Questions and Answers
What is the final deadline for a trading member to ensure settlement of same-day trades on the trade date?
Which step must a client take by 14h00 to ensure their uncommitted transaction is covered?
What course of action can a trading member take for a client who fails to comply with settlement provisions in a sale transaction?
What is the latest time a trading member can ensure its CSDP is ready to settle a transaction on the settlement date?
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What are trading members typically obligated to ensure regarding the settlement of bond transactions?
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What actions may a trading member take if the trading member settled client fails to comply with IRC Rules?
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What may the Settlement Authority's actions affect in regards to a trading member?s transaction settlements?
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In the event of a failure to comply, who remains liable for any losses incurred as a result of actions taken by the trading member?
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In which of the following scenarios do the IRC Rules regarding Settlement Assurance apply?
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What happens if a client is not aware of their settlement obligations?
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Which principle is NOT stated as a guideline for the settlement of bonds?
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What role does the Settlement Authority play in bond transactions?
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If a trading member facilitates a transaction on behalf of a client but is not recorded as a counterparty, what recourse does the client have?
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What is required for a client to have recourse against a trading member after a market transaction?
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What is the latest time a non-member settled client's CSDP must commit to settle a same day trade?
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Which of the following is NOT a function of the Settlement Authority?
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If a non-member settled client fails to comply with the settlement obligations, what is the primary responsibility of the trading member?
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What action can a trading member take if a non-member settled client fails to make the necessary settlement commitments?
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What is one obligation of a trading member regarding buyers and sellers of bonds?
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What is the latest time by which a non-member settled client must cover an uncommitted transaction?
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At what time does a commitment by a CSDP to settle a transaction become unconditional?
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Which transactions must a non-member settled client ensure settlement commitments for by 19h00 the business day prior?
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What is a potential consequence for a non-member settled client if they fail to meet the settlement obligations?
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What mechanisms must a non-member settled client potentially employ to cover an uncommitted transaction?
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What is a requirement for a trading member to place an order for bonds on the trading system?
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What must a trading member verify about a non-member settled client's CSDP regarding transaction details?
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Under which circumstance can a trading member sell bonds being held on behalf of a client?
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What is the requirement for recording bonds bought for trading member settled clients?
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Which method must be used for settling transactions in bonds?
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What is the latest time a trading member can allocate trades due to settle on the first business day after the trade date?
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If a trade is effected through a principal assignment stock account, what is the requirement for assigning it to a client on the trade date?
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What is the main consequence of a late allocation according to the rules?
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By what time must late principal assignment trades be effected for trades due to settle on the second or third business day after the trade date?
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What happens if a client does not accept a late allocation in time?
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What is the cutoff time for late allocation for same day trades to settle on the trade date?
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What must a trading member ensure regarding trades that are on a suspense account for a particular client?
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What must a client do if they receive notification of a late allocation?
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What must a trading member do if the CSDP of a non-member settled client has not committed to settling the transaction by 13h00 on the settlement date?
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What is the deadline for a trading member to ensure the CSDP is committed to settling a transaction on the settlement date?
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What action should a trading member take if notified by a client that they cannot settle a transaction?
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What may the Settlement Authority do if a trading member fails to cover an uncommitted transaction by 14h00?
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Which of the following actions is prohibited for a trading member regarding a client's bond balances?
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What must a trading member do if the Settlement Authority declares a transaction to be a failed trade?
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Which of the following pieces of information is NOT required to be submitted to the Settlement Authority by a trading member?
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What is the prerequisite for a trading member to place an order to trade in bonds on behalf of a client?
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What is the latest time by which a trading member must ensure that an uncommitted transaction is covered on the settlement date?
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For a trading member's non-member settled client, what must be verified before opening a trading account?
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If a non-member settled client remains unable to ensure their CSDP is ready by 19h00 on the preceding business day, what should the trading member do?
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What document must a trading member receive from a client to open a trading account?
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What must a trading member do upon loading a client as a trading member settled client on the Strate system?
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What type of client requires authorization from their CSDP to open a trading account?
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What must a trading member ensure before placing an order on behalf of a trading member settled client?
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Which reference numbers are essential for a trading member to submit to the Settlement Authority?
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How does the Settlement Authority determine the monetary payment for a non-failing party?
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What is the 'volume weighted average price' based on?
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What action may the Settlement Authority take if the ruling price is suspected of being manipulated?
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What principle governs the compensation of the non-failing party in a failed trade scenario?
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What is the role of the Market Controller in determining the 'determined price'?
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What happens if there is a significant differential between the ruling price and the volume weighted average price?
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What time frame is referred to when calculating the volume weighted average price for trade settlement?
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What might the Settlement Authority do if they suspect trading prices were manipulated for the benefit of one party?
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A late principal assignment trade must be communicated to the client no later than 19h00 on the business day after the original trade.
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All trades that are committed by the CSDP of a trading member must be settled on the trade date.
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If a carry transaction is settled more than three business days after the trade date, it must be committed by the CSDP by 13h00 on the settlement date.
