Clearing and Settlement Function.docx

Clearing and Settlement Function ================================ IRC Clearing ------------ Section 8 of the IRC Rules shall apply to transactions in IRC securities that qualify to be cleared in terms of the following: ### Clearing JSE Clear will perform the clearing and ensure the performance o...

Clearing and Settlement Function ================================ IRC Clearing ------------ Section 8 of the IRC Rules shall apply to transactions in IRC securities that qualify to be cleared in terms of the following: ### Clearing JSE Clear will perform the clearing and ensure the performance of -- - trades in derivative securities executed on the central order book of the JSE trading system; and - off book transactions in derivative securities reported to and matched by the JSE trading system. Upon the transaction being cleared, JSE Clear will replace the buyer and become the counterparty to the seller, and it will replace the seller and become the counterparty to the buyer. ### Opening and closing-out a position - When there is no position in a futures or option contract prior to a transaction in the futures or option contract being cleared, a position in the futures or option contract shall be opened and registered with JSE Clear in the name of the trading member or its client when the transaction is cleared. - The futures or option contracts comprising a transaction which has been cleared, shall be added to or off-set against an existing position registered in the name of the party concerned and the position shall be increased, decreased, closed out or a position in the opposite direction shall be opened, as the case may be. - On the expiry of an option contract of which the strike price is not better by a certain amount determined by the JSE, as set out in the directives, than the expiry price of the underlying instrument of the option contract -- - the person in whose name a long position in the option contract is registered by JSE Clear shall be deemed to have sold the number of the futures contracts equal to the number comprising the position, to JSE Clear; and - the person in whose name a short position in the option contract is registered by JSE Clear shall be deemed to have bought a number of the futures contracts equal to the number comprising the position, from JSE Clear. - The price of the futures contract which shall apply to the sale and the purchase shall be the expiry price determined in the manner prescribed in the contract specification of the futures contract in question and the price of an option contract which shall apply to such purchase or sale shall be zero. - Clearing rules shall apply ipso facto to the futures or option contracts comprising the purchases and sales. - Where the strike price of an option contract is, on expiry, better by a certain amount determined by JSE Clear, as set out in the directives, than the expiry price of the futures contract underlying the option contract, the person in whose name a position in the futures or option contract is registered shall be deemed to have exercised the option contract. - On the expiry of a physically settled futures contract and on instruction from the Market Controller, the holder of a long position in the futures contract shall, through the JSE trading system, report a purchase of the underlying bonds and the holder of a short position shall, through the JSE trading system, report a sale of the underlying bonds at the price equal to that referred to in rule 8.30.4 (Opening and closing-out a position) and the purchase, sale, delivery and receipt of the underlying bonds shall take place in accordance with IRC settlements Rules. ### Mark-to-market At 17h30 on each business day, or such other time as JSE Clear may determine on a particular business day, the positions in each IRC security of all trading members and their clients will be marked- to-market on such basis as JSE Clear may determine. JSE Clear may at any time on any business day mark-to-market the position in any IRC security of any trading member or client if, in its sole discretion, the conditions in the IRC markets for the security or its underlying instrument warrants such additional mark-to-market. ### Margin payments #### Initial margin Initial margin shall be paid to or by a trading member or client whenever the risk of loss, as determined by JSE Clear, changes with respect to the aggregate position of such trading member or client. Initial margin shall be paid in cash and/or may be posted by pledging securities to JSE Clear in accordance with section 39 of the Financial Markets Act, subject to the rules, policies, and procedures of JSE Clear. Pledged securities may be substituted by the pledge of other qualifying securities in accordance with the rules, policies, and procedures of JSE Clear. JSE Clear may at any time and forthwith call for payment of cash from market participants that have pledged securities and/or have withdrawn and/or substituted securities pledged in terms of the JSE Clear Rules, to ensure that they comply with their initial margin obligations. #### Variation margin Variation margin shall be paid to or by a trading member or client in whose name a position in a futures or option contract is registered as the result of the marking-to-market of a position or the closing out of a position or part thereof or the closing out of a position. #### Additional margin - A clearing member may, in terms of the JSE Clear rules, require a trading member with whom it has entered into a clearing agreement to deposit with it, with respect to the proprietary position of the trading member or the position of any of the clients of the trading member, an amount of additional margin as agreed upon between the parties in terms of the clearing agreement. 