Settlement Procedures for Bond ETP Securities

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Questions and Answers

What is the primary method of settlement for Bond ETP securities?

Cash settlement at the end of the trading day

Trade by trade between the buyer and the seller (correct)

Bilateral settlement on an ad-hoc basis

Net settlement after a period of time

Which principle is NOT followed in the settlement of Bond ETP securities?

Trade by trade settlement

Rolling settlement based on contractual obligations

Immediate settlement upon trade execution (correct)

Settlement becoming due after a prescribed number of days

What risk management role does the Settlement Authority perform?

Managing systemic risks associated with ETP transactions (correct)

Capitalizing on price fluctuations in the market

Collecting government taxes on bond transactions

Providing liquidity directly to the investors

What is one of the obligations of members in regard to ETP trade settlements?

Monitoring their own uncommitted positions and potential issues Signup and view all the answers

What does the JSE Clearing and Settlement division specifically do regarding cash bonds?

Perform lender of last resort for IRC members Signup and view all the answers

What time does a member's CSDP need to commit to settle a transaction in Bond ETP securities by the latest?

15h00 on the settlement date Signup and view all the answers

Which action must a member take if their CSDP has not committed by 13h15 on the settlement date?

Take steps to ensure commitment by 15h00 Signup and view all the answers

If a member's CSDP retracts a commitment to settle a sale transaction, what must the member do next?

Resolve the dependency issue before further action Signup and view all the answers

What is the role of the Settlement Authority if notified of a member's inability to ensure CSDP commitment?

To instruct the member to follow a specific procedure Signup and view all the answers

What must a member do to cover an uncommitted sale transaction if they fail to act by 14h00?

Borrow the relevant securities from the National Treasury Signup and view all the answers

Under which circumstance can a member's CSDP retract its commitment to settle a transaction?

Due to dependency on the settlement of another transaction Signup and view all the answers

What is the initial time by which a member must notify the Settlement Authority of a commitment issue?

18h00 on the business day prior to the settlement date Signup and view all the answers

What time becomes unconditional for a CSDP to settle a transaction in Bond ETP securities?

8h30 on the settlement date Signup and view all the answers

What action can the Settlement Authority take if a transaction in Bond ETP securities is unlikely to settle on the settlement date?

Facilitate the settlement through default procedures. Signup and view all the answers

Which of the following must a member ensure regarding the settlement of transactions in Bond ETP securities?

All transactions must be communicated to the Settlement Authority timely. Signup and view all the answers

What is the commitment deadline for a member's CSDP to settle a transaction in Bond ETP securities?

By 18h00 on the business day prior to settlement date. Signup and view all the answers

What should the Settlement Authority do if it believes that a non-settlement could cause systemic risk?

Defer the settlement and inform the CSD of this decision. Signup and view all the answers

Which of the following options is not a role of the Settlement Authority regarding Bond ETP securities?

Committing trades directly on behalf of members. Signup and view all the answers

How are all transactions in Bond ETP securities settled?

Electronically through the Central Securities Depository (CSD). Signup and view all the answers

What is the consequence if a member instructs their CSDP to revoke a commitment without Settlement Authority consent?

The member may face disciplinary actions. Signup and view all the answers

What time must a member make arrangements with their CSDP to ensure settlement obligations are met?

By 17h30 on the business day preceding the settlement date. Signup and view all the answers

Which function does the JSE Clearing and Settlement division NOT perform in relation to Cash Bonds Market?

Managing the same same-day window for ETP trades Signup and view all the answers

Which of the following is a principle of the settlement of Bond ETP securities?

Settlement occurs bilateral between the buyer and seller Signup and view all the answers

What is the role of the Settlement Authority in the context of Bond ETP securities?

Managing settlements and associated risks for Bond ETP transactions Signup and view all the answers

What is NOT a responsibility of the Settlement Authority during the settlement process?

Directly executing trades on behalf of members Signup and view all the answers

What mechanism does the Settlement Authority provide regarding settlement failures?

Lender of last resort for affected members Signup and view all the answers

What is the purpose of marking-to-market transactions in Bond ETP securities?

To determine the fair market value of unsettled transactions. Signup and view all the answers

What primarily determines the initial margin amount required from a member?

The potential loss due to the member's default in settlement obligations. Signup and view all the answers

What could happen if a member fails to pay the initial margin and adjustments as required?

This may be considered an act of default by the JSE. Signup and view all the answers

Under what condition might a member withdraw excess funds from their CPD margin account?

With the approval of the Settlement Authority. Signup and view all the answers

When are mark-to-market adjustments to initial margin typically calculated?

On a daily basis under normal circumstances. Signup and view all the answers

What could lead to the imposition of fees on members related to Bond ETP securities?

Consultation between the Settlement Authority and Market Committee. Signup and view all the answers

What is the deadline for a member to pay any amount due as a result of mark-to-market adjustments?

By 12h00 on the business day following the calculation. Signup and view all the answers

What is a possible consequence for members who delay or fail to settle their margin obligations?

A risk of being marked as in default by the JSE. Signup and view all the answers

Which action does the Settlement Authority take if a transaction is at risk of not settling on the settlement date?

Facilitate rolling of settlement procedures Signup and view all the answers

What must a member do if they believe a transaction will not settle on the settlement date?

Inform the Settlement Authority immediately Signup and view all the answers

What is the deadline for a member's CSDP to commit to a transaction in Bond ETP securities?

18h00 on the business day preceding the settlement date Signup and view all the answers

What should happen if a member's CSDP has committed but the member wants to revoke that commitment?

The Settlement Authority must issue a directive Signup and view all the answers

What is one of the consequences if a member stops payment on the settlement date?

The member faces penalties from the CSD Signup and view all the answers

What does the Settlement Authority do in case of a potential systemic risk due to non-settlement?

Notify the CSD of the deferral Signup and view all the answers

When must a member make necessary arrangements with their CSDP for settlement?

By 17h30 on the business day preceding the settlement date Signup and view all the answers

What happens if a transaction in Bond ETP securities is not settled on the agreed settlement date?

The member must report it as a failed transaction Signup and view all the answers

What actions must a member take if their CSDP has not committed to settle by 15h00 on the settlement date?

Take all necessary steps to ensure recommitment to settlement. Signup and view all the answers

At what time becomes a commitment by a CSDP to settle a transaction in Bond ETP securities unconditional?

8h30 on the settlement date. Signup and view all the answers

What must a member do if the CSDP's commitment to settle is reliant on another transaction?

Notify the Settlement Authority of a possible delay. Signup and view all the answers

Which action is required of a member if they fail to act by 14h00 regarding an uncommitted sale transaction?

Borrow the relevant securities as instructed by the Settlement Authority. Signup and view all the answers

What happens if a member's CSDP does not commit to settle a transaction by 13h15 on the settlement date?

The member must take steps to ensure commitment by 15h00. Signup and view all the answers

When must a member notify the Settlement Authority about their CSDP's inability to commit?

Immediately upon realizing the situation. Signup and view all the answers

If notified by a member, what is the primary role of the Settlement Authority regarding the transaction?

To determine whether the transaction can proceed or must be rolled. Signup and view all the answers

By which time must a member ensure that their CSDP is ready to settle a transaction if a commitment is still unmade?

15h00 on the settlement date. Signup and view all the answers

What action does the Settlement Authority take upon receiving notification from a member about an inability to settle a transaction?

Evaluates if exceptional circumstances exist for rolling the settlement. Signup and view all the answers

What is the first step the Settlement Authority takes after determining a transaction will be rolled?

Obtain a list of Bond ETP settlements from the CSD that will not occur. Signup and view all the answers

What must failing and non-failing members do after being advised of a rolled settlement?

Re-book the original transaction at the original yield. Signup and view all the answers

What occurs if a transaction does not settle on the revised date?

The Settlement Authority may roll the settlement to another revised date. Signup and view all the answers

What does the JSE consider if a member is unable to settle after being rolled to another revised settlement date?

Whether the member is in default and their obligation to adhere to default rules. Signup and view all the answers

Upon notification from a failing member, what does the Settlement Authority NOT do?

Immediately roll the transaction to a later date. Signup and view all the answers

What role does the failing member play in the management of a failed transaction?

They must report the transaction to the ETP fails management system. Signup and view all the answers

Which aspect is crucial for the Settlement Authority when deciding to roll a settlement?

Whether the member will be able to settle on the new date. Signup and view all the answers

The Settlement Authority is responsible for managing the settlement of Bond ETP securities on a trade-by-trade basis.

True Signup and view all the answers

Settlement of Bond ETP securities happens in a single day without any rolling basis specified.

False Signup and view all the answers

The Clearing and Settlement division does not monitor Cash Bond settlements.

False Signup and view all the answers

A member's CSDP commitment to settle a transaction in Bond ETP securities becomes unconditional at 15h00.

False Signup and view all the answers

The Settlement Authority performs the role of lender of last resort only for IRC members.

False Signup and view all the answers

The JSE can only mark-to-market transactions in Bond ETP securities once a week.

False Signup and view all the answers

Margin obligations must be settled daily according to standard practices of the JSE.

True Signup and view all the answers

A member may withdraw any amount from their CPD margin account at any time without approval.

False Signup and view all the answers

Initial margin is determined based on the potential loss from member defaults in Bond ETP securities transactions.

True Signup and view all the answers

If a member fails to pay the initial margin, it may not be considered a default by the JSE.

False Signup and view all the answers

The Settlement Authority has the power to charge fees associated with Bond ETP securities transactions.

True Signup and view all the answers

Mark-to-market calculations are performed solely based on the market value of Bond ETP securities.

False Signup and view all the answers

Payments resulting from mark-to-market adjustments must be made by 12h00 on the next business day.

True Signup and view all the answers

The Settlement Authority can defer the settlement of Bond ETP securities transactions if they believe it could cause systemic risk.

True Signup and view all the answers

A member's CSDP must commit to settling a transaction in Bond ETP securities by no later than 20h00 on the business day preceding the settlement date.

False Signup and view all the answers

Members must inform the Settlement Authority of any transaction in Bond ETP securities that they believe will settle successfully.

False Signup and view all the answers

If a member's CSDP has committed to settle a transaction, the member may revoke this commitment without any conditions.

False Signup and view all the answers

All transactions in Bond ETP securities are settled through a physical manual process.

False Signup and view all the answers

A member is required to make arrangements with their CSDP to ensure transaction commitments by 17h30 on the business day before the settlement date.

True Signup and view all the answers

If a member believes a transaction is unlikely to settle, they must report it by no later than 15h00 on the settlement date.

False Signup and view all the answers

The CSDP commitment to settle becomes unconditional after 18h00 on the business day preceding the settlement date.

True Signup and view all the answers

The Settlement Authority can determine the fate of a transaction settlement without assessing the circumstances of a member's inability to settle.

False Signup and view all the answers

Once a transaction is rolled to a revised settlement date, it is no longer required for members to report it to the ETP fails management trading system.

False Signup and view all the answers

The Settlement Authority may roll the settlement to another date if the initial revised settlement date fails but only under exceptional circumstances.

True Signup and view all the answers

A failing member is instructed to re-book the original transaction at a new yield for settlement on the revised settlement date.

False Signup and view all the answers

The Settlement Authority is responsible for providing a list of settlements that will not take place based solely on failing members' notifications.

False Signup and view all the answers

If a member does not settle on the second revised date, the JSE will immediately consider the member to be in default.

False Signup and view all the answers

The failing member has no responsibilities once the settlement has been rolled to a later date.

False Signup and view all the answers

The Settlement Authority acts solely in the interest of the non-failing members during the rolling of settlement.

False Signup and view all the answers

A member's CSDP must commit to settle a transaction in Bond ETP securities by 18h00 on the settlement date.

False Signup and view all the answers

If a member's CSDP fails to commit by 15h00 on the settlement date, the Settlement Authority will allow the transaction to continue without any further actions.

False Signup and view all the answers

A member is required to notify the Settlement Authority immediately only if the CSDP has not committed to settling a transaction by 13h15 on the business day before the settlement date.

False Signup and view all the answers

The time at which a member must ensure their CSDP is ready to recommit to settle a transaction is 14h00 on the settlement date.

True Signup and view all the answers

If a member's CSDP retracts a commitment to settle, the member must act in accordance with the instructions provided by the Settlement Authority.

True Signup and view all the answers

A member must take all necessary steps to ensure their CSDP can recommit to settle a transaction by 15h00 on the settlement date only if the CSDP has not committed by 13h15.

True Signup and view all the answers

The member's CSDP can retract its commitment at any time before the settlement date without any consequences.

False Signup and view all the answers

Once a member's CSDP commits to settle a transaction in Bond ETP securities, it cannot be rescinded regardless of further dependencies.

False Signup and view all the answers

Study Notes

Settlement Procedures for Bond ETP Securities

Commitment by a Central Securities Depository Participant (CSDP) to settle transactions in Bond Exchange Traded Products (ETPs) becomes unconditional at 8h30 on the settlement date.
Members must ensure their CSDP commits to settling by 18h00 on the business day before the settlement date; failure to do so requires immediate notification to the Settlement Authority.
If notified, the Settlement Authority may roll the transaction to a later date, and members must comply with further instructions.

CSDP Commitment and Dependencies

A member may experience settlement issues on the settlement date due to dependencies on another transaction, even if their CSDP had committed earlier.
In such cases, the CSDP may need to retract its commitment until the dependency is resolved.
By 13h15 on the settlement date, if no commitment exists, members must act to enable their CSDP to recommit by 15h00.

Actions for Settlement Compliance

Members must take necessary steps by 14h00 if their CSDP is uncommitted to ensure coverage, or risk being instructed by the Settlement Authority to borrow securities from the National Treasury via the South African Reserve Bank.
Strict adherence to the 15h00 recommitment deadline is essential for members.

Role of the Settlement Authority

The Settlement Authority can facilitate settlement rolling, handle defaults, defer transactions to avoid systemic risk, and extend necessary timeframes as per Bond ETP Rules.
All transactions must be settled electronically through the CSD in accordance with established principles.

Member Settlement Obligations

Members are obliged to ensure settlement of their executed transactions in Bond ETP securities.
Immediate notification to the Settlement Authority is required if a member believes a transaction will not settle as planned.
No member can stop payment on the settlement date unless directed by the Settlement Authority.

Timing and Communication Requirements

By 17h30 on the business day before settlement, members must ensure their CSDP can commit to settling by 18h00.
Once committed by the CSDP, members cannot instruct revocation unless directed by the Settlement Authority.

Functions of the JSE Clearing and Settlement Division

The Bonds Clearing and Settlement team acts as the Settlement Authority, ensuring trades in Cash Bond Securities on the JSE are settled appropriately.
Responsibilities include monitoring settlement, providing lender of last resort functions, balancing daily margins, and regulating member compliance.

Principles for Settlement of ETP Securities

Settlement of Bond ETP securities occurs trade by trade between buyer and seller on a rolling contractual basis.
Transactions are due to be settled a specified number of days after the trade date.
Settlement Authority manages settlement risks and oversees transactions executed on trading and fails management systems.

Mark-to-Market for Bond ETP Securities

The JSE may mark-to-market unsettled transactions in Bond ETP securities at any time when necessary for specific members or overall market conditions.
Initial margin calculated by the JSE reflects potential losses from member defaults on settlement obligations related to Bond ETP transactions.

Margin Adjustments and Rules

Mark-to-market adjustments for initial margin are typically calculated daily by the JSE.
Members must pay adjusted amounts by 12h00 the following business day, or as per an agreement with the JSE.
Failure to pay margins may result in default status for the member.

Fees and Settlement Responsibilities

Members are charged fees by the Settlement Authority for the settlement of Bond ETP securities.
Fees must be paid within five business days of notification.

Role of the Settlement Authority

The Bonds Clearing and Settlement team acts as the Settlement Authority, overseeing trade settlements in Cash Bond Securities.
Settlement Assurance for ETP Market trades and daily margin monitoring are key responsibilities.

Settlement Principles

Bond ETP securities settlements occur trade by trade between buyer and seller, based on a rolling contract system.
Settlement dates are set a prescribed number of days after the trade date.

Settlement Authority Actions

The Settlement Authority manages transaction settlements and associated risks for Bond ETP securities.
It may action when settlement is delayed, including rolling settlement dates and managing defaults.

Transactions and Commitments

Transactions in Bond ETP securities must be electronically settled by the CSD within established deadlines.
Members must ensure their CSDP commits to settling transactions by specified times before the settlement date.

Handling Settlement Failures

Members must notify the Settlement Authority if a transaction is unlikely to settle as planned.
Commitment from a CSDP becomes unconditional at 8h30 on the settlement date; cessation of payment is not permitted on this day.

Rolling Settlements

If notified of non-settlement, the Settlement Authority assesses if circumstances allow for rolling the settlement to a later date.
Steps for rolling transactions include notifying parties, re-booking at the original terms, and updating the ETP fails management system.
Further rollovers may occur if the revision fails to settle, with potential default considerations by the JSE.

Mark-to-Market for Bond ETP Securities

The JSE may mark-to-market unsettled transactions in Bond ETP securities at any time when necessary for specific members or overall market conditions.
Initial margin calculated by the JSE reflects potential losses from member defaults on settlement obligations related to Bond ETP transactions.

Margin Adjustments and Rules

Mark-to-market adjustments for initial margin are typically calculated daily by the JSE.
Members must pay adjusted amounts by 12h00 the following business day, or as per an agreement with the JSE.
Failure to pay margins may result in default status for the member.

Fees and Settlement Responsibilities

Members are charged fees by the Settlement Authority for the settlement of Bond ETP securities.
Fees must be paid within five business days of notification.

Role of the Settlement Authority

The Bonds Clearing and Settlement team acts as the Settlement Authority, overseeing trade settlements in Cash Bond Securities.
Settlement Assurance for ETP Market trades and daily margin monitoring are key responsibilities.

Settlement Principles

Bond ETP securities settlements occur trade by trade between buyer and seller, based on a rolling contract system.
Settlement dates are set a prescribed number of days after the trade date.

Settlement Authority Actions

The Settlement Authority manages transaction settlements and associated risks for Bond ETP securities.
It may action when settlement is delayed, including rolling settlement dates and managing defaults.

Transactions and Commitments

Transactions in Bond ETP securities must be electronically settled by the CSD within established deadlines.
Members must ensure their CSDP commits to settling transactions by specified times before the settlement date.

Handling Settlement Failures

Members must notify the Settlement Authority if a transaction is unlikely to settle as planned.
Commitment from a CSDP becomes unconditional at 8h30 on the settlement date; cessation of payment is not permitted on this day.

Rolling Settlements

If notified of non-settlement, the Settlement Authority assesses if circumstances allow for rolling the settlement to a later date.
Steps for rolling transactions include notifying parties, re-booking at the original terms, and updating the ETP fails management system.
Further rollovers may occur if the revision fails to settle, with potential default considerations by the JSE.

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Description

Explore the essential processes involved in settling transactions for Bond Exchange Traded Products (ETPs). This quiz covers the commitments required from Central Securities Depository Participants (CSDPs), the importance of timely notifications, and the actions members must take when settlement issues arise. Test your understanding of settlement dynamics and responsibilities.