the answers

What restriction does a trading member face regarding profits made in agency transactions?

They can only charge brokerage fees and no other profits. Signup and view all the answers

Which method allows a trading member to execute a principal trade with a client?

By executing a trade directly in the JSE central order book. Signup and view all the answers

What must be done with trades not allocated to clients by the close of business?

They are to be treated as unallocated and adjusted in future transactions. Signup and view all the answers

What distinguishes entering an order for a client's account from entering an order in the agency suspense account?

Client orders must be matched immediately, whereas suspense account orders can aggregate trades. Signup and view all the answers

What must a trading member include in the transaction notification to clients?

Terms of the transaction, capacity, and any fees charged Signup and view all the answers

What is a requirement when trading members aggregate client orders?

Use designated agency suspense accounts for trades Signup and view all the answers

How should trading members manage transactions for the benefit of their employees?

Implement controls to prevent conflicts of interest with clients Signup and view all the answers

What is prohibited for trading members regarding designated agency suspense accounts?

Trading on suspense accounts for their own account Signup and view all the answers

What must a trading member ensure about transactions executed on behalf of clients?

Clients are notified within a standard timeframe set by directives Signup and view all the answers

In which capacity can an employee of a trading member act when engaging with the trading member?

As a client while fulfilling all obligations Signup and view all the answers

What minimum provision should the controls in transactions for employees include?

A review to identify transactions that conflict with client interests Signup and view all the answers

What is the consequence of failing to allocate trades not allocated to clients by close of business?

They may be subject to corrective action or penalties Signup and view all the answers

Study Notes

JSE Trading System Overview

Trading members must execute trades in IRC securities on the JSE trading system, unless exempted.
The JSE trading system operates on every business day per standard periods set by IRC Directives.

Access and Utilisation

Access to the JSE trading system requires approval from the Market Controller.
Trading members must sign agreements and comply with JSE specifications.
Members must maintain security procedures to prevent unauthorized access to JSE systems.
Necessary resources must be available to ensure accurate data transmission without disrupting IRC market operations.

Data Integrity Responsibilities

Trading members are responsible for the accuracy and integrity of all data submitted to the JSE trading system.
Any submitted data is considered to be done with the trading member's knowledge.

Authorised Personnel

Trading members must ensure that employed personnel have full authority to act on their behalf in IRC securities transactions.

Interdealer Brokers

Interdealer brokers enhance anonymity and efficiency in trading.
Two types of interdealer brokers: "matched principal" and "name-give-up."
Name-give-up brokers connect two principals before deal confirmation; settlement occurs between the principals.
Matched principal brokers hold more capital and ensure comfort in settlement.

Secondary Bond Market

The South African secondary bond market is exchange-traded, with most bonds listed and some unlisted, trading in an OTC market.
Facilitates the buying and selling of previously issued securities for investors.

Execution of Trades

Trading members must conduct IRC securities transactions on the JSE trading system, with exceptions for authorized exchanges or off-book transactions.
Orders received after hours maintain time priority based on their entry into the trading system.
All trade orders must be recorded for a minimum of six months.

Trading Capacity

Trading members can act as agents or principals in transactions.
Consent is required for members trading as principals with clients.
Profits from agency transactions are limited to fees and brokerage, separated from transaction prices.
Members can either enter client orders directly or execute trades off the central order book and report them.

Error Trades

Consequential trades resulting from error trades are evaluated case-by-case by the Director: Market Regulation.
Decisions may include trade cancellations or allowing trades to stand based on relevant factors.

Emergency Provisions

The JSE can restrict or suspend trading during emergencies to maintain market order.
Emergencies include exchange closures, state threats, or legal changes affecting markets.

Agency Suspense Accounts

Unallocated trades must be placed in a suspense account and allocated to clients by day’s end.
Adequate controls are required to prevent client prejudice when utilizing suspense accounts.
Trades unallocated by business close will be moved to a misdeals account the following day.
Members cannot realize profits or losses in suspense accounts.

Trade Cancellation Procedures

Erroneous off-book transactions reported to the JSE can be canceled or an equal opposite trade can be reported on the same day.
Director: Market Regulation can cancel trades if they materially affect market integrity, even without a participant's request.
Trade cancellations can occur due to technical issues in the JSE trading system, allowing members to request cancellation.

Error Trade Considerations

The Director will check if the trade price is outside the no cancellation range relative to the reference price.
Requests for cancellations must be made within 20 minutes of trade confirmation.

JSE-Debt Market Structure

Members of the JSE-Debt Market are termed "authorised users," capable of conducting securities services.
A distinction exists between interdealer brokers (who only trade among other members) and ordinary members (who engage with all market players).

Role of Market Makers and Brokers

Market makers quote buying and selling prices for bonds simultaneously when required.
Interdealer brokers promote efficient trading between financial institutions, while maintaining an understanding to avoid direct involvement with investing institutions.

Primary Dealers vs Interdealer Brokers

Primary dealers are large institutions authorized to trade directly with government and issuers, engaging in both primary and secondary markets.
Interdealer brokers act as intermediaries for transactions between financial institutions, often providing anonymity in trade.

Secondary Bond Market Dynamics

The secondary bond market in South Africa is mainly exchange-traded, allowing existing security holders to sell and new investors to acquire securities.

Trading Members and IRC Securities

Trading members must conduct IRC securities transactions through the JSE trading system unless otherwise negotiated.
Orders received after hours get priority based on their entry time.

Trading Capacity Guidelines

Trading members can operate as agents or principals, requiring client consent before acting as principal.
Members must separate fees from transaction prices and maintain a record of orders for six months.

Client Notification Requirements

Clients must be notified of all transactions, detailing transaction terms, member's capacity, and any fees associated with agency transactions.

Employee Trading Policies

Trading members must ensure employee transactions do not conflict with clients' interests, maintaining oversight and controls.

Deal Management Procedures

The aggregation of orders should utilize designated agency suspense accounts, and members cannot trade on these accounts for personal benefit.

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Description

This quiz provides an overview of the JSE trading system, outlining the requirements for trading members including access, data integrity, and responsibilities. Participants will test their knowledge on key aspects of trading operations and compliance with JSE specifications.