35 - A trading member may require a resident client to deposit with it, with respect to the resident client\'s position, an amount of additional margin as agreed upon between the parties in terms of the client agreement. #### Retained margin A trading member, with respect to a resident client, may with the client\'s prior written agreement - - require the client to deposit an amount of money with such trading member to be used to furnish initial margin or additional margin before the trading member shall trade with the client; and/or - retain initial margin or variation margin payable to the client, or interest accruing, in anticipation of future transactions provided that the money so deposited or retained shall be repaid to the client if the client has not traded with the trading member within thirty days. #### Maintenance margin level A trading member may agree, where a client has additional margin deposited with such trading member, that the client shall pay an amount of money to restore the additional margin when the additional margin has been used to meet payments of variation margin. #### Interest payments - JSE Clear will manage and invest all margins held by it in terms of the JSE Clear rules and it will no later than the second day of the month following the month in which interest was received or accrued, remit such interest, net of the interest consideration to each clearing member in relation to the margin held in respect of the positions of the clearing member, its clients and trading members and the clients of such trading members for the previous month. - Monthly in arrears a clearing member may remit the interest received in terms of the JSE Clear rules to the trading members with whom it has entered into clearing agreements in relation to the positions of the trading member and their clients. - Monthly in arrears a trading member may remit the interest received, or any part thereof, to its clients in relation to the positions of such clients at any time during the preceding month. #### #### **Trading, Clearing and Settlement Fees** With the exception of transactions in bonds, the JSE shall levy trading fees on a clearing member in respect of the trades of the clearing member, its clients, and the trading members with whom the clearing member has entered into clearing agreements, in an amount and in a manner as decided by the JSE Executive, and such fees may be recovered from the clearing member on behalf of the JSE by JSE Clear. A trading member may levy such fees and charges for different categories of transactions as it deems fit on clients with whom it trades: Provided that such fees and charges shall be in accordance with the schedule of fees and charges which shall form part of the client agreement. A trading member shall not levy a fee or any other charge on a client in respect of a transaction in terms of which it has traded as a principal with the client without the prior written agreement of the client having been recorded in the client agreement. With regards to transactions in bonds, the JSE shall levy trading fees on a trading member in respect of trades of the trading member and its clients, in an amount and in a manner determined by the JSE Executive. #### Payment procedures With respect to its proprietary positions, the positions of its clients, the positions of the trading members with whom it has entered into clearing agreements and the positions of the clients of such trading members, the clearing member will, in terms of the JSE Clear rules, pay to or receive from JSE Clear the net amount of -- - in respect of non-resident clients, the sum of the initial margin; - the variation margin; and - the trading, clearing and settlement fees for transactions in interest rate and currency derivatives. An amount due from a clearing member in terms of JSE Clear rule 5.7.1 (Settlement procedures) will be paid to JSE Clear not later than 10h00 on the business day following the day on which such payment accrued or such other time as JSE Clear may in its sole discretion determine With respect to any proprietary position, the position of any of its clients, the position of a trading member with whom it has entered into a clearing agreement and the position of a client of such trading member which JSE Clear has marked-to-market, the clearing member will, in terms of the JSE Clear rules, pay to JSE Clear the amount of variation margin at the time stipulated by JSE Clear when the clearing member is notified by it of the mark-to-market. With respect to the positions of its clients as a trading member, the positions of any other trading members with whom it has entered into a clearing agreement and the positions of the clients of such trading members, the clearing member is acting as a settlement agent on behalf of those parties in relation to any amounts paid to or received from JSE Clear in terms of JSE Clear (Settlement procedures) With respect to its proprietary positions and the positions of its clients, a trading member shall pay to or receive from the clearing member the net amount of -- - in respect of non-resident clients, the initial margin; - the additional margin; - the variation margin; and - the trading, clearing and settlement fees for transactions in interest rate and currency derivatives. An amount due to or from a clearing member shall be paid by such time as the trading member and the clearing member have specifically agreed upon with respect to a particular payment, provided that any payment due to a clearing member is made at a time which enables the clearing member to pay the amount due to the clearing house by no later than 10:00 on the business day following the day on which such payment accrued. With respect to any proprietary position or the position of any of its clients, which JSE Clear has marked-to-market, the trading member shall pay to the clearing member the amount of variation margin by the time, as stipulated by JSE Clear, and as notified to the trading member by the clearing member. In respect of non-resident clients, with respect to his positions a client shall pay to or receive from the trading member with whom he traded to open such positions the net amount of -- - the total of the initial margin for all his aggregate positions: Provided that any amount so due from the resident client shall be off set against any retained margin; - the additional margin referred; - the variation margin; and - the trading, clearing and settlement fees for transactions in interest rate and currency derivatives. An amount due to or from a trading member shall be paid by such time as the trading member and the client have specifically agreed upon with respect to a particular payment, provided that any payment due to an exchange member is made at a time that enables the exchange member to pay the amount due to the clearing member and ultimately enables the clearing member to pay the amount due to the clearing house by no later than 10:00 on the business day following the day on which such payment accrued. With respect to the position of any client, which JSE Clear has marked-to-market in terms of JSE Clear, the client shall pay to the trading member the amount of variation margin by the time stipulated by JSE Clear Rules and notified to the client by the trading member. ### Exercise and Assignment of Option Contracts #### Exercise - A client in whose name a long position in an option contract is registered with JSE Clear may exercise the option on the expiry date up to the expiry time of the option contract by either verbal or written notice to the trading member with whom he dealt in order to open the long position. - A trading member who has a proprietary long position in an option contract registered in its name with JSE Clear may exercise the option on the expiry date up to the expiry time of the option contract, and shall exercise such options, or options registered in the name of a client which are exercised on the instruction of the client, by executing the exercise on the JSE trading system in the manner prescribed by the JSE or as set out in the directives. Upon the exercise of an option, the person in whose name the long position in the option contract was registered with JSE Clear shall be deemed to have bought or sold the underlying instrument of the option contract in question at the strike price from or to JSE Clear. #### Assignment When an option is exercised or when an option is deemed to have been exercised, JSE Clear will, in terms of the JSE Clear rules, exercise its option to buy or sell the underlying instrument in question to or from the holder of a short position in the option contract in question provided that -- - JSE Clear will in its sole discretion assign the exercise of the option contract or contracts to the registered holders of short positions in the option contract; - and the person to whom the exercise of the option contract is assigned shall be deemed to have bought or sold the underlying instrument of the option contract. ### Clearing and settlement The vast majority of bond deals through the JSE-Debt Market are conducted on a netted, T+3 rolling settlement system. It is, however, possible to settle a bond trade on a shorter basis such as T+2, T+1 or even T+0. For example, a request may come from a client who requires cash urgently and therefore instructs his broker to sell a bond on a T+1 basis. The institutions involved in clearing and settlement are: - A clearing house (STRATE). - A central securities depository (CSD = STRATE as well). - A settlement agent system. The JSE offers protection (through its Guarantee Fund) from settlement failure and tainted scrip risk when deals are reported on and matched by its JSE's Automated Trading / Matching System. Members also hold fidelity cover which provides protection against fraud / theft perpetrated by employees of a member firm. Visit the JSE for more information on the settlement timelines. Settlement of Bond ETP Securities --------------------------------- - The Bonds Clearing and Settlement team performs the role of the Settlement Authority as required by the JSE Rules and Directives. - The Settlement Authority ensures that trades dealt in Cash Bond Securities listed on the JSE are settled accordingly. ### Functions of the JSE Clearing and Settlement division - Cash Bonds Market and ETP - Ensure Settlement Assurance for trades executed in the ETP Market - Monitoring Bond settlement - Performs lender of last resort between SARB and Primary Dealer - Lender of last resort for IRC members. - Balancing of the daily margin and maintenance levels of the Primary Dealers - Assist market regulation with cancellation of ETP trades when required to do so - Monitor settlements of all ETP trades - Monitoring Cash Bond settlements - Advising members of all uncommitted positions and potential issues. - Managing the same same-day window and extension thereof in the Cash Bonds Market - Issuing of fines for transgressions of the Rules and Directives in the Cash Bonds Market - Inward listing for bonds reporting. ### Section 8 of the Bond ETP Rules and Directives **Settlement principles for ETP securities** The settlement of Bond ETP securities shall be effected in accordance with the following principles -- - trade by trade; - between the buyer and the seller; and - on a rolling and contractual basis, whereby transactions become contractually due to be settled a - prescribed number of days after the trade date. #### Settlement Authority The Settlement Authority will manage -- - the settlement of transactions in Bond ETP securities executed on the Bond ETP trading system and the ETP fails management trading system; and - the risks associated with the settlement of transactions in Bond ETP securities. In order to perform its functions, the Settlement Authority may take action when the settlement of a transaction in a Bond ETP security will not take place or is unlikely to take place on settlement date by -- - facilitating the settlement of Bond ETP securities in terms of the rolling of settlement procedures set out in the Bond ETP Rules and Directives, if the relevant circumstances merit such action; - facilitating the settlement of Bond ETP securities in terms of the default procedures as a result of the default of an ETP member; - deferring the settlement of Bond ETP securities transactions that in its view could cause - systemic risk if they were not to settle, by way of a notification to the CSD of the deferral - and the extension of the timeframes referred to Bond ETP Rules and Directives. *Settlement of Bond ETP securities* All transactions in Bond ETP securities shall be settled electronically through the CSD, in accordance with the principles. A trade in Bond ETP securities by a member shall -- - be committed to by the member's CSDP by no later than 18h00 on the business day preceding the settlement date; and - be settled on the third business day after the trade date. #### Member settlement obligations A member shall ensure that the settlement of a transaction in Bond ETP securities that has been effected by such member takes place. - A member must immediately inform the Settlement Authority of any transaction in Bond ETP securities that in its view is unlikely to settle on the settlement date. - No member may, on the settlement date, stop payment in respect of a CSD settlement. - If a member's CSDP has committed to settling a transaction in Bond ETP securities on behalf of the member, the member may not instruct the CSDP to revoke its commitment to settle the transaction, unless the member receives an instruction to do so from the Settlement Authority. - By no later than 17h30 on the business day preceding the settlement date, a member must make the necessary arrangements to ensure that the CSDP of that member is in a position, by no later than 18h00 on the business day preceding the settlement date, to commit to settle the transactions in Bond ETP securities on the settlement date. - A commitment by a CSDP to settle a transaction in Bond ETP securities in respect of a member shall become unconditional as at 8h30 on the settlement date, If a member is unable to ensure that the member's CSDP commits to settling a transaction in Bond ETP securities by 18h00 on the business day preceding the settlement date, the member shall immediately notify the Settlement Authority. - If the Settlement Authority receives notification, the Settlement Authority will determine whether settlement of the relevant transaction will be rolled to a later date and, if so, the member must act in accordance with the instructions received from the Settlement Authority. - Despite a member's CSDP having committed to settle a sale transaction in Bond ETP securities prior to the settlement date, a member may be unable to settle the transaction on the settlement date due to a dependency on the settlement of another transaction in the same bond in respect of which the CSDP of the counterparty to that transaction has not yet committed to settling. Under these circumstances the member's CSDP may be required to retract their commitment to settle the sale transaction pending further action by the member or the resolution of the transaction on which there is a dependency. - If by 13h15 on the settlement date the member's CSDP has not committed to settle a sale transaction in Bond ETP securities, the member must take all necessary steps to ensure that the member's CSDP is in a position to recommit to settle the transaction as soon as possible but by no later than 15h00. - To ensure that the member's CSDP is in a position to commit to settle a Bond ETP securities sale transaction by no later than 15h00 on the settlement date if the circumstances arise, a member must take the necessary steps by 14h00 to cover the uncommitted sale transaction, failing which the Settlement Authority will instruct the member to borrow the relevant securities from National Treasury through the South African Reserve Bank to cover the transaction. The member must comply with the instructions given by the Settlement Authority and must ensure that the member's CSDP has recommitted to settling the sale transaction by no later than 15h00. **Rolling of settlement** In the event that the Settlement Authority receives notification from a member that the member is unable to settle a transaction in Bond ETP securities on the settlement date, the Settlement Authority will assess, based on all information available to it at the time, whether exceptional circumstances exist that warrant settlement of the transaction being rolled to a later date and whether the member will be able to settle the transaction on a later date. If the Settlement Authority determines that the circumstances warrant the settlement of the transaction being rolled to a later date and that the member will be able to settle the transaction on a later date, the Settlement Authority may roll the settlement of the transaction. The rolling of settlement of a Bond ETP securities transaction will be carried out in the following manner: - The Settlement Authority will obtain a list of Bond ETP settlements from the CSD which are not going to be effected on the due settlement date, following notification by the failing member and a determination by the Settlement Authority. This list will include the failed trade leg as well as the opposite trade leg; - The Settlement Authority will advise the failing and non-failing members that the transaction will be rolled to a revised settlement date determined by the Settlement Authority; - The failing and non-failing members will be instructed to re-book the original transaction at the original yield for settlement on the revised settlement date; and - The transaction will be reported by the failing and non-failing members to the ETP fails management trading system. If settlement does not take place on the revised settlement date, the Settlement Authority will, under exceptional circumstances, roll the settlement to another revised settlement date. However, if the Settlement Authority determines that settlement will not be able to take place on the further revised settlement date, the JSE will consider whether the member is in default and, if this is the case, deal with the transaction in terms of those default rules. #### Mark-to-market of Bond ETP securities The JSE may, in terms of the calculation method set out in the directives, on any business day and at any time, mark-to-market the unsettled transactions in Bond ETP securities, if the JSE in its sole discretion determines: - that such is necessary in respect of a particular member, or the unsettled transactions of all members of the Bond ETP market; or - that the market conditions in respect of Bond ETP securities warrant such a calculation. #### Margin on Bond ETP securities transactions **Initial margin** Initial margin shall be paid by a member into the member's CPD margin account in an amount calculated by the JSE based on calculation methods agreed with the Market Committee. The initial margin shall be commensurate with the loss that could arise as a result of the default of the member in terms of its settlement obligations that relate to transactions in Bond ETP securities. **Mark-to-market adjustments to initial margin** - The JSE shall, in its sole discretion, determine, as a result of the marking-to-market of transactions, when mark-to-market adjustments to initial margin shall be paid to or by a member in respect of a transaction in Bond ETP securities. Under normal circumstances the JSE will calculate mark-to-market adjustments to the initial margin on a daily basis. - The amount due by a member shall be paid by no later than 12h00 on the business day following the day on which such payment was calculated, or at such other time as specifically agreed upon between the member and the JSE. - Failure by a member to pay the initial margin and any adjustments thereto in contravention of these rules may, in the discretion of the JSE, be deemed to be an act of default. - A member may establish a margin deposit in the member's CPD margin account in order to meet the member's margin obligation from time to time. Any amount held in a member's CPD margin account which is in excess of the member's margin obligation on a particular day may be withdrawn by the member with the approval of the Settlement Authority. **Fees** - The Settlement Authority, in consultation with the Market Committee, may charge any member the fees associated with settlement of Bond ETP securities as prescribed by directive. - Payment of the fees charged shall be made to the Settlement Authority within five business days of notification. IRC Settlement -------------- ### Settlement Assurance A trading member shall guarantee the fulfilment of all transactions in IRC securities entered into by the trading member for its own account and on behalf of a client or another trading member, executed on the central order book of the JSE trading system or reported to the JSE trading system. The IRC Rules regarding *Settlement Assurance* shall not apply to off book transactions where- - only one trading member is involved and where the clients who are parties to such transaction have, between themselves, concluded the terms of the transaction and instructed the trading member to report the transaction to the JSE trading system. A client shall have no recourse against a trading member in respect of such transaction; or - a trading member facilitates a transaction in bonds on a name give-up basis on behalf of a client or another trading member, and the trading member is not recorded as a counterparty to the transaction reported to the JSE trading system. The client or the other trading member shall have no recourse against the facilitating trading member in respect of such transaction. Except in the circumstances, any action by a client in respect of a market transaction shall be against the trading member who entered into the transaction on the instruction of such client and not against any other trading member or a client of such trading member. A trading member shall ensure that buyers and sellers of bonds are aware of their settlement obligations in terms of these rules. However, if a client is not aware of such settlement obligations, the client remains bound by the settlement rules. ### Settlement Principles for Bonds Settlement of bonds shall be effected in accordance with the following principles -- - trade by trade; - between the scrip root and the cash root; and - rolling and contractual. ### Settlement Authority The Settlement Authority will manage -- - the settlement of transactions in bonds executed on the central order book of the JSE trading system; - the settlement of all off-book transactions in bonds reported to the JSE trading system - the risks associated with the settlement of the transactions. In order to perform its functions, the Settlement Authority may -- - act when the settlement of a transaction in bonds is unlikely to take place on settlement date; - instruct a trading member to enter into a carry or repurchase transaction through the trading system for its own account or on behalf of a client in order to facilitate the settlement process, and assist the trading member, when necessary and where possible, to source a willing counterparty to the carry or repurchase transaction; - instruct a trading member to borrow bonds for its own account or on behalf of a client to facilitate the settlement process, and assist the trading member, when necessary and where possible, to source a willing lender of the bonds; - levy fees, as prescribed by directive, on trading members for the loan of bonds or funds to trading members or clients in order to facilitate the settlement process; - impose penalties, as prescribed by directive, on trading members for any action or omission by a trading member which is potentially disruptive or has the effect of disrupting the settlement process and the functions of the Settlement Authority; - instruct a trading member or a client (via the trading member) to close a purchase or sale transaction at a price; - in its sole discretion and in exceptional circumstances, instruct a trading member or client (via the trading member) to roll the settlement of a purchase or sale transaction; and - if at any stage it becomes aware of a transaction not being able to settle which may, in its sole discretion, cause systemic risk, deferring the settlement of such transaction by notifying Strate accordingly and extending the times. ### Trading in Bonds A client shall only place an order in respect of bonds with a trading member if -- - the client has directly or indirectly appointed a CSDP; and - the client has taken the appropriate steps to ensure that settlement of the transaction will occur on the settlement date. A trading member shall only place an order or report a transaction in respect of bonds on the JSE trading system if such trading member has appointed a CSDP as prescribed by directive, and has taken reasonable steps to satisfy itself that -- - if a client with whom or on whose behalf the trading member is trading is not a trading member settled client, the client has appointed a CSDP and the appointed CSDP has confirmed, in the manner determined by the JSE, that the details of that client held by the CSDP correspond with and match the details of the client held by the trading member; and - settlement of the transaction will occur on the settlement date. Borrowing, lending or use of clients' bonds With regard to the borrowing, lending or use of any bonds referred to in rule 9.60 or 10.90, a trading member may -- - deliver such bonds to the client on whose behalf they are being held or to his order; or - satisfy a sale made on behalf of the client concerned; or - sell the bonds being held on behalf of a client, under any of the circumstances set out in the IRC Rules; or - otherwise deal with the bonds, including the borrowing, lending, or use of such bonds, in a manner set out in the mandate signed by the client and held by the trading member. ### Recording of bonds All bonds received which has been purchased on behalf of trading member settled clients shall be recorded in the trading member's accounting records on that day, so as to establish the identity of the client entitled thereto. ### Settlement of bonds All transactions in bonds shall only be settled electronically through Strate in accordance with the prescribed principles. A trade in bonds by a trading member shall -- - be allocated to a client or a trading member's proprietary account on the trade date provided that for same day trades due to settle on the trade date or trades due to settle on the first business day after the trade date, or where a trade on a suspense account dedicated to a particular client has not been allocated on the trade date to underlying accounts under the control of that client, to ensure that the trade still settles on settlement date, allocations to the underlying accounts may be made -- - up to 12h00 on trade date for same day trades due to settle on the trade date; - up to 17h00 on trade date for trades due to settle on the first business day after the trade date; or - up to 12h00 on the first business day after the trade date for trades due to settle on the second or third business day after the trade date. All late allocations, in contravention of this rule, will be effected by the Settlement Authority subject to the payment of the fee as prescribed by directive. Any late allocation shall be communicated to and accepted by the client within sufficient time to allow for the CSDP of the client; - if the trade is effected through a principal assignment stock account, be assigned to a client on the trade date Provided that for same day trades due to settle on the trade date or trades due to settle on the first business day after the trade date, or where a trade has not been assigned on the trade date to ensure that the trade still settles on settlement date, principal assignment trades must be effected by the trading member -- - up to 12h00 on trade date for same day trades due to settle on the trade date; - up to 17h00 on the trade date for trades due to settle on the first business day after the trade date; or - up to 12h00 on the first business day after the trade date for trades due to settle on the second or third business day after the trade date. All late principal assignment trades, in contravention of this rule, will be effected by the Settlement Authority subject to the payment of the fee as prescribed by directive. Any late principal assignment trades shall be communicated to and accepted by the client within sufficient time to allow for the CSDP of the client; - be communicated to a client on the trade date; - in the absence of notification from the client to the contrary by no later than 18h00 on the business day after the original trade, be deemed to have been accepted by the client; - with the exception of trades, be committed to by the CSDP of the trading member or client by no later than 13h00 for same day trades due to settle on trade date or by no later than 19h00 on the business day preceding the settlement date for trades due to settle on the first, second or third business day after the trade date; - if there is a direct or indirect dependency on the settlement of an off-market transaction for which an exception applies in terms of the Strate Directives, be committed to by the CSDP of the trading member or client as soon as possible on the settlement date but no later than 13h00; - with the exception of trades, be settled on the trade date or the first, second or third business day after the trade date, as stipulated by the counterparties to the trade when the trade is executed on the trading system; - if the trade is a carry transaction or a forward transaction, which the counterparties to the transaction agree will be settled more than three business days after the trade date, be settled on such date as may be agreed to by the counterparties and shall be committed to by the CSDP appointed by the trading member or client by no later than 19h00 on the business day preceding the settlement date Notwithstanding rules above -- - allocation corrections in respect of trades due to settle on the third business day after the trade date or a later settlement date may be effected up to 18h00 on the first business day after the trade date if they have not been effected on the trade date. All late allocation corrections after 18h00 on the first business day after the trade date will be corrected by the Settlement Authority subject to the payment of the fee as prescribed by directive. Any late allocation corrections shall be communicated to and accepted by the client within sufficient time to allow for the CSDP of the client; - allocations corrections in respect of trades due to settle on the first or the second business day after the trade date may be effected -- - up to 18h00 on the trade date for trades due to settle on the first business day after the trade date; or - up to 18h00 on the first business day after the trade date for trades due to settle on the second business day after the trade date. Despite a trading member or client's CSDP having committed to settle a transaction prior to the settlement date, a trading member or client may be unable to settle the transaction on the settlement date due to a dependency on the settlement of another transaction in the same bond in respect of which the CSDP of the counterparty to that transaction has not yet committed to settling. Under these circumstances the trading member or client's CSDP may be required to retract their commitment to settle the transaction pending further action by the trading member or client, or the resolution of the transaction on which there is a dependency. If by 13h00 on the settlement date, the trading member or client's CSDP has not committed to settle a transaction affected by the retraction of a previous commitment to settle, the trading member and/or client must act, as applicable. If a CSDP has not committed to settle a transaction by 13h00 on the settlement date and the trading member has not subsequently taken the necessary steps, with or without the instructions of the Settlement Authority, to ensure that the trading member of client's CSDP has committed to settling the transaction by 15h00, the transaction shall be declared a failed trade and shall be dealt with in terms of the failed trade procedure, unless the Settlement Authority rolls the settlement of the transaction to a subsequent date. If a trading member advises the Settlement Authority at any stage that the CSDP of the trading member or the CSDP of a client will not be in a position to settle a transaction on settlement day and the Settlement Authority does not roll the settlement to a subsequent date, the transaction shall be declared a failed trade by no later than 15h00 on settlement day and shall be dealt with in terms of the failed trade procedure. ### Non-member settled client settlement obligations A non-member settled client shall in respect of off book transactions, ensure and procure that his CSDP is in a position to commit to settle the transaction on his behalf on the settlement date -- - by no later than 13h00 on the trade date for same day trades due to settle on the trade date; or - by no later than 19h00 on the business day preceding the settlement date for trades due to settle on the first, second or third business day after the trade date, with the exception of trades for which that rule will apply. A commitment by a CSDP to settle a transaction on behalf of a non-member settled client shall become unconditional as at 08h30 on the settlement date. To ensure that a non-member settled client's CSDP is in a position to recommit to settle a transaction by no later than 15h00 on the settlement date if the circumstances arise, the client must take the necessary steps by 14h00 to cover the uncommitted transaction, which may include the borrowing of bonds or funds or entering into a carry or repurchase transaction. In the event that a non-member settled client fails to comply, or is advised by the Settlement Authority that the transaction may not settle on the settlement date, the trading member which effected the transaction -- - is obliged to take the necessary steps to ensure that the transaction settles on settlement day, including the borrowing or lending of bonds or funds or entering into a carry or repurchase transaction on such non-member settled client's account; and - may proceed in the manner prescribed in the IRC Rules. Subject to any agreement between the trading member and the client to the contrary and the action of the Settlement Authority, in the event that a non-member settled client fails to comply with the provisions set out in the Rules, the trading member may -- - in respect of a sale transaction, buy such bonds for the account of the client; or - in respect of a purchase transaction, sell such bonds for the account of the client. The non-member settled client shall remain liable for any losses, costs and charges incurred, or charges imposed, by the trading member as a result of the trading member acting or any action taken by the Settlement Authority. ### Trading member settled client settlement obligations A trading member settled client shall, in respect of off book transactions, ensure that the trading member which effected the transaction for or on behalf of such client will be in a position to settle the transaction on settlement day -- - by no later than 13h00 on the trade date for same day trades that are due to settle on the trade date; or - by no later than 19h00 on the business day preceding the settlement date, for trades that are due to settle on the first, second or third business day after the trade date, with the exception of trades for which that rule will apply. To ensure that the trading member's CSDP is in a position to recommit to settle a transaction on a trading member settled client's account by no later than 15h00 on the settlement date if the circumstances arise, the client must take the necessary steps by 14h00 to cover the uncommitted transaction, which may include the borrowing of bonds or funds or entering into a carry or repurchase transaction. In the event that a trading member settled client fails to comply with the provisions, the trading member which effected the transaction -- - is obliged to take the necessary steps to ensure that the transaction settles on settlement day, including the borrowing or lending of bonds or funds or entering into a carry or repurchase transaction on such trading member settled client's account; and - may proceed. - Subject to any agreement between the trading member and the client to the contrary and the action of the Settlement Authority, in the event that a trading member settled client fails to comply with the provisions set out in the IRC Rules, the trading member may -- - in respect of a sale transaction, buy such bonds for the account of the client; or - in respect of a purchase transaction, sell such bonds for the account of the client. The trading member settled client shall remain liable for any losses, costs and charges incurred, or charges imposed, by the trading member as a result of the trading member acting in or any action taken by the Settlement Authority. ### Trading member settlement obligations - A trading member shall at all times endeavor to ensure that the settlement of a transaction in bonds effected by the trading member takes place. - The settlement officer of a trading member must immediately inform the Settlement Authority when any transaction in a bond is unlikely to settle. - No trading member may, on settlement day, stop payment in respect of a Strate settlement. - A trading member shall, in respect of reported transactions, ensure that the CSDP of the trading member or of a non-member settled client, as applicable is in a position to commit to settle the transactions of the trading member or its clients on the settlement date -- - by no later than 13h00 on the trade date for same day trades due to settle on the trade date; or - by no later than 19h00 on the business day preceding the settlement date, for trades due to settle on the first, second or third business day after the trade date, with the exception of trades for which that rule will apply. - A commitment by a CSDP to settle a transaction in respect of a trading member settled client and the proprietary transactions of a trading member shall become unconditional as at 08h30 on the settlement date. - Notwithstanding a failure to comply with the IRC Rules, if by 19h00 on the business day preceding the settlement date, a trading member settled client remains unable to settle a reported transaction that is due to settle on the first, second or third business day after the trade date, the trading member shall continue to take the