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Allocation corrections for trades due to settle on the third business day after the trade date can be made until 21h00 on the first business day after the trade date.
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The Settlement Authority corrects late allocation corrections without any fees after 18h00 on the first business day after the trade date.
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For trades that are settled on the same day, the CSDP must commit to the trade by no later than 14h00.
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Clients have until 18h00 on the original trade date to notify a trade disagreement related to late principal assignment.
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In the case of off-market transactions with dependencies, trades must be committed by the CSDP on the settlement date by 19h00 at the latest.
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A trading member must allocate trades to a client by 15h00 on the trade date for same day trades due to settle on that date.
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A trading member must inform the Settlement Authority if a transaction in a bond is expected to settle on time.
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For trades that settle on the first business day after the trade date, allocations must be made by 18h00 on the trade date.
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Principal assignment trades must be assigned to a client by 12h00 on the first business day after the trade date for trades settling on the second or third business day after the trade date.
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A trading member's CSDP must commit to settle transactions for same-day trades by 19h00 on the trade date.
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The deadline for a trading member to take steps to cover an uncommitted transaction is 13h00 on the settlement date.
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All late allocations made in contravention of the rules will be executed directly by the trading member without any additional fees.
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A trading member can effect a trade to settle on the same day up to 11h00 on the trade date.
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A commitment by a CSDP becomes unconditional at 08h30 on the settlement date.
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If a non-member settled client is unable to settle a reported transaction by 19h00 on the business day preceding settlement, the trading member is not required to take any actions.
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A client must be notified of a late allocation in time for their Central Securities Depository Participant (CSDP) to process it before settlement.
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Late principal assignment trades can be made up to 14h00 on the trade date for trades due to settle on the first business day after the trade date.
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A trading member may stop payment in relation to a Strate settlement on settlement day.
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If a trade on a suspense account has not been allocated by the trade date, it cannot be allocated afterward under any circumstances.
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A reporting obligation regarding CSDP commitments is applicable for trading members only after the transaction has settled.
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The CSDP of a trading member must always commit to settle transactions by 19h00 the business day after a trade date.
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The cash settlement for a failed trade is determined solely by the transaction price.
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A volume weighted average price is calculated using the prices aggregated from trades executed in the market.
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If the ruling price is found to have been manipulated, the original trade will always be reversed immediately.
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The non-failing party is always entitled to the exact amount that would have been received had the original transaction settled correctly.
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The Settlement Authority's action in the case of artificial manipulation is dependent only on the opinion of the Market Controller.
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The differential percentage determining action in the event of a failed trade is fixed and does not change over time.
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A failed trade must be addressed according to a directive that specifies procedures for the parties involved.
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The monetary payment to the non-failing party will always be made immediately after recognizing a failed trade.
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If the determined price has moved to the benefit of the non-failing party, they must pay the difference to the Guarantee Fund.
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A trading member must maintain a funds settlement account at its Central Securities Depository Participant (CSDP).
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Bonds can be used as a form of compensation for a non-failing party under any circumstances.
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If a trading member is unable to meet their transaction obligations, they must borrow bonds to comply with settlement requirements.
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A separate custody account must be opened by a trading member only if they have custody of client equities.
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The difference between the original trade value and the close-out price must be paid by the non-failing trading member.
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A non-failing party must always receive the full price of the trade after a default occurs.
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A trading member can choose to borrow bonds or engage in carry or repurchase transactions to avoid a failed trade.
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Study Notes
Settlement Assurance
- Trading members guarantee the fulfillment of transactions involving IRC securities for themselves and clients within the JSE trading system.
- Off-book transactions with terms agreed upon by clients who instructed the trading member are exempt from Settlement Assurance.
- Clients have no recourse against trading members for specific off-book transactions.
- Trading members must inform buyers and sellers of their settlement obligations; clients remain bound by these rules even if unaware.
Settlement Principles for Bonds
- Bonds are settled on a trade-by-trade basis.
- Settlement occurs between the scrip root and the cash root.
- Transactions can be rolling and contractual.
Settlement Authority
- Manages the settlement of both on-book and off-book transactions in bonds executed through the JSE system.
- Responsible for assessing risks related to transaction settlements.
Trading Member Settled Client Obligations
- Trading members must ensure they can settle transactions on the settlement day for off-book transactions.
- For same-day trades, settlement must be completed by 13:00 on the trade date.
- For trades settling in one to three business days, settlement must be completed by 19:00 on the previous business day.
- Clients must cover uncommitted transactions by 14:00 on the settlement date, potentially through borrowing or entering repurchase transactions.
- If clients fail to comply, trading members must take necessary actions to ensure settlement.
Non-Member Settled Client Obligations
- Non-member settled clients must ensure their CSDP can settle transactions on their behalf.
- Same-day trades must be settled by 13:00 on the trade date.
- Trades due for settlement in one to three business days require commitments to be made by 19:00 on the previous business day.
- Non-member clients must facilitate coverage of uncommitted transactions similarly, by acting before 14:00 on the settlement date.
