Settlement Assurance and Principles for Bonds
101 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the final deadline for a trading member to ensure settlement of same-day trades on the trade date?

  • 15h00 on the trade date
  • 13h00 on the trade date (correct)
  • 14h00 on the trade date
  • 12h00 on the trade date

    • Which step must a client take by 14h00 to ensure their uncommitted transaction is covered?

  • Cancel the transaction
  • Double-check the trade details
  • Borrow bonds or funds (correct)
  • Notify the trading member

    • What course of action can a trading member take for a client who fails to comply with settlement provisions in a sale transaction?

  • Ignore the issue and move forward
  • Report the client to the Settlement Authority
  • Increase transaction fees
  • Buy bonds for the account of the client (correct)

    • What is the latest time a trading member can ensure its CSDP is ready to settle a transaction on the settlement date?

    <p>15h00 on the settlement date</p> Signup and view all the answers

    What are trading members typically obligated to ensure regarding the settlement of bond transactions?

    <p>Ensuring timely settlement of transactions</p> Signup and view all the answers

    What actions may a trading member take if the trading member settled client fails to comply with IRC Rules?

    <p>Buying and selling bonds for the account of the client</p> Signup and view all the answers

    What may the Settlement Authority's actions affect in regards to a trading member?s transaction settlements?

    <p>Impact the transaction settlement processes</p> Signup and view all the answers

    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?

    <p>The trading member settled client</p> Signup and view all the answers

    In which of the following scenarios do the IRC Rules regarding Settlement Assurance apply?

    <p>For trades executed on the central order book of the JSE trading system.</p> Signup and view all the answers

    What happens if a client is not aware of their settlement obligations?

    <p>The client remains bound by the settlement rules.</p> Signup and view all the answers

    Which principle is NOT stated as a guideline for the settlement of bonds?

    <p>Settlement must occur off-book.</p> Signup and view all the answers

    What role does the Settlement Authority play in bond transactions?

    <p>Manages the settlement of transactions executed on the central order book.</p> Signup and view all the answers

    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?

    <p>There is no recourse for the client against the facilitating trading member.</p> Signup and view all the answers

    What is required for a client to have recourse against a trading member after a market transaction?

    <p>The transaction must be executed on the central order book.</p> Signup and view all the answers

    What is the latest time a non-member settled client's CSDP must commit to settle a same day trade?

    <p>13h00 on the trade date</p> Signup and view all the answers

    Which of the following is NOT a function of the Settlement Authority?

    <p>Executing trades on behalf of clients.</p> Signup and view all the answers

    If a non-member settled client fails to comply with the settlement obligations, what is the primary responsibility of the trading member?

    <p>To assist in ensuring the transaction settles</p> Signup and view all the answers

    What action can a trading member take if a non-member settled client fails to make the necessary settlement commitments?

    <p>Both A and C are correct</p> Signup and view all the answers

    What is one obligation of a trading member regarding buyers and sellers of bonds?

    <p>To ensure they are aware of their settlement obligations.</p> Signup and view all the answers

    What is the latest time by which a non-member settled client must cover an uncommitted transaction?

    <p>14h00 on the settlement date</p> Signup and view all the answers

    At what time does a commitment by a CSDP to settle a transaction become unconditional?

    <p>08h30 on the settlement date</p> Signup and view all the answers

    Which transactions must a non-member settled client ensure settlement commitments for by 19h00 the business day prior?

    <p>First, second or third business day trades</p> Signup and view all the answers

    What is a potential consequence for a non-member settled client if they fail to meet the settlement obligations?

    <p>They will be liable for any losses or costs incurred</p> Signup and view all the answers

    What mechanisms must a non-member settled client potentially employ to cover an uncommitted transaction?

    <p>Borrowing bonds or funds</p> Signup and view all the answers

    What is a requirement for a trading member to place an order for bonds on the trading system?

    <p>The trading member must ensure a client has appointed a CSDP.</p> Signup and view all the answers

    What must a trading member verify about a non-member settled client's CSDP regarding transaction details?

    <p>The CSDP must confirm that its client data matches the trading member's records.</p> Signup and view all the answers

    Under which circumstance can a trading member sell bonds being held on behalf of a client?

    <p>If it is permitted under the terms of the client's signed mandate.</p> Signup and view all the answers

    What is the requirement for recording bonds bought for trading member settled clients?

    <p>They should be recorded on the day of purchase.</p> Signup and view all the answers

    Which method must be used for settling transactions in bonds?

    <p>All settlements must be done electronically through Strate.</p> Signup and view all the answers

    What is the latest time a trading member can allocate trades due to settle on the first business day after the trade date?

    <p>17h00 on trade date</p> Signup and view all the answers

    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?