necessary steps to ensure that, by no later than 13h00 on the settlement date, the CSDP of the trading member commits to settle any transactions in respect of that trading member settled client. If by 13h00 the trading member's CSDP has still not committed to settling the transaction, the trading member must take the necessary steps to cover the uncommitted transaction, which may include the borrowing or lending of bonds or funds or entering into a carry or repurchase transaction on the client's account. - Notwithstanding a failure to comply with IRC Rules, if by 19h00 on the business day preceding the settlement date, a non-member settled client remains unable to ensure and procure that his CSDP will be in a position to commit to settling a reported transaction that is due to settle on the first, second or third business day after the trade date, the trading member shall continue to take the necessary steps to ensure that, by no later than 13h00 on the settlement date, the CSDP of the non- member settled client commits to settling the transaction. If by 13h00 the CSDP of the non-member settled client has still not committed to settling the transaction, the trading member must take the necessary steps to cover the uncommitted transaction, which may include the borrowing or lending of bonds or funds or entering a carry or repurchase transaction on the client's account. - To ensure that the trading member or non-member settled client's CSDP is able to commit to settle a transaction by no later than 15h00 on the settlement date, if the circumstances arise, the trading member must take the necessary steps by 14h00 to ensure that the uncommitted transaction is covered. If the trading member fails to take the necessary steps to cover the uncommitted transaction by 14h00, the Settlement Authority will instruct the trading member to take the necessary steps to cover the transaction, and the trading member must ensure that the trading member or non-member settled client's CSDP has committed to settling the transaction by no later than 15h00. - If a client, at any stage, advises a trading member or the trading member otherwise becomes aware, that the client is not able to settle a transaction, the trading member shall endeavor to enter an arrangement to ensure that the transaction settles on settlement day. If the trading member is unable to enter into such an arrangement, the trading member shall immediately notify the Settlement Authority. - If the Settlement Authority receives notification, and either rolls out the settlement, or declares the transaction to be a failed trade, the trading member shall act in accordance with the instructions received from the Settlement Authority. - A trading member shall not use a client\'s bonds balances to settle the obligations of -- - another client; or - the trading member. - A contravention of the IRC Rules by a trading member may, at the discretion of the JSE, be deemed to constitute an act of default. ### Rolling of settlement The rolling of settlement will be carried out in the following manner- - The Settlement Authority will obtain a list of failed settlements from Strate, which will include the failed trade leg, as well as the opposite trade leg and any other trades that may be linked to the failed settlement; - The Settlement Authority will advise the failing and non-failing trading members that the transaction will be rolled to a revised settlement date determined by the Settlement Authority; - The failing and non-failing trading members will be instructed to re-book the original transaction at the original yield for settlement on the revised settlement date. - If settlement does not take place on the revised settlement date, the transaction may, at the discretion of the Settlement Authority, either be rolled to another revised settlement date, under exceptional circumstances, or be declared to be a failed trade, and the affected trading members must act in accordance with the instructions received from the Settlement Authority. ### Failed trade procedure applicable to transactions in bonds A failed trade arising out of a transaction in bonds shall be dealt with in the following manner - the Settlement Authority will obtain a list of failed settlements from Strate, which will include the failed trade leg as well as the opposite trade leg and any other trades that may be linked to the failed settlement; - the transactions selected shall be closed at a price to be determined by the Settlement Authority in accordance with principles set out in the directives. This price may differ from the original transaction price and will include compensation for the trading members or clients whose transactions are being closed; - the non-failing trading member shall claim any losses and compensation resulting from the closure of the transaction from the failing trading member. Failure by the failing trading member to pay such funds shall be in contravention of these rules and directives, and may, in the discretion of the JSE, be deemed to constitute an act of default. Borrowing of bonds and carry or repurchase transactions to prevent a trade from failing If a trading member is not able to comply with Rules in respect of a transaction; or at any time notifies the Settlement Authority or the Settlement Authority otherwise becomes aware, that a trading member or client will not be able to settle a transaction on settlement day, the Settlement Authority will instruct the trading member to borrow, the bonds or enter into a carry or repurchase transaction, as is necessary for the trading member or client to comply with their obligations to settle the transaction. ### Penalties and fees - The Settlement Authority may -- - impose a penalty on a trading member which fails to effect instructions or settlement in accordance with the settlement timetable as prescribed by directive; and - charge any trading member the fees associated with settlement of bonds as prescribed by directive. - The penalty referred to above shall be levied in accordance with a schedule as prescribed by directive. - Payment of the penalty imposed, or fees charged shall be made to the Settlement Authority within five business days of notification. - A client must pay any penalty imposed on the trading member by the Settlement Authority where the client was at fault or where the client was responsible for causing a failed trade.