- Trading members are obliged to take necessary steps if clients cannot settle their transactions.
Client Liabilities
- Clients remain liable for any losses and charges incurred due to the actions taken by trading members or the Settlement Authority.
- Trading members may buy or sell bonds on behalf of clients who fail to adhere to settlement provisions.
Settlement Procedures and Responsibilities
- Non-member settled clients must ensure their Central Securities Depository Participant (CSDP) is ready to settle transactions by 19h00 on the day prior to settlement; failures lead to the trading member taking action by 13h00 on settlement day.
- If a CSDP fails to commit by 13h00 on settlement day, the trading member must cover the transaction, which may involve borrowing or lending bonds or entering a carry or repurchase transaction.
- Commitments must be secured by 15h00 on the settlement date; trading members must act by 14h00 to cover uncommitted transactions to avoid penalties.
Notification and Handling of Settlement Issues
- Clients must notify trading members if they cannot settle a transaction; it becomes the trading member's responsibility to negotiate arrangements for settlement.
- If arrangements fail, urgent notification to the Settlement Authority is mandatory, which may involve rolling the settlement or declaring a failed trade.
- Instructions from the Settlement Authority must be adhered to by trading members in the event of settlement issues.
Client Bond Management
- A trading member cannot use a client's bond balances to settle another client's obligations or their own.
- Orders and transactions regarding bonds must only be processed through a CSDP, confirmed to align with client information.
- All bond transactions must be recorded promptly to confirm ownership and entitlement.
Electronic Settlement of Bonds
- All bond transactions settle electronically via Strate, following specific principles.
- Reallocations for same-day trades or trades settling the following business day must be completed by specified deadlines to maintain settlement integrity.
- Late allocations incur penalties and must be communicated to clients swiftly to allow adequate time for their CSDP.
Failed Trade Protocols
- Transactions failing to settle require adherence to specific directives; parties must be compensated to reflect what they would have gained had the trade settled correctly.
- The Settlement Authority determines compensation by comparing purchase prices against market-determined prices.
Reporting Requirements to Settlement Authority
- Trading members must furnish detailed information such as CSDP names, client account codes, and settlement account details in writing to the Settlement Authority before conducting transactions.
Client Account Management
- Trading members must establish accounts for clients before executing bond trades; verification against client details on the Strate system is necessary for non-member settled clients.
- Completed client agreements and registration forms are prerequisites for account opening.
- The Settlement Authority assists in client registration on the Strate system to ensure clients are appropriately recorded for bond transactions.
Settlement Officer Responsibilities
- Any transaction in a bond unlikely to settle must be immediately reported to the Settlement Authority by the settlement officer.
- Trading members cannot stop payments regarding Strate settlements on settlement day.
Trading Member Obligations
- Ensure the Central Securities Depository Participant (CSDP) is capable of settling transactions on the trade date or the designated business days.
- Commitment to settle must be made by:
- 13h00 on the trade date for same-day trades.
- 19h00 on the business day prior for trades settling the following days (1st to 3rd business day).
CSDP Commitments
- CSDP's commitment to settle becomes unconditional at 08h30 on the settlement date.
- If unable to settle by 19h00 the day before, trading members must ensure commitment by 13h00 on the settlement date.
- If commitment is still lacking by 13h00, trading members must cover the uncommitted transactions, potentially by borrowing or lending.
Trade Allocations
- Trades must be allocated to clients or proprietary accounts on the trade date.
- Late allocations for same-day trades can occur until 12h00 on the trade date and 17h00 for trades settling the next business day.
- Allocations for trades settling on the second or third business day can be done until 12h00 on the first business day after the trade date.
Principal Assignments
- Principal assignment trades must also be communicated to clients on the trade date.
- Assignments must occur within the same deadline parameters as trade allocations to maintain settlement eligibility.
Notifications and Acceptances
- Notification to clients is required on the trade date; otherwise, it is deemed accepted by 18h00 the next day.
Late Allocations and Corrections
- Late allocations or corrections beyond specified times incur fees as directed.
- Late corrections can be made up to 18h00 on the first business day after the trade date for trades settling within three days.
Failed Trade Procedures
- Non-failing parties must receive monetary compensation reflecting the difference in transaction pricing due to failed trades.
- Compensation determined by the Settlement Authority uses volume-weighted average price within specified periods.
Pricing Dynamics
- Price difference evaluation considers both transaction price and determined price, aiming to maintain transaction integrity.
- Payment from failing trading member to non-failing party resolves differences based on established close-out pricing.
Borrowing and Transaction Management
- Trading members unable to settle must borrow bonds or enter into carry or repurchase transactions as directed by the Settlement Authority.
Required CSDP Accounts
- Trading members need to maintain a custody account, a funds settlement account, and a separate custody account for client bonds if applicable.
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Description
This quiz explores the essential concepts surrounding settlement assurance and principles specifically for bonds traded on the JSE. It covers the roles of trading members, client obligations, and the authority responsible for settlement processes. Test your understanding of these financial mechanisms.