    <p>It must be assigned by 12h00 for same day trades.</p> Signup and view all the answers

    What is the main consequence of a late allocation according to the rules?

    <p>It incurs a fee as prescribed by directive.</p> Signup and view all the answers

    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?

    <p>12h00 on the first business day after the trade date</p> Signup and view all the answers

    What happens if a client does not accept a late allocation in time?

    <p>It must be reported to the Settlement Authority.</p> Signup and view all the answers

    What is the cutoff time for late allocation for same day trades to settle on the trade date?

    <p>12h00</p> Signup and view all the answers

    What must a trading member ensure regarding trades that are on a suspense account for a particular client?

    <p>They should be allocated on the trade date to ensure settlement.</p> Signup and view all the answers

    What must a client do if they receive notification of a late allocation?

    <p>They must communicate their acceptance to the trading member.</p> Signup and view all the answers

    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?

    <p>Take necessary steps to cover the uncommitted transaction.</p> Signup and view all the answers

    What is the deadline for a trading member to ensure the CSDP is committed to settling a transaction on the settlement date?

    <p>15h00</p> Signup and view all the answers

    What action should a trading member take if notified by a client that they cannot settle a transaction?

    <p>Enter into an arrangement to ensure settlement.</p> Signup and view all the answers

    What may the Settlement Authority do if a trading member fails to cover an uncommitted transaction by 14h00?

    <p>Instruct the trading member to take necessary steps.</p> Signup and view all the answers

    Which of the following actions is prohibited for a trading member regarding a client's bond balances?

    <p>Use the balances to settle their own obligations.</p> Signup and view all the answers

    What must a trading member do if the Settlement Authority declares a transaction to be a failed trade?

    <p>Act according to instructions from the Settlement Authority.</p> Signup and view all the answers

    Which of the following pieces of information is NOT required to be submitted to the Settlement Authority by a trading member?

    <p>Trading member's financial statement</p> Signup and view all the answers

    What is the prerequisite for a trading member to place an order to trade in bonds on behalf of a client?

    <p>The trading member must open a trading account for the client</p> Signup and view all the answers

    What is the latest time by which a trading member must ensure that an uncommitted transaction is covered on the settlement date?

    <p>14h00</p> Signup and view all the answers

    For a trading member's non-member settled client, what must be verified before opening a trading account?

    <p>Client's account details against the Strate system</p> Signup and view all the answers

    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?

    <p>Take necessary steps to ensure a commitment by 13h00 on settlement date.</p> Signup and view all the answers

    What document must a trading member receive from a client to open a trading account?

    <p>Client agreement and registration form</p> Signup and view all the answers

    What must a trading member do upon loading a client as a trading member settled client on the Strate system?

    <p>Contact the Settlement Authority for account coding</p> Signup and view all the answers

    What type of client requires authorization from their CSDP to open a trading account?

    <p>Only non-member settled clients</p> Signup and view all the answers

    What must a trading member ensure before placing an order on behalf of a trading member settled client?

    <p>An account must be opened on the Strate system</p> Signup and view all the answers

    Which reference numbers are essential for a trading member to submit to the Settlement Authority?

    <p>Strate client account code and Strate settlement account reference</p> Signup and view all the answers

    How does the Settlement Authority determine the monetary payment for a non-failing party?

    <p>By calculating the difference between the transaction price and a determined price</p> Signup and view all the answers

    What is the 'volume weighted average price' based on?

    <p>Prices and volumes aggregated between 09h00 and 11h00 on a specified day</p> Signup and view all the answers

    What action may the Settlement Authority take if the ruling price is suspected of being manipulated?

    <p>Correct the original trade in accordance with the correction trade procedure</p> Signup and view all the answers

    What principle governs the compensation of the non-failing party in a failed trade scenario?

    <p>To equate the position of the non-failing party to that of a settled transaction</p> Signup and view all the answers

    What is the role of the Market Controller in determining the 'determined price'?

    <p>To assist the Settlement Authority in price determination</p> Signup and view all the answers

    What happens if there is a significant differential between the ruling price and the volume weighted average price?

    <p>The Settlement Authority may correct the trade as necessary</p> Signup and view all the answers

    What time frame is referred to when calculating the volume weighted average price for trade settlement?

    <p>Between 09h00 and 11h00 on the third business day post-trade</p> Signup and view all the answers

    What might the Settlement Authority do if they suspect trading prices were manipulated for the benefit of one party?

    <p>Correct the original transaction based on the correction procedure</p> Signup and view all the answers

    A late principal assignment trade must be communicated to the client no later than 19h00 on the business day after the original trade.

