FMPRR_Interest Rate & Currency Derivatives Cand SO_Bus Ops.docx

Business operations of a member =============================== General Provisions and Admittance Requirements ---------------------------------------------- ### The Rules and Directives ======================== ### ### Purpose of these rules and directives The purpose of the Johannesburg St...

Business operations of a member =============================== General Provisions and Admittance Requirements ---------------------------------------------- ### The Rules and Directives ======================== ### ### Purpose of these rules and directives The purpose of the Johannesburg Stock Exchange (JSE) Interest Rate and Currency Derivatives (IRC) Rules and Directives is to achieve the objects of the JSE as set out in its Memorandum and Articles of Association by providing the procedures necessary to establish and regulate fair and efficient markets and to ensure that the business of the JSE is carried out in an orderly manner and with due regard to the objects of the Act. #### #### **Rules and directives are binding upon all trading members, officers, their employees and**: - clients of a trading member and any other person who concludes a transaction with a trading member in the course of that trading member's business. - CSDP's acting on behalf of trading members and their clients. The controlling body shall notify trading members of any decisions or determinations made under these rules. ### ### Transactions subject to provisions of the Act, these Rules, and Directives Every transaction in IRC securities entered into by a trading member must be concluded on the specific condition that the transaction is entered into subject to the provisions of the Act, these Rules, and the Directives. ### Appointment of clearing house The JSE may appoint a clearing house or a clearing house and central counterparty (CCP) with the **purpose of clearing and/or settling trades** in IRC securities on the JSE in accordance with the Rules and to provide any other functions, duties, services and/or facilities as may be required by the JSE. ### Transitional Provisions The markets operated by the JSE in which interest rate securities and currency derivatives were listed, namely, Yield-X and BESA, were integrated. The effect was the joining of the **Yield-X** and **BESA** rules and directives, as well as the membership of the two markets being integrated. The Yield-X rules and directives form the basis of the rules and directives for the integrated markets, with appropriate amendments having been made to give effect to the integration, and the integrated rules and directives have been **re-named** the JSE interest rate and currency ("IRC") rules and directives. The transitional provisions are necessary to give effect to the integration of the Yield-X and BESA rules and directives. ### Compensation Funds The JSE has the power to-- - establish and maintain, to the satisfaction of the Registrar, one or more Compensation Funds out of which shall be paid claims up to an amount specified in the respective rules of such funds in respect of liabilities arising prior to the default of a trading member. Such payment shall be limited to claims arising out of transactions in IRC securities with or on behalf of other persons by such trading member and such other liabilities as may be specified in the rules of the Compensation Funds and shall be subject to any defences which the defaulting trading member may have against a claimant; and - determine a levy to be payable by every trading member to the Compensation Funds on transactions in IRC securities. Where a trading member has effected a transaction on behalf of a buyer or a seller of IRC securities, such trading member may recover the levy imposed from such buyer or seller. - The trustees of the Compensation Funds, in their capacity as trustees, acquire, incur, and administer the assets and liabilities of the Compensation Funds. - The income of the Compensation Funds, including but not limited to levy contributions by trading members, vests in the trustees and is administered by the trustees as part of the Compensation Funds. ### Settlement System The JSE may operate, or contract with a third party to operate, one or more settlement systems and the JSE may prescribe -- - procedures and requirements with which trading members must comply when using such settlement systems; and - the fees payable by the trading members for the use of such settlement systems. General Membership Requirements =============================== In order to qualify to be a trading member, an applicant must comply with the requirements set out in this rule and such other requirements as the JSE may determine. The JSE keeps a register of all trading members indicating in which category or sub-category of authorised user the trading member has been authorised to operate. ### ### Categories of membership A trading member may only enter into a clearing agreement with one clearing member to perform the clearing and settlement of the transactions of that trading member. A trading member -- - may be a clearing member; and - may trade for and on behalf of clients. An "inter-dealer broker" (IDB) - - is a sub-category of trading member that is subject to the rules pertaining to IDBs; and - may not be a clearing member. In authorising an IRC trading member to provide securities services, the JSE may impose restrictions or conditions on the IRC trading member in relation to the particular securities services that the IRC trading member is authorised to provide or the particular IRC securities for which the IRC trading member is authorised to provide securities services, or both. #### ### Specific Requirements Applicable to Inter-Dealer Brokers (IDB) A trading member authorised to operate as an IDB must meet the following requirements in order to maintain its status as an IDB- - Its business activities in the JSE listed bonds must be limited to arranging transactions between two counterparties on a name give-up basis or trading with or on behalf of two other parties on a matched principal basis; - When transacting in bonds with or on behalf of other trading members or clients on a matched principal basis, it may not take a proprietary position against the other trading member or the client; and - It must, on request from any trading member with or on whose behalf it is going to trade in bonds as a matched principal, provide the list of clients who may be the opposite counterparties to such transactions. ### Capital Adequacy Requirements Trading member shall at all times have own funds equal to the greater of -- - the initial capital referred to in rule 3.40.6 or 3.40.7 as the case may be; or - thirteen weeks fixed operating costs; plus - the position risk requirement; and - the counterparty risk requirement; and - the large exposure risk requirement; and - the foreign exchange risk requirement; such that the following formula is satisfied -- and The following provisions shall apply to a trading member that is an external company, other than a branch of a foreign bank -- - they own funds of the local branch of the external company shall at all times be equal to or greater than the amount provided for; - the foreign parent of the local branch of the external company shall in writing confirm to the JSE that it is required to comply with capital adequacy requirements similar to those in the Republic, and that they are reporting such as required to an appropriate foreign regulator; and - the thirteen weeks fixed operating costs requirement shall relate to the operating costs of the local branch of the external company in the Republic. A trading member that is a branch of a foreign bank and is exempt from the requirement to submit monthly capital adequacy returns to the Director: Market Regulation, is not required to comply with the requirements of IRC Rules but is instead required to comply with the capital adequacy requirements as prescribed by the Banks Act, 1990 (Act No. 94 of 1990) and the regulations made under that Act. A trading member that does not trade in bonds and that trades in derivative instruments listed on the JSE solely for its own account, and is exempt from the requirement to submit monthly capital adequacy returns to the Director: Market Regulation, is not required to comply with the requirements of the IRC Rules but shall ensure that its assets (excluding goodwill and other intangible assets) exceed its liabilities (excluding loans validly subordinated in favour of all other creditors). A trading member that is an authorised user of another exchange and is exempt from the requirement to submit monthly capital adequacy returns to the Director: Market Regulation is not required to comply with the requirements of IRC Rules but shall comply with the capital adequacy requirements as prescribed by such other exchange. A trading member who trades on behalf of clients but does not receive a client\'s margins or hold the client\'s margins or who does not receive any other assets of a client with respect to the client\'s buying and selling of JSE authorised investments, shall have an initial capital of at least R200 000 or such other minimum amount that the JSE may decide. A trading member who receives a client\'s margins or holds the clients\' margins, or that receives any other assets of a client with respect to the client\'s buying and selling of JSE authorised investments, shall have an initial capital of at least R400 000, or such other minimum amount that the JSE may decide. The JSE may **suspend a trading member if there is a deficiency in the capital adequacy** of the trading member. ### Notice to the JSE by trading members Every trading member shall notify the JSE of a business and postal address, and a secured electronic delivery mechanism address at which that trading member shall accept the delivery of all notices issued by the JSE in terms of these rules. People and Risk Management -------------------------- ### General requirements of Officers A trading member must, in the opinion of the JSE and at all times, be managed and controlled by persons with a good reputation and high business standing. Officers of trading members shall, subject to any waiver by the JSE -- - be of full legal capacity; - comply with such criteria of good character and high business integrity as the JSE deems fit; - not be an unrehabilitated insolvent; and - not in the period preceding the application as the JSE in its discretion deems fit, have been -- - convicted of an activity constituting a criminal offence involving fraud, theft, dishonesty, or market abuse, whether in the Republic or elsewhere - held civilly or administratively liable for, inter alia, fraud, theft, dishonesty, or market abuse, whether in the Republic or elsewhere; - declared to have contravened legislation in respect of market abuse, money laundering or terrorist or related activity, with or without the imposition of an administrative penalty, whether in the Republic or elsewhere; - disqualified by a court from acting as a director of a company; - the subject of a formal investigation by any regulatory or government agency; - expelled, whether as a trading member or otherwise, from any exchange or external exchange; - employed by or associated with a trading member of any exchange or external exchange, which trading member was expelled from that exchange and where the person or officer has, in the opinion of the JSE, contributed to the circumstances leading to the expulsion; - declared a defaulting trading member of the JSE or any other exchange or external exchange; - refused entry to or expelled from any profession or vocation or been dismissed or requested to resign from any office or employment, or from any fiduciary office or position of trust; or - refused approval to operate as a financial services provider in terms of the FAIS Act or any other act. - Any waiver by the JSE may be for a limited period and may be withdrawn at any time provided that the JSE gives the trading member one calendar months' notice of its intention to withdraw such waiver. - All trading members shall at all times have and maintain the necessary procedures, administrative and other systems, facilities, resources, and expertise to ensure -- - the effective performance of the regulated services that they provide; - compliance with the Act and the rules and directives that are relevant to the performance of such regulated services; - compliance with the Financial Intelligence Centre Act; - that the management of their own and/or clients' funds is adequate and in accordance - with the rules relating to the management or separation of funds; - that an accurate record of their own and/or clients' positions is kept at all times; - that where a trading member transacts for or on behalf of clients, their clients' transactions, cash balances and any other information relating to their positions are timeously reported to the clients; and - that they comply with all the financial resources requirements pertaining to the relevant category of authorised user as prescribed in these rules. - A trading member that intends to enter into transactions which will be cleared by JSE Clear in terms of section 8 of the IRC Rules must have appointed a clearing member or have been authorised as a clearing member. - A trading member that intends to enter into transactions in bonds on the JSE trading system must have appointed a CSDP. ### Trading member's obligation to ensure registration of officers Each trading member must ensure the registration by the JSE of a compliance officer, a settlement officer, and an alternate settlement officer. Compliance Officer shall -- - without relieving the trading member from its responsibility to comply with the provisions of the Act and these rules, be responsible for ensuring compliance by that trading member with the provisions of the Act and these rules; - have obtained such qualification as may be required by the JSE; - in the event of any breach of these rules or problem or query arising in respect of any transaction or alleged transaction or position of the trading member or any of its clients immediately on the request of the JSE or JSE Clear or its clearing member, take such steps as may be necessary to rectify the breach or to eliminate the problem or to satisfy the query; - receive all notices to the trading member from the JSE or JSE Clear or the clearing member and be responsible to ensure that all such notices are complied with; and - ensure compliance with all prescribed agreements set out in the directives to these rules. Settlement Officer must -- - have obtained such qualification as may be required by the JSE; - deal with all queries by the JSE in relation to settlement; - ensure that all transactions are settled in terms of these rules and directives; - advise the JSE of any issue that may potentially impact on the settlement of a transaction; and - cooperate with the Settlement Authority to ensure the efficient and timeous settlement of all transactions. Alternate Settlement Officer must -- - have obtained such qualification as may be required by the JSE; - in the absence of the settlement officer deal with all queries by the JSE in relation to settlement; - in the absence of the settlement officer ensure that all transactions are settled in terms of these rules and directives; - in the absence of the settlement officer advise the JSE of any issue that may potentially impact on the settlement of a transaction; and - in the absence of the settlement officer cooperate with the Settlement Authority to ensure the efficient and timeous settlement of all transactions. A trading member shall **not carry on business** for more than two months in any continuous period of twelve months unless such trading member **has registered a compliance officer, a settlement officer, and an alternate settlement** officer. Provided that in the absence of a duly appointed compliance or settlement officer or alternate settlement officer, or where the post has become vacant, a **senior director shall temporarily assume the responsibility** of the compliance or settlement or alternate settlement officer, for no longer than **2 months.** A trading member shall ensure the registration by the JSE of traders who shall be the only persons entitled to trade for a trading member's own account and for and on behalf of clients and who shall have obtained such qualification that may be required by the JSE. A trading member may not trade without having at least one trader present at the trading member\'s place of business unless the JSE has in writing granted temporary registration to a person nominated in writing by the trading member to trade for a period not exceeding 15 business days in the absence of such trader. The JSE shall publish the name of such nominee in a notice to trading members. Registration of Officers by the JSE An application for registration as a registered officer shall be made to the JSE in the manner prescribed by the JSE. - A person who seeks to be registered with the JSE as a registered officer must satisfy the general requirements and must have obtained a pass in the relevant qualifications, as prescribed in the interest rate and currency derivatives directives. - A trading member shall notify the JSE in writing of its decision to terminate the registration of a registered officer in its name, in which event the JSE may request full details of the circumstances of the termination. - The registration or termination of the registration of a registered officer in the name of a trading member in an office shall become effective on the date stipulated in the written notification to the trading member by the JSE, confirming the registration or termination of registration of the registered officer. ### Duty to Furnish Information A trading member shall forthwith advise the JSE in writing of -- - the granting of an application for, or the revocation of, or the recognition under any statutory enactment of any registration, authorisation or licence which may bear upon or be associated with its business as a trading member of the JSE; - any of the circumstances referred to above arising; - conviction of the trading member or any of its officers of any offence under legislation relating to banking, or other financial services, companies, insolvency, insurance and pension and provident societies or of any offence involving fraud or dishonesty; - any person becoming or ceasing to be a director of the trading member; any change in the name or address of any office of the trading member, and of any change in the trading member's telephone or facsimile numbers or electronic mailing addresses; - any change in the particulars relating to an officer, and of the event that any officer is found guilty of any improper conduct by any licensed exchange, a previous or current employer, a professional association, or a court of law; or - the dismissal of an employee for committing or attempting to commit an act which is dishonest, fraudulent, dishonorable, or disgraceful. - A trading member shall in addition inform the JSE in writing -- - of any person holding, or having a beneficial interest in, 20% or more of any class of the share capital of a trading member and of any change in such holding; - if it or any employee thereof holds, or has a beneficial interest in, any class of the share capital of a client that is a company or in the membership interest of a client that is a close corporation. - A trading member shall submit to the Director: Market Regulation within three months after the end of its financial year, a copy of its audited annual financial statements, and the audit report prescribed by the Act, in respect of such period. - A trading member shall submit the prescribed monthly capital adequacy return monthly to the Director: Market Regulation within ten business days of the end of the month or within such other period that the JSE may require provided that the trading member shall at all times comply with the capital adequacy requirements referred to in these rules, and provided further that the JSE may suspend a trading member from trading, if the return is not submitted timeously. - A trading member that-- - is a bank; - is a branch of a foreign bank; - does not trade in bonds and that trades in derivative instruments listed on the JSE solely for its own account; or - is a state-owned entity, - shall be exempt from the requirement to submit the monthly capital adequacy return, provided that the trading member has advised the JSE, in writing, that it meets the requirements as prescribed by IRC Rules. - A trading member that is an authorised user of another exchange may apply in writing to the Director: Market Regulation for exemption from the requirement to submit the monthly capital adequacy return provided the capital requirements of the other exchange are, in the opinion of the Director: Market Regulation, similar to those imposed by the JSE and the trading member is required to submit a return to the other exchange. - In considering an application for an exemption, the Director: Market Regulation will consider the relative activity undertaken by the trading member on the JSE and the other exchange in order to determine whether it is preferable for the other exchange to act as the lead regulator in relation to the supervision of compliance with capital adequacy requirements by the trading member. - If a trading member is granted an exemption, the trading member may be required at any time to submit to the Director: Market Regulation, a copy of any capital adequacy return submitted to the other exchange. - Despite the fact that a trading member may be exempt from submitting monthly capital adequacy returns to the Director: Market Regulation, the trading member is required to advise the Director: Market Regulation, in writing as soon as it becomes aware that it has failed to meet the relevant capital adequacy requirements set out in the IRC Rules.