    <p>False</p> Signup and view all the answers

    All trades that are committed by the CSDP of a trading member must be settled on the trade date.

    <p>False</p> Signup and view all the answers

    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.

    <p>True</p> Signup and view all the answers

    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.

    <p>False</p> Signup and view all the answers

    The Settlement Authority corrects late allocation corrections without any fees after 18h00 on the first business day after the trade date.

    <p>False</p> Signup and view all the answers

    For trades that are settled on the same day, the CSDP must commit to the trade by no later than 14h00.

    <p>False</p> Signup and view all the answers

    Clients have until 18h00 on the original trade date to notify a trade disagreement related to late principal assignment.

    <p>False</p> Signup and view all the answers

    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.

    <p>True</p> Signup and view all the answers

    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.

    <p>False</p> Signup and view all the answers

    A trading member must inform the Settlement Authority if a transaction in a bond is expected to settle on time.

    <p>False</p> Signup and view all the answers

    For trades that settle on the first business day after the trade date, allocations must be made by 18h00 on the trade date.

    <p>False</p> Signup and view all the answers

    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.

    <p>True</p> Signup and view all the answers

    A trading member's CSDP must commit to settle transactions for same-day trades by 19h00 on the trade date.

    <p>False</p> Signup and view all the answers

    The deadline for a trading member to take steps to cover an uncommitted transaction is 13h00 on the settlement date.

    <p>True</p> Signup and view all the answers

    All late allocations made in contravention of the rules will be executed directly by the trading member without any additional fees.

    <p>False</p> Signup and view all the answers

    A trading member can effect a trade to settle on the same day up to 11h00 on the trade date.

    <p>False</p> Signup and view all the answers

    A commitment by a CSDP becomes unconditional at 08h30 on the settlement date.

    <p>True</p> Signup and view all the answers

    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.

    <p>False</p> Signup and view all the answers

    A client must be notified of a late allocation in time for their Central Securities Depository Participant (CSDP) to process it before settlement.

    <p>True</p> Signup and view all the answers

    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.

    <p>False</p> Signup and view all the answers

    A trading member may stop payment in relation to a Strate settlement on settlement day.

    <p>False</p> Signup and view all the answers

    If a trade on a suspense account has not been allocated by the trade date, it cannot be allocated afterward under any circumstances.

    <p>False</p> Signup and view all the answers

    A reporting obligation regarding CSDP commitments is applicable for trading members only after the transaction has settled.

    <p>False</p> Signup and view all the answers

    The CSDP of a trading member must always commit to settle transactions by 19h00 the business day after a trade date.

    <p>False</p> Signup and view all the answers

    The cash settlement for a failed trade is determined solely by the transaction price.

    <p>False</p> Signup and view all the answers

    A volume weighted average price is calculated using the prices aggregated from trades executed in the market.

    <p>True</p> Signup and view all the answers

    If the ruling price is found to have been manipulated, the original trade will always be reversed immediately.

    <p>False</p> Signup and view all the answers

    The non-failing party is always entitled to the exact amount that would have been received had the original transaction settled correctly.

    <p>False</p> Signup and view all the answers

    The Settlement Authority's action in the case of artificial manipulation is dependent only on the opinion of the Market Controller.

    <p>False</p> Signup and view all the answers

    The differential percentage determining action in the event of a failed trade is fixed and does not change over time.

    <p>False</p> Signup and view all the answers

    A failed trade must be addressed according to a directive that specifies procedures for the parties involved.

    <p>True</p> Signup and view all the answers

    The monetary payment to the non-failing party will always be made immediately after recognizing a failed trade.

    <p>False</p> Signup and view all the answers

    If the determined price has moved to the benefit of the non-failing party, they must pay the difference to the Guarantee Fund.

    <p>False</p> Signup and view all the answers

    A trading member must maintain a funds settlement account at its Central Securities Depository Participant (CSDP).

    <p>True</p> Signup and view all the answers

    Bonds can be used as a form of compensation for a non-failing party under any circumstances.

    <p>False</p> Signup and view all the answers

    If a trading member is unable to meet their transaction obligations, they must borrow bonds to comply with settlement requirements.

    <p>True</p> Signup and view all the answers

    A separate custody account must be opened by a trading member only if they have custody of client equities.

    <p>False</p> Signup and view all the answers

    The difference between the original trade value and the close-out price must be paid by the non-failing trading member.

    <p>False</p> Signup and view all the answers

    A non-failing party must always receive the full price of the trade after a default occurs.

    <p>False</p> Signup and view all the answers

    A trading member can choose to borrow bonds or engage in carry or repurchase transactions to avoid a failed trade.

    <p>True</p> Signup and view all the answers

    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.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    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.

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser