JSE Equity Settlement Officer Exam Study Manual PDF

JSE LIMITED JSE Equity Settlement Officer’s Examination study manual October 2021 1. Introduction This booklet sets out the syllabus of the JSE Equity Settlement Officer’s Examination, as prescribed by the JSE in terms of rules 4.40.1 and 4.40.3 which state that each member must ensur...

JSE LIMITED JSE Equity Settlement Officer’s Examination study manual October 2021 1. Introduction This booklet sets out the syllabus of the JSE Equity Settlement Officer’s Examination, as prescribed by the JSE in terms of rules 4.40.1 and 4.40.3 which state that each member must ensure the registration by the JSE of a settlement officer and an alternate settlement officer, and such officers must have obtained a pass in the settlement officer examination as prescribed by the JSE. 2. Structure and Format of the Examination The examination is an Internet based examination offered under controlled circumstances. The specifications are as follows: Duration: 1 hour Number of questions: 50 Competency (Pass) mark: 70% No negative marking. The examination consists of 50 multiple-choice questions based on the learning material and randomly selected from the database. Each multiple-choice question contains a key (correct answer or statement/s) and certain distracters (incorrect answers or statements). The drafter of multiple-choice questions strives to make the distracters appear plausible i.e. they look correct to a person who did not read the material properly, but they are actually incorrect. As the syllabus has been prescribed at a point in time, the questions will be based on the selected extracts of the Financial Markets Act, the Rules and Directives provided in this booklet. Candidates will not be required to supplement the material with the changes to the Financial Markets Act or the Rules and Directives when studying for the examination. However, for the purposes of completeness the complete documents are available on the JSE’s website. http://www.jse.co.za/Regulation.aspx 3. Disclaimer This booklet has been produced as a guide, at a given point of time and in an abbreviated form, to the more important provisions of the Act No. 19 of 2012: Financial Markets Act, 2012 (“the Act”) and the JSE Equities rules and directives, for the sole purpose of the JSE Equity Settlement Officer Examination. Given the compressed and dated nature of the contents of a document such as this it should not be construed as the JSE’s full and official interpretation of the Act, rules and directives and other related legislation. The JSE does not accept any responsibility or liability for any errors or omissions in the formulation of the answers to the questions given, nor for any consequential claims arising there from. Accordingly, the JSE accepts no responsibility for any transactions or actions entered into as a result of the contents thereof. October 2021 Page 2 Contents 1. Introduction 2 2. Structure and Format of the Examination 2 3. Disclaimer 2 4. General 4 5. Authorisations and approvals 5 6. Management and control 8 7. JSE Equities trading system 12 8. Conduct of business 15 9. Client Assets 24 10. Clearing and settlement 29 11. Complaints and disputes 56 12. Krugerrands 57 13. Corporate actions 58 Page 3 4. General Interpretation and Definitions 1.40 In the rules – “Act” means the Financial Markets Act, 2012 (Act No. 19 of 2012) and any measure prescribed thereunder by the Minister of Finance or the Registrar; “bank” Has the same meaning as that contained in section 1 of the Act ‘‘bank’’ means a bank as defined in the Banks Act, 1990 (Act No. 94 of 1990), a mutual bank as defined in the Mutual Banks Act, 1993 (Act No. 124 of 1993); or a co-operative bank as defined in the Co-operative Banks Act, 2007 (Act No. 40 of 2007); “BDA system” means the Broker Deal Accounting system operated by the JSE; “Companies Act” means the Companies Act, 2008 (Act No. 71 of 2008); “controlling body” means the board of directors of the JSE which is the governing body managing the affairs of the JSE; “derivative instrument” Has the same meaning as that contained in section 1 of the Act ‘‘derivative instrument’’ means any— (a) financial instrument; or (b) contract, that creates rights and obligations and whose value depends on or is derived from the value of one or more underlying asset, rate or index, on a measure of economic value or on a default event; “in writing” Has the same meaning as that contained in section 1 of the Act ‘‘in writing’’, in relation to anything which must be done in writing in terms of this Act, includes electronic actions; “JSE equities trading system” means the computer system or systems and associated network or networks operated or used by the JSE for the purpose of providing a market for the trading of equity securities; “JSET” means JSE Trustees (Pty) Ltd; “JSE year” means the financial year of the JSE which shall end on the last day in December in each year or such other date as the JSE may determine; “Republic” means the Republic of South Africa; “SENS” means the Securities Exchange News Service or any other communication mechanism which the JSE uses to communicate corporate action notices Page 4 2.30 Rules and directives 2.30.1 Purpose of rules and directives The purpose of the 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. 2.30.2 Rules and directives are binding 2.30.2.1 The rules and the directives are binding on members and their employees. 2.30.2.2 The rules are binding on any person utilising the services of a member or who concludes a transaction with a member in the course of that member’s business. 2.40 Transactions subject to provisions of the Act, the rules and the directives Every transaction in equity securities entered into by a member must be concluded on the specific condition that the transaction is entered into subject to the Act, the rules and the directives. 2.50 Interpretation of the rules and the directives The interpretation and enforcement of the rules and the directives vests in the controlling body. 2.90 Settlement systems The JSE may operate, or contract with a third party to operate, one or more settlement systems and the JSE may prescribe – 2.90.1 procedures and requirements with which members must comply when using such settlement systems; and 2.90.2 the fees payable by the members for the use of such settlement systems. 2.100 JSE Trustees (Pty) Ltd …. 2.100.4 JSET must accept from members all funds arising from time to time from accounts operated by members on behalf of clients in terms of the rules, and must repay to such members the funds which are required to be repaid to clients by the member or are required to meet any client obligation to the member arising out of transactions or services provided for in the rules. …. 2.100.8 In respect of funds held on behalf of members in terms of the rules, JSET must pay to the members such interest as it may from time to time receive on such funds, less a charge in respect of the services rendered by JSET. …. Page 5 5. Authorisations and approvals Interpretation and Definitions 1.40 In the rules – “agency office” means an office which does not undertake any of the functions of a branch office but which can undertake scrip and cash settlements; “branch office” means an office of a member, other than its primary or head office, which can perform trading services and investment services; JSE listed securities” means those listed securities included in the list of securities kept by the JSE; “member” means an equities member, which is a category of authorised user admitted to membership of the JSE under these rules; “client” means any person to whom a member provides securities services in terms of the rules, and includes a person that acts as an agent for another person in relation to those services in which case it will include the agent or exclude the other person if the contractual arrangement between the parties indicates this to be the intention; “registrar” has the same meaning as that contained in section 1 of the Act; ‘‘registrar’’ means the person referred to in section 6; 6. (1) The executive officer and a deputy executive officer referred to in section 1 of the Financial Services Board Act are the Registrar and the Deputy Registrar of Securities Services, respectively. “regulated services” means those securities services and other activities which are regulated by the JSE and which the JSE authorises members to perform, namely – (a) trading services; (b) investment services; (c) custody services; and (d) money broking; “trading services provider” means a member which has been authorised by the JSE to perform trading services in terms of the rules; “TSP” means a trading services provider; 3.70 Requirements to perform custody services 3.70.1 An applicant for membership or a member may request authorisation to perform custody services provided that the applicant can evidence to the satisfaction of the JSE that they are able to comply with the criteria to operate as a CSP set out in the directives. 3.70.2 An authorised CSP must continue to comply with the criteria to operate as a CSP set out in the directives on an ongoing basis in order to retain such authorisation. 3.70.3 An authorised CSP that provides custody services to controlled clients must establish and maintain a nominee company which is approved by the JSE and which meets the requirements of rule 3.90. 3.80 Requirements to conduct money broking activities 3.80.1 An applicant for membership or an authorised ISP may request authorisation to conduct money broking transactions on behalf of clients, provided that the applicant can evidence to the satisfaction of the JSE that it has employed or will employ adequate resources, procedures and systems necessary for the effective conduct of money broking transactions and for ensuring compliance with the rules that are relevant to the performance of such transactions. 3.80.2 A member authorised to conduct money broking transactions must continue to meet the requirements set out in rule 3.80.1 on an ongoing basis in order to retain such authorisation. Page 6 3.90 Nominee companies A member who operates controlled client accounts must establish and maintain a nominee company which meets the following requirements: 3.90.1 The sole objective of the nominee company must be to act as the registered holder of securities exclusively on behalf of the member’s controlled clients; 3.90.2 The shares in the nominee company must be beneficially owned by the member and be registered in the name of the member; 3.90.3 The member must ensure that the nominee company incurs no liabilities other than those normally incurred as a result of its acting as a nominee in respect of securities; 3.90.4 The powers of the nominee company shall be limited to the object set out in rule 3.90.1 and such other acts as may be necessary to achieve that object; and 3.90.5 The use of the nominee company in acting as the registered holder of equity securities on behalf of the member’s controlled clients must be approved by the JSE on the basis that the member – 3.90.5.1 is an authorised CSP; or 3.90.5.2 has appointed a CSP to perform custody services on behalf of the member and has granted authority to that CSP to exercise control over the controlled clients’ equity securities held in the name of the nominee company. 3.150 Members’ duty to furnish information A member must immediately advise the JSE in writing of – 3.150.1 any change in the name of the member or address of any office of the member, and of any change in the member’s telephone or facsimile numbers or electronic mailing addresses; 3.150.2 the granting of an application for, or the revocation of, any registration, authorisation or licence which may bear upon or be associated with its business as a member of the JSE; 3.150.3 any of the circumstances referred to in rule 3.130.1 arising; 3.150.4 the prosecution of or the conviction of the member for any offence under legislation relating to banking, other financial services, companies, insolvency, insurance and pension and provident societies, or for any offence involving fraud or dishonesty; 3.150.5 any change to the appointment of a compliance officer, a settlement officer or an alternate settlement officer or any person becoming or ceasing to be a director of a member; 3.150.6 any person ceasing to be a registered securities trader of a member; 3.150.7 any change to the appointment of a person in control of a place of business of a member as set out in rules 4.60.1 to 4.60.4; 3.150.8 any change in the name of a nominee company maintained in terms of rule 3.90 or the use of a new or different nominee company for the purposes of rule 3.90. 3.150.9 any event or circumstance which has or may have any bearing on whether an officer or a shareholder who is a natural person and who directly or indirectly holds in excess of 10% of the issued shares of the member, fails to meet the fit and proper requirements as stipulated in rule 4.10; or 3.150.10 the dismissal of an employee for committing or attempting to commit an act which is dishonest or fraudulent. 3.170 Association with other parties Membership of the JSE provides specific safeguards and protections to clients of members. Accordingly, a member must ensure that in its business relationships with other parties it does not facilitate such other parties holding out or in any way representing that all or part of their activities are part of the business activities of the member or are subject to the rules, directives or regulation of the JSE. Page 7 Directive AB Operation of Foreign Offices by members 1. No member shall, without the written approval of the JSE, carry on the business of a member within the Common Monetary Area, but outside the Republic, either through the operation of an office or in any association such as via a corporate body, partnership or joint venture with an overseas stockbroker or an institution offering stockbroking or similar services. The JSE may at any time review and withdraw such approval. 2. No member shall, without written approval of both the JSE and the Exchange Control Department of the South African Reserve Bank (“the Exchange Control Department”), carry on the business of a member outside the Common Monetary Area either through the operation of an office or in any association such as via a corporate body, partnership or joint venture with an overseas stockbroker or an institution offering stockbroking or similar services. The JSE or the Exchange Control Department may at any time review and withdraw such approval. …. Directive AC Operation of Branch and Agency Offices by a Member No member shall open or maintain a branch office or an agency office without the prior consent of the JSE. Any consent so granted may be withdrawn by the JSE on giving reasonable notice in writing to the member. Directive AM Provision by a member of accounting and administrative functions on behalf of another member 1. Subject to the written approval of the JSE, a member (the host member) may enter into an arrangement to provide the full spectrum of accounting and administrative functions on behalf of another member (the satellite member). A member may not function as a host member unless its administration is, in the opinion of the Director: Market Regulation, adequately staffed and being conducted in an expert and orderly manner with all requisite controls in place. 2. The host member must advise the JSE if it intends to terminate its arrangement with the satellite member at least one month prior to the intended date of termination of the agreement. Page 8 6. Management and control 1.40 In the rules – “alternate settlement officer” means an employee of a member or an employee of a member’s CSP or settlement agent appointed by such a member, fulfilling the function of the settlement officer in the settlement officer’s absence; “compliance officer” means the person appointed by a member in terms of the rules to assist the board of directors of the member in ensuring compliance by the member with the Act, the rules and the directives; “employee” means an individual engaged by a member whose function relates to the provision of regulated services; “JSE” means JSE Limited, a company duly registered and incorporated with limited liability under the company laws of the Republic, licensed to operate an exchange under the Act; “JSE Executive” means the Chief Executive Officer and such other officials of the JSE as the Chief Executive Officer and Chairman of the controlling body may from time to time designate; “JSE Gazette” means the official Gazette published under the authority of the JSE Executive; “Market Controller” means the person appointed by the JSE to supervise, administer and control the daily operations of the JSE equities trading system; “officer” in relation to a member, includes any executive director, compliance officer, settlement officer or alternate settlement officer thereof; “settlement officer” means an employee of a member or an employee of a member’s CSP or settlement agent, appointed by that member in terms of the rules to manage the member’s obligations in relation to the settlement of transactions in equity securities effected by that member; 4.40 Settlement officers 4.40.1 A member must appoint a settlement officer to manage the member’s obligations in relation to the settlement of transactions in equity securities effected by that member. The person appointed as a settlement officer must have obtained a pass in the settlement officer examination prescribed by the JSE and, if required, be able to evidence to the Settlement Authority that he has subsequently maintained an adequate knowledge of the JSE’s settlement rules. 4.40.2 A settlement officer must, in respect of the settlement of transactions in equity securities, be responsible for – 4.40.2.1 dealing with all queries by the JSE in relation to settlement; 4.40.2.2 ensuring that appropriate procedures are implemented and the necessary action is taken to facilitate the settlement of all transactions in equity securities in accordance with the rules and the directives; 4.40.2.3 advising the JSE of any issue that may potentially impact on the settlement of a transaction; and 4.40.2.4 cooperating with the Settlement Authority to ensure the efficient and timeous settlement of all transactions 4.40.3 A member must appoint an alternate settlement officer who must act in the absence of the settlement officer in all matters for which the settlement officer is responsible in terms of the rules. The person to be appointed as an alternate settlement officer must meet the requirements set out in rule 4.40.1. 4.40.4 The appointments referred to in rules 4.40.1 and 4.40.3 must be made simultaneously with an application to the JSE to be admitted as a member. Notwithstanding these appointments, such member will retain overall Page 9  responsibility for ensuring compliance with the rules and directives relating to the settlement of transactions in equity securities. 4.40.5 Except where the Settlement Authority may otherwise direct, a member may not at any time conduct its business in the absence of a duly appointed settlement officer or alternate settlement officer. 4.40.6 Notwithstanding a member having appointed a CSP or a settlement agent to effect settlement of transactions in equity securities on its behalf, the member retains the responsibility for ensuring that the settlement of transactions in equity securities takes place. Directive DA 1. Financial Records 1.1 A member shall maintain accounting records on a continual basis so that at all times its records are up-to date. 1.2 All transactions in JSE authorised investments and Krugerrands, securities lending and borrowing transactions, financial transactions and transfers or movements of clients assets, but excluding those transactions referred to in DA 1.11, shall be recorded in the BDA system at the date on which the member enters into an irrevocable commitment to carry out the transaction. 1.3 A member’s accounting records should be sufficient to show and explain the member’s transactions and commitments, whether effected on its own behalf or on behalf of others, so that these records disclose with substantial accuracy the financial position of the member at the close of business on any day. 1.4 A member’s accounting records shall comply with the requirements of the Act and as a minimum shall contain – 1.4.1 entries from day to day of all sums of money received and expended by the member, whether on its behalf or on behalf of others, and the matters in respect of which the receipt and expenditure takes place; 1.4.2 a record of all income and expenditure of the member explaining its nature; 1.4.3 a record of all assets and liabilities of the member, including any provisions for commitments or contingent liabilities; 1.4.4 entries from day to day of all transactions in JSE authorised investments by the member, distinguishing those which are made by the member on its own account and those which are made by or on behalf of others; 1.4.5 entries from day to day of the receipt and despatch of documents of title which are in the possession or control of the member; and 1.4.6 a record of all securities and documents of title in the possession or control of the member showing the physical location, the owner, the purpose for which they are held and whether they are subject to any charge. 1.5 A member shall reconcile all balances with banks, custodians and clearing houses as frequently as is appropriate for the volume of transactions on the accounts and in any event not less than every two days. Any differences, other than differences in timing between the records of the member and the bank, custodian or clearing house should be corrected forthwith. …. 1.11 A member shall not be obliged to record the details of transactions executed on behalf of its clients in the following JSE authorised investments and financial products in the BDA system: 1.11.1 securities listed on an external exchange; 1.11.2 participatory interests in a collective investment scheme as defined in the Collective Investment Schemes Control Act, 2002, and units or any other form of participation in a foreign collective investment scheme approved by the Registrar of Collective Investment Schemes in terms of section 65 of that Act; 1.11.3 units or any other form of participation in a collective investment scheme licensed or registered in a foreign country; and 1.11.4 any other financial product, other than JSE authorised investments. 1.12 Notwithstanding the provisions of DA 1.11, all receipts and payments of funds through the member’s bank accounts relating to transactions in the JSE authorised investments and financial products referred to in DA 1.11 shall be recorded in the BDA system. 1.13 A member who elects to utilise an accounting system other than the BDA system for the purpose of recording the details of client transactions in one or more of the JSE authorised investments and financial products referred to in DA 1.11 shall nevertheless comply with all of the other provisions of this directive and the Act relating to the maintenance of accounting records. Page 10  2. Credit Risk Management 2.1 In extending credit to a client or counterparty, either through a loan of funds, a loan of securities or an indulgence in relation to an obligation of a client or counterparty to the member, a member must ensure that – 2.1.1 the granting of credit does not compromise its ability to meet its financial resources requirements as specified in the rules and directives; 2.1.2 the granting of credit does not adversely impact its liquidity to the extent that it may not have sufficient funds to meet its short term commitments; and 2.1.3 the realisable value of any collateral or other security provided by the client or counterparty which reduces the exposure on which the member’s Counterparty Risk Requirement is calculated, in terms of DC 9.4, can be reliably measured. 2.2 In managing its credit risk and, specifically, in ensuring that it meets the requirements of DC 2.4.2, a member should measure and monitor its material credit exposures and any associated collateral or other security, on an ongoing basis, to ensure that actual and potential fluctuations in the value of the relevant loans or the security held against such loans do not adversely affect the member’s ability to meets its financial resources requirements. Directive DB 1. Financial Reporting 1.1 A member shall submit to the Director: Market Regulation the reporting statements set out in Table 1.1 by the date specified therein and such other reporting statements or supplementary information as the Director: Market Regulation may require. Table 1.1 Reporting Statements Frequency Due Date Annual Financial Statements Annually 3 months Within 10 business days of Capital Adequacy Return Monthly the end of the month 17 Annual Reconciliation Statement Annually 3 months Auditors’ Special Reports Report in terms of the Act and JSE Annually 3 months directives Report on Annual Reconciliation Statement Annually 3 months Note: All dates or calendar months are from the date as at which the reporting statement is prepared. Directive DE Accounting Services 1. Every member shall utilise such accounting services as, in the opinion of the JSE comply with the requirements of section 90 of the Act and any regulations issued in terms thereof and which are made available to them from time to time by the JSE or otherwise as the JSE may determine. 2. For the purpose of implementing DE.1 – 2.1 Reserved. 2.2 Every member shall provide the JSE with such information as the JSE considers necessary to utilise the accounting services. Such information shall be provided at such times or within such periods as the JSE may from time to time determine. 2.3 The JSE shall not be responsible for any damage suffered by members as a result of errors or delays in the accounting services provided by it. 3. The provisions of this directive shall also apply to a nominee company established in terms of rule 3.90, except where the JSE may decide otherwise. Page 11 Directive DK Special Audit of a Member The JSE may, at its discretion, decide that a special audit of a member be conducted, either by the JSE Market Regulation Division itself or in conjunction with an auditing firm nominated by it. 1. The charges for the special audit shall be for the account of the member concerned, but the JSE shall, if necessary, abate the charges in the light of the outcome of the special audit. 2. In the event that the special audit is conducted by the JSE Market Regulation Division, the costs to be levied by the JSE Market Regulation Division shall be based on the time charged out at a rate of 125% of the prevailing rates chargeable by Chartered Accountants for work done on behalf of the Auditor General. DL Notification 1 A member shall effect any notification in terms of these Directives in writing and signed as required under DL 2 below. 2 If a member effects a notification without writing, the member shall confirm it in writing signed by a director, senior executive officer, or compliance officer as soon as practicable thereafter. 3 A member shall notify the Director: Market Regulation by telephone, facsimile or other equivalent means as soon as it has reason to believe that it is, or will be, in breach of its financial resource requirements, together with details of the steps which the member is taking, or has taken to remedy or prevent the breach. 4 A member shall notify the Director: Market Regulation as soon as it has reason to believe that it will be unable to – 4.1 make payment to an exchange or clearing house by the due date, thereby causing default of the member; or 4.2 submit a financial reporting statement as required by DB 1.1. 5 A member shall notify the Director: Market Regulation as soon as it – 5.1 becomes aware of any claim under a contingency made in writing by or against the member where any amount claimed or disputed is likely to exceed the lesser of – 5.1.1 10% of the member’s adjusted liquid capital; or 5.1.2 R500 000; 5.2 has reason to believe that any reporting statement previously supplied to the Director: Market Regulation was or has become misleading in any material respect; 5.3 makes a claim on an insurance policy it holds relating to professional indemnity; 5.4 has been informed that the member’s auditor is likely to qualify his report on the annual financial statements of the member. 6 A member shall notify the Director: Market Regulation as soon as it decides to make a change in its financial year-end and shall, as a minimum, provide ten business days’ notice of any such change. 7 A member shall notify the Director: Market Regulation of any other material circumstance which may adversely affect the member’s ability to comply with the rules and directives. DN Production and distribution of client statements 1. In addition to the general risk management and internal control requirements of rule 4.70, members shall specifically ensure that effective controls are implemented regarding the production and distribution of client statements, in order to ensure that clients are able to review the activity on their accounts and the performance of their portfolios at appropriate regular intervals. 2. A member may either utilise the BDA system or an alternative system to produce their client statements, provided that if an alternative system is utilised, the requirements of DN 3 shall be adhered to. 3. A member shall implement appropriate procedures or arrangements to ensure that if a system other than the BDA system is utilised to generate client statements, the accounting information contained in the BDA system which is required to be reflected in client statements in terms of rule 8.180 is accurately reflected in such statements. 4. Client statements may either be produced in hard copy form or in electronic form, provided that if statements are produced and distributed in electronic form, the client shall consent thereto in writing and the member shall retain a record of such consent. 5. A member shall implement effective controls to ensure that all client statements are distributed to the relevant clients. In implementing such controls, due consideration shall be given to the segregation of duties between persons responsible for the production and distribution of client statements and persons involved in transactions on client accounts, and the control over the record of the address to which a client’s statement is to be despatched. Page 12 7. JSE Equities trading system 1.40 In the rules – “off book trade” means a transaction in equity securities negotiated off the central order book and submitted by a member to the JSE equities trading system; “pre-issued securities” means entitlements to equity securities the listing of which on the JSE has been approved but where the listing becomes effective only after a number of conditions have been fulfilled on or before the commencement date of official trading; “pre-issued trading” means entitlements to equity securities the listing of which on the JSE has been approved but where the listing becomes effective only after a number of conditions have been fulfilled on or before the commencement date of official trading; “professional client” in relation to a member, means – (a) another authorised user; (b) a bank; (c) a long-term or short-term insurer registered as such under the Long-term Insurance Act, 1998 (Act No. 52 of 1998) or the Short-term Insurance Act, 1998 (Act No. 53 of 1998), respectively; (d) a person outside the Republic who – (i) as a regular feature of the person’s business, renders a service similar to a “securities service” as defined in section 1 of the Act or conducts the business of a bank or a business referred to in paragraph (c); and (ii) is registered, licensed, recognised, approved or otherwise authorised to render the service or conduct the business referred to in paragraph (d)(i) by a foreign regulator with functions similar to those of the Registrar, the Registrar of Banks or the Registrar of Long-Term or Short-Term Insurance; (e) any person who is mandated to manage assets and who has confirmed to the satisfaction of the member that the market value of the assets managed by the person will exceed R1 billion at all times during the rendering of securities services to the person; (f) any other client, who has confirmed to the satisfaction of the member that they will have assets of which the net asset value will exceed R20 million at all times during the rendering of securities services to the client, but who is not – (i) a natural person; (ii) a pension fund organisation as defined in section 1 (1) of the Pension Funds Act, 1956 (Act No. 24 of 1956); (iii) a friendly society referred to in the Friendly Societies Act, 1956 (Act No. 25 of 1956); (iv) a medical scheme as defined in section 1(1) of the Medical Schemes Act, 1998 (Act No. 131 of 1998); Page 13  “professional market participant” means a financial services provider licensed in terms of section 8 of the FAIS Act; “trade cancellation” means the cancellation of an on book or off book trade on the same business day or the next business day; 6.30 Off book trading 6.30.1 The transactions listed in rule 6.40 do not have to be executed through the central order book and may instead be submitted to the JSE equities trading system as off book trades. 6.30.2 In the case of an off book trade between two members, the members must agree on which member will initiate the submission of the trade to the JSE equities trading system. 6.30.3 Off book trades executed during trading hours must be submitted to the JSE equities trading system without delay. 6.30.4 Off book trades executed after trading hours must be submitted to the JSE equities trading system within 45 minutes of the commencement of the off book trade reporting session on the next business day, with the exception of non-published off book trades which must be submitted to the JSE equities trading system before 10h00 on the next business day. 6.30.5 The table below lists the off book trade types and indicates – 6.30.5.1 whether the transaction may be conducted by one member or two members; 6.30.5.2 whether the transaction is published by the JSE. Trade Single Two Transaction description Published type code member members Bookbuild Trade BK No Yes Yes Block Trade BT Yes Yes Yes Corporate Finance Transaction CF Yes Yes Yes Delta Trade OD Yes Yes No Exercise of Options OX Yes Yes No Exercise of Traded Options TX Yes Yes No Exercise of Warrants WX Yes Yes No Give-up Trade GU No Yes No Late Trade LT Yes No Yes Off Order Book Principal Trade OP Yes No Yes Portfolio Transaction PF Yes Yes Yes Next Day cancellation of On PC Yes Yes Yes Book Trade Next Day cancellation of a LC Yes Yes Yes published Off Book Trade Next Day cancellation of a non published Off NC Yes Yes No Book Trade 6.40 Off book criteria …. 6.40.2 Block Trade A block trade is a transaction where a member trades as an agent or a principal in a single equity security and the transaction comprises at least the specified minimum value determined by the JSE according to the Average Daily Value Tier attributable to that security, as set out in the directives. 6.40.3 Corporate Finance Transaction A corporate finance transaction is a transaction which must be entered into in writing, requires public notification in the press and complies with the requirements of transaction categories 1 or 2 of Section 9 of the Listing Requirements of the JSE. Page 14  6.40.4 Delta Trade A delta trade is a transaction where a member trades as an agent or a principal in a single equity security where the transaction transfers the delta hedge – 6.40.4.1 from one member to another member; or 6.40.4.2 from a client of a member to that member; or 6.40.4.3 from a client of a member to another member; in respect of a derivative transaction which has been reported to either the JSE derivatives trading system or the derivative trade recording system referred to in the directives. …. 6.40.7 Late Trade A late trade is a transaction where a member trades after trading hours and where the transaction is – 6.40.7.1 executed by a member acting on behalf of a client, in fulfilment of an order already entered into the JSE equities trading system, and where the counterparty is a foreign professional market participant; or 6.40.7.2 executed by a member for a professional market participant, in fulfilment of an order received prior to the end of the closing auction call session, at a price which can only be established after the closing auction call session; or 6.40.7.3 executed by a member acting on behalf of a professional market participant, in fulfilment of an order received after trading hours, where the counterparty is a foreign professional market participant; or 6.40.7.4 executed by a member as a principal for its own account where the counterparty is a foreign professional market participant. 6.40.8 Off Order Book Principal Trade An off order book principal trade is a transaction where a member trades as a principal in a single equity security with a foreign professional market participant. 6.40.9 Portfolio Transaction 6.40.9.1 A portfolio transaction is a transaction where a member trades as an agent or a principal in a list of equity securities which - 6.40.9.1.1 has a minimum value of R15 million; and 6.40.9.1.2 comprises at least 10 different equity securities none of which exceeds 25% of the total value of the portfolio. …. 6.50 Trade cancellations 6.50.1 Despite any other provision of the rules or any directive, the Director: Market Regulation may, where in his opinion an on book trade has been matched as a result of a clear error by a member, grant permission to or instruct the respective members to execute a trade cancellation. 6.50.2 Same day or next day cancellations of on book trades may only be considered where the following criteria are met – 6.50.2.1 the request is received by the Director: Market Regulation within 20 minutes from the time of the first erroneous trade which has arisen as a consequence of an erroneous order; and 6.50.2.2 the price of the trade or trades for which the trade cancellation is requested is 5% or more away from the reference price at the time that the erroneous order was placed; and 6.50.2.3 the difference between the aggregate value of the trades that qualify in terms of rule 6.50.2.2 and the value that would have resulted had such trades been executed at the reference price is R50 000 or more; or 6.50.2.4 the quantity of shares traded exceeds 5% of the equity security in issue. 6.50.3 Same day and next day cancellations of off book trades must be submitted to the JSE equities trading system by the member who was the originator of the off book trade and do not require prior approval from the Director: Market Regulation. 6.50.4 If, in the opinion of the Director: Market Regulation, an on book or off book trade materially impacts the integrity or transparency of the market, or the correctness of the statistics, the Director: Market Regulation may instruct members to enter a trade cancellation without having received a formal request to do so from any member. Page 15 6.60 Pre-issued trading 6.60.1 A member may only execute transactions in pre-issued securities during the period permitted by the JSE. 6.60.2 If the listing in respect of which pre-issued trading has been approved commences, all transactions effected during the period of the pre-issued trading will settle on the same terms as all other transactions in equity securities. 6.60.3 If the listing does not commence on the intended commencement date of official trading, every transaction effected under this rule will be void ab initio and neither the member nor a client will have recourse against the JSE or a member, as the case may be, in respect of such transactions. 6.70 Unreasonable transactions Where, from a lack of clarity in the published information available at the time of the transaction, a member deals in a quantity or at a price which in the opinion of the Director: Market Regulation is unreasonable, the Director: Market Regulation may declare such transaction void. Such declaration shall be binding on the members who entered into such transaction and on the clients for or on whose behalf the transaction was executed. Page 16 8. Conduct of business 1.40 In the rules – “foreign client” means a client who does not reside in the Republic; “foreign investments” means the following JSE authorised investments - (a) securities listed on an external exchange; (b) units or any other form of participation in a foreign collective investment scheme approved by the Registrar of Collective Investment Schemes in terms of section 65 of the Collective Investment Schemes Control Act, 2002; (c) units or any other form of participation in a collective investment scheme licensed or registered in a foreign country; and (d) foreign funds intended for the purchase of such securities, units or participation; “money broking transactions” means funds accepted by a member from a client and invested by the member in the money market with one or more banks, in terms of the rules, and subject to any conditions published by the Registrar of Banks; 8.10 General standards of conduct 8.10.1 Standards of integrity A member must, in the conduct of its business, observe high standards of integrity and fair dealing. It must – 8.10.1.1 not knowingly circulate information which is false or misleading; 8.10.1.2 not knowingly countenance any attempt to manipulate the market, nor to influence persons for such a purpose; 8.10.1.3 conduct its activities in a manner that is compatible with the objects of the Act and with full respect for the reputation of the JSE; and 8.10.1.4 not participate in any dealings with other members, clients, the media or other persons which may be of such a nature as to defame the JSE or any of its officers or employees. 8.10.2 General conduct towards clients In its dealings with clients, a member must – 8.10.2.1 act honestly and fairly; 8.10.2.2 act with due skill, care and diligence, and in the interests of clients; 8.10.2.3 exercise independent professional judgement; 8.10.2.4 act promptly on and in accordance with the instructions of a client, and exercise any discretion in a responsible manner; and 8.10.2.5 avoid conflicts of interest and when they cannot be avoided, ensure fair treatment to clients by disclosure, confidentiality or declining to act. A member must not unfairly place its interests above those of its clients. 8.10.3 Disclosure to clients 8.10.3.1 In rendering a service to a client, any representations made and information provided by a member – 8.10.3.1.1 must be factually correct; 8.10.3.1.2 must be provided in plain language, avoid uncertainty or confusion and not be misleading; 8.10.3.1.3 must be adequate and appropriate in the circumstances of the particular service, taking into account the factually established or reasonably assumed level of knowledge of the client; 8.10.3.1.4 must, as regards all amounts, sums, values, charges, fees, remuneration or monetary obligations mentioned or referred to therein, be reflected in specific monetary terms, provided that where any such amount, sum, value, charge, fee, remuneration or monetary obligation is not reasonably pre-determinable, its basis of calculation must be adequately described; Page 17  8.10.3.1.5 need not be duplicated or repeated to the same client unless material or significant changes affecting that client occur, or the relevant service renders it necessary, in which case a disclosure of the changes must be made to the client without delay. 8.10.3.2 A member – 8.10.3.2.1 must disclose full and accurate information about the fees and any other charges that may be levied on clients; 8.10.3.2.2 may not disclose any confidential information acquired or obtained from a client about such client, unless the written consent of the client has been obtained beforehand or disclosure of the information is required to further the objects of the Act or is required under any law; 8.10.3.2.3 must advise a client in advance of any restrictions or limitations that may affect the access of that client to their assets 8.10.4 Maintenance of client records 8.10.4.1 A member must maintain proper, complete, accurate and secure records in relation to the services rendered to its clients. 8.10.4.2 A member must have appropriate procedures and systems in place to store and retrieve, in a manner safe from destruction, a record of all – 8.10.4.2.1 communications relating to a service rendered to a client, including instructions given by the client to the member; 8.10.4.2.2 transaction documentation relating to clients; 8.10.4.2.3 contractual arrangements between the member and its clients, including mandates prescribed by the rules; and 8.10.4.2.4 client particulars required to be provided in terms of the rules or which are necessary for the effective operation of client accounts. 8.10.4.3 The client records in rule 8.10.4.2 may be kept in printed, electronic or voice-recorded format. 8.10.4.4 Members need not hold the records in rule 8.10.4.2 themselves but must be capable of making such records available for inspection within seven days. 8.10.4.5 All instructions given by clients to execute transactions must be kept for a period of at least six months after the relevant transactions and all other client records in rule 8.10.4.2 must be kept for at least five years after the rendering of the services concerned. …. 8.10.6 Waiver of rights A member may not request or induce in any manner a client to waive any right or benefit conferred on the client by or in terms of the rules, or recognise, accept or act on any such waiver by the client, and any such waiver is void. 8.10.7 Co-operation with regulators A member shall deal with the JSE as its regulator in an open and co-operative manner and keep the JSE promptly informed of anything concerning the JSE which might reasonably be expected to be disclosed to it. A member shall also provide reasonable co-operation to any other regulatory body or any law enforcement agency in respect of any matters which are the subject of an investigation by such body or agency relating to an alleged contravention of the Act, or any equivalent foreign legislation or any other law governing the activities of the member. 8.60 Client acceptance and maintenance procedures 8.60.1 Every member shall ensure that it obtains and maintains sufficient information on each client account and each account operated by a client so as to be able to identify – 8.60.1.1 the client; 8.60.1.2 the account holder of a controlled client account if the account holder is not a client of the member but is a person on whose behalf a client is acting as agent; and 8.60.1.3 the person or persons responsible for placing instructions on the account, subject to rule 8.60.4. 8.60.2 As a minimum, the member shall obtain the following information in respect of each client and the account holder of each controlled client account if the account holder is not a client of the member but is a person on whose behalf a client is acting as agent - 8.60.2.1 full name; and 8.60.2.2 identity number or registration number, as the case may be Page 18  8.60.3 In addition to rule 8.60.2, the member shall also obtain the following information in respect of each client - 8.60.3.1 physical and postal address; 8.60.3.2 telephone number; 8.60.3.3 and legal status of the client, identifying whether they are a – 8.60.3.3.1 private individual; 8.60.3.3.2 company; 8.60.3.3.3 close corporation; 8.60.3.3.4 private trust; 8.60.3.3.5 partnership; 8.60.3.3.6 joint venture; 8.60.3.3.7 syndicate; 8.60.3.3.8 investment club; 8.60.3.3.9 pension or provident fund; 8.60.3.3.10 mutual fund or collective investment scheme; 8.60.3.3.11 government agency; 8.60.3.3.12 public utility; or 8.60.3.3.13 religious, educational or welfare organisation. 8.60.4 Unless the client is a bank or a financial services provider or the foreign regulated equivalent of such entities, the information referred to in rules 8.60.2, 8.60.3.1 and 8.60.3.2 shall also be obtained in respect of the person or persons responsible for placing instructions on a client account if the person placing the instructions is not the individual in whose name the account is held or the account is not in the name of an individual. 8.60.5 The information referred to in rules 8.60.2 to 8.60.4, together with any bank account details provided by the client, shall be confirmed by the client in writing and the member shall maintain a record of such confirmation. Any changes to the said information shall be advised by the client in writing to the member as soon as practicable. 8.60.6 Before undertaking to execute any transaction for a new client, a member shall, as a minimum, authenticate the identity of such client and maintain a record of the means of such authentication. 8.100 Members’ commission and fees 8.100.1 A member may charge for different categories of transactions and– 8.100.1.1 in respect of an agency transaction in JSE authorised investments, may charge a commission mutually agreed with the client in advance of such a transaction; and 8.100.1.2 in respect of a transaction in JSE authorised investments where a member has dealt as a principal, may charge a fee mutually agreed with the client in advance of such transaction. 8.100.2 A member may not make a profit in respect of an agency transaction other than the agreed commission. 8.100.3 An ISP shall be permitted to charge a client a negotiated fee for providing investment services. Such fee may be related to the performance of the client’s assets managed by the member or be structured on a percentage of the assets managed or any other basis agreeable to the client. 8.100.4 Interest received by a member from JSET in relation to client funds deposited with JSET in terms of the rules must accrue to and must be payable by the member to the clients entitled to such funds, after deduction of such administration fee or other charge as the member may determine. The member must disclose in advance of accepting funds the rate at which such fee or charge will be determined or the manner of calculation of such fee and may, in respect of each statement to a client, disclose the actual fee or charge so deducted. Any subsequent amendment to the rate at which such fee or charge will be determined or the manner of calculation of such fee must be disclosed in advance of such amendment. 8.110 Contract notes 8.110.1 In respect of a transaction in equity securities executed through the JSE equities trading system on behalf of or with a client, a member shall, before 12h00 on the business day following the transaction – 8.110.1.1 issue to the client a contract note; or 8.110.1.2 transmit to the client via electronic means acceptable to the JSE, a confirmation of the transaction. 8.110.2 The contract note or electronic confirmation referred to in rule 8.110.1 shall disclose – 8.110.2.1 the date and time of the transaction; 8.110.2.2 the identification number of the transaction; 8.110.2.3 the amount and nature of the member’s charges in connection with the transaction; 8.110.2.4 the price at which the transaction was executed and the total consideration due from or to a client; Page 19  8.110.2.5 the settlement date of the transaction; 8.110.2.6 whether the member acted as an agent or as a principal in the transaction. 8.110.3 Notwithstanding the provisions of rule 8.110.2 and subject to rule 10.30.2, with the prior consent of a client, a member may allocate transactions executed for a client to a specifically designated suspense account, either – 8.110.3.1 in the name of the client; or 8.110.3.2 in the name of an agent appointed by the client to transact on his behalf. 8.110.4 A designated suspense account in the name of a client, as referred to in rule 8.110.3.1, may be utilised if the member’s client is placing instructions in respect of one or more underlying accounts controlled by the client. A designated suspense account in the name of an agent appointed by a client to transact on his behalf, as referred to in rule 8.110.3.2, may be utilised if a number of the member’s clients have appointed an agent to transact on their behalf. 8.110.5 If the designated suspense accounts referred to in rules 8.110.3 and 8.110.4 are utilised, the member may allocate transactions in the same equity security on the same day to the accounts of the underlying beneficiaries, at an average price, based on the instructions of the client or the appointed agent respectively. 8.110.6 A member may issue contract notes or electronic confirmations reflecting average prices in respect of transactions allocated to the accounts of the underlying beneficiaries in terms of rule 8.110.5, provided that such contract notes or electronic confirmations disclose the fact that the price is an average price and the member has notified the client or, if relevant, the agent appointed by the client that the prices and times of each transaction are available from the member on request. 8.110.7 If a member uses one or more suspense accounts for transactions executed on behalf of clients whose equity securities are managed by the member and allocates transactions to such clients at an average price, the member is not required to obtain the consent of the client to allocate transactions at an average price in terms of rule 8.110.3, nor are they required to notify the client that the prices and times of each transaction are available from the member in terms of rule 8.110.6. 8.140 Management of corporate actions The arrangement between a member and a controlled client regarding issues pertaining to corporate actions must be recorded in writing. The written arrangement must, as a minimum, incorporate the instructions from the controlled client and the terms and conditions which will apply to the following issues pertaining to corporate actions – 8.140.1 whether the client wishes to receive all company reports, proxy forms, notices, circulars, listing particulars and any other issuer communications, in respect of equity securities of which such client is a beneficial owner; 8.140.2 whether the member is entitled and obliged to utilise its discretion in electing particular options in respect of all or certain corporate action events which require such an election to be made; 8.140.3 whether the member may utilise its discretion in exercising voting rights on behalf of the client; 8.140.4 the means of communication between the member and the client if the member is not granted discretion to act in respect of the issues referred to in rules 8.140.2 and 8.140.3. This will apply to the communication of the relevant issues to the client by the member as well as the client’s response thereto; 8.140.5 the date and time by which the client is required to make an election, if applicable; and 8.140.6 the option which the member may elect if the client fails to advise the member of their election before the deadline specified in rule 8.140.5, if applicable. This could either be the default for election or the member may be entitled to utilise its discretion in electing a particular option. 8.150 Money broking transactions 8.150.1 Money broking transactions may only be conducted by a member to whom the JSE has granted specific authorisation to conduct money broking transactions in terms of rule 3.80. 8.150.2 The arrangements made by a client with a member to conduct money broking transactions must be recorded in a written mandate. The mandate must contain the minimum requirements either – 8.150.2.1 incorporated in the conditions published by the Registrar of Banks if money broking transactions are conducted in terms of rule 8.150.4.1; or 8.150.2.2 prescribed by the JSE from time to time if money broking transactions are conducted in terms of rule 8.150.4.2. 8.150.3 The client must accept the terms of the mandate and communicate such acceptance to the member before any funds are accepted for such purpose. The mandate may be in electronic form and its acceptance may be Page 20  expressed by electronic means, provided that if acceptance occurs otherwise than by electronic means, the expression of acceptance must be evidenced by the physical signature of the client. 8.150.4 A member authorised to conduct money broking transactions may open an account with a bank either – 8.150.4.1 in the name of the member, where the clients’ funds are pooled in an account maintained by the member and the member forwards account statements to the client; or 8.150.4.2 in the name of the client, with the bank forwarding account statements directly to the client and, for the period dealt with in such account statements, the client’s capital remains with the same bank. 8.150.5 A member authorised to conduct money broking transactions, who conducts such transactions in terms of rule 8.150.4.1, must conduct such transactions strictly in accordance with and subject to the conditions published by the Registrar of Banks by Notice in the Government Gazette under paragraph (gg) of the definition of “the business of a bank” in section 1 of the Banks Act, 1990 and the rules. …. 8.150.8 If a member accepts funds from a client pursuant to a money broking transaction and the proposed deposit with a bank cannot be effected by the close of business on the day on which the funds are received from the client, the funds must be deposited with JSET for same day value pending the deposit of the funds with the relevant bank. 8.170 Acceptance of cash deposits No member shall knowingly receive or accept a deposit of cash from any person exceeding an amount of R5 000. For the purpose of this rule, “cash” shall mean coin and paper money of the Republic or any other country. A member shall not receive or accept two or more cash amounts exceeding R5 000 in total with the purpose of avoiding compliance with this rule. 8.180 Client statements …. 8.180.2 Statements shall be provided to clients – 8.180.2.1 at regular intervals which may not exceed three months, unless the client consents in writing not to receive the statements because they are able to access the information made available by the member through electronic means, such as the internet, on a continuous basis; 8.180.2.2 monthly if the client’s portfolio as managed by the member includes any transactions or positions in derivative instruments; 8.180.2.3 at such intervals of less than three months as the client requests, although the member shall not be obliged to provide statements more frequently than monthly; or 8.180.2.4 at such intervals as may be agreed between the member and a professional client. …. 8.180.4 Pursuant to rule 8.180.3, and to provide the client with the information necessary for them to review the operation of their account and make appropriate investment decisions, a client statement must contain at least the following information: 8.180.4.1 the quantity, description and market value of each investment comprising the portfolio held by the member or for which the member is accountable to the client, at the reporting date; 8.180.4.2 the amount of funds held by the member or which have been invested by the member on behalf of the client and for which the member is accountable to the client, at the reporting date; 8.180.4.3 if any of the JSE authorised investments are reflected in a foreign currency, the relevant currency exchange rate at the reporting date must also be reflected; 8.180.4.4 JSE authorised investments purchased or sold during the reporting period; 8.180.4.5 receipts and payments of funds during the reporting period; 8.180.4.6 details of income earned and expenditure incurred during the reporting period; 8.180.4.7 non-cash transactions during the reporting period, including non-cash components of corporate actions and option expiries; 8.180.4.8 JSE authorised investments transferred into and out of the portfolio during the reporting period; 8.180.4.9 identification of those JSE authorised investments which at the reporting date were loaned to any third party but for which the member is still accountable to the client; Page 21  8.180.4.10 the quantity, description and market value of any financial products, or the amount of funds, held as collateral by the member on behalf of the client in respect of any loans made by the client; 8.180.4.11 identification of those JSE authorised investments which at the reporting date were utilised to secure loans to the client or borrowings made on behalf of the client; 8.180.4.12 identification of those JSE authorised investments which at the reporting date were utilised as margin in respect of open positions in any financial product; 8.180.4.13 in respect of investments in derivative instruments, a description of the underlying financial product, index, commodity or thing, the expiry month and the exercise or strike price; and 8.180.4.14 if the statement reflects any JSE authorised investments which are not held by the member and for which the member is not accountable to the client, it should clearly indicate that fact in relation to such JSE authorised investments. Directive BD Clients Trust Banking Accounts 1. Operation of trust Accounts 1.1 Members shall, in a form prescribed by the JSE grant to the bank at which it maintains its trust account in terms of rule 9.60.3, authority for the JSE through the facility of the Broker Deal Accounting system, to effect transfers of funds between the member’s business account and the member’s trust account or JSE Trustees (Pty) Limited (“transfer of funds”). 1.2 A member shall not be permitted to interfere with or reverse any transfers of funds effected in terms of BD 1.1 except in the circumstances set out in BD 1.3 and BD 1.4 below. 1.3 Where a member is aware that the transfer of funds to be effected in terms of BD 1.1 will result in insufficient funds being held in the member’s trust account or JSE Trustees (Pty) Limited as envisaged in rule 9.60.3, the member may, with the prior written concurrence of the Director: Market Regulation, instruct the bank to amend the transfer of funds accordingly. 1.4 Where a member is of the opinion that the transfer of funds to be effected in terms of BD 1.1 will result in the amount held in the member’s trust account or JSE Trustees (Pty) Limited being materially in excess of the amount envisaged in rule 9.60.3, the member may, with the prior written concurrence of the Director: Market Regulation, instruct the bank to amend the transfer of funds effected by the amount of such excess. 2. Failure by Brokers to meet the Transfer of Funds 2.1 Members are required to ensure that there are, at all times, sufficient funds or facilities made available to them by their commercial bankers to effect any transfer of funds from the member’s current account to a trust bank account in accordance with the requirement to segregate clients’ funds. 2.2 If a member is unable to meet this requirement, the JSE may declare the member to be in default in terms of rule 13.10. Directive BI Client Accounts, Suspense Accounts and Misdeal Accounts 1. Client Accounts 1.1 A separate account shall be maintained for each client. The use of sundry accounts is not permissible except – 1.1.1 by prior arrangement with the Director: Market Regulation in respect of new issues or similar instances; or 1.1.2 to maintain the balances in securities held on behalf of clients where the securities have been delisted or where the listing of the securities has been suspended. 1.2 All sundry accounts utilised in terms of BI 1.1 shall be supported by appropriate records identifying the clients on whose behalf transactions on the accounts have been executed or on whose behalf securities in the accounts are held. 2. Suspense Accounts 2.1 For the purpose of this directive, a suspense account and an allocation account shall be synonymous. 2.2 All purchases and sales executed with or on behalf of clients shall be allocated to clients by the close of business on the date of the transaction. The allocation of a transaction to a suspense account dedicated to a particular client shall be deemed to be an allocation to a client. 2.3 Transactions shall not be allocated from suspense accounts to accounts of interested parties, unless the member can demonstrate that no client is prejudiced as a result thereof. 2.4 Adequate controls to prevent the prejudice of clients when utilising suspense accounts shall include, but not be limited to, the following – Page 22  2.4.1 the use of separate suspense accounts for interested party trades, such as employee suspense, principal suspense and stock suspense; 2.4.2 the use of separate suspense accounts dedicated to specified clients; 2.4.3 the use of separate suspense accounts where the trading instruction and allocation instruction vests with one person, such as a portfolio manager; and 2.4.4 an adequate segregation of duties over accounts managed with full discretion on behalf of employees to ensure that the employee has no influence over either the trading instruction or the allocation instruction. 2.5 For the purposes of this directive, an interested party trade is a trade in which the member or employee of the member has a direct or indirect beneficial interest. …. 2.7 At no time shall a member realise a profit or loss in a suspense account. 2.8 Separate contract notes shall be issued for each day’s transactions in a particular security for a particular client. This applies whether or not such deals have been booked through a suspense account. Contract notes and the member’s accounting records shall reflect the actual date on which the deal was originally effected. 3. Misdeals 3.1 A separate misdeals account or accounts shall be maintained in which all error transactions and missed deals shall be recorded. 3.2 All error transactions with or on behalf of clients shall be transferred into a misdeals account. Transactions out of misdeals accounts shall only be effected through the JSE equities trading system. 3.3 Transactions placed into a client account resulting from a missed deal shall be booked via the on-line backdating facility in the BDA system using the deal code MD to ensure, inter alia, that the contract note issued to the client reflects that the member traded as principal with the client to correct the missed deal. 3.4 A member must ensure that – 3.4.1 misdeals accounts are only used for the purpose of correcting error transactions or missed deals; and 3.4.2 transactions recorded in misdeals accounts are appropriately controlled to avoid any potential prejudice to clients affected by such transactions. 4. Arbitrage A separate arbitrage account or accounts shall be maintained through which all arbitrage deals shall be routed. 5. In order to distinguish clearly between client’s positions in suspense accounts and various stock accounts of members and to identify the nature of certain accounts, the following account type codes and account identification codes shall be loaded on the various accounts: Account Description Account Type Account Code Identification Overseas agent – in which no member has a financial interest A or C FNI Overseas agent – in which any member has a financial interest A or C FMI Stock accounts of member’s principals in their client’s ledger C SBP Client’s agency allocation/suspense accounts DA CAS Client’s deal adjustment accounts DA CDA Stock accounts – arbitrage S or C ARB Stock accounts – investment S or C INV Stock accounts – jobbing S or C JOB Stock accounts – misdeals S or C MIS Stock accounts – suspense S or C SUS Page 23  7. Information to be recorded on client accounts 7.1 Every member shall ensure that at least the following client information is recorded in the BDA system as stipulated: 7.1.1 the full name, address, telephone number and identification number or registration number (if applicable) of the account holder shall be loaded on the client maintenance (CLMNT) screen of the relevant account; 7.1.2 unless the client is a bank or a financial services provider or the regulated foreign equivalent of such entities, the full name, identity number or registration number, address and telephone number of the person or persons responsible for placing instructions on the account, if the person placing the instructions is not the individual in whose name the account is held or the account is not in the name of an individual. This information shall be loaded either on the Client Maintenance (CLMNT) screen of the relevant account or on the Account Relationship (ARMNT) screen using the REL code “OR”’; 7.1.3 the type of account holder, as referred to in rule 8.60.3.3, shall be loaded in the Institution Code field of the Client Maintenance (CLMNT) screen of the relevant account, if the account holder is not an individual; 7.1.4 staff indicators shall be loaded in the Staff Indicator field of the Client Maintenance (CLMNT) screen of the relevant account for all accounts in which an employee of the member has a beneficial interest or on which they place instructions. Directive BK Operation of Non-resident Controlled Client Accounts 1. Prior to loading a controlled client as a non-resident on the BDA system, a member must verify that the client is in fact a non-resident and must maintain a record of such verification. If the member has appointed a CSP in terms of Directive FL, the CSP shall also verify that the client is a non-resident with reference to the relevant documentation obtained by the member. 2. A CSP must ensure that all uncertificated securities received from a non-resident controlled client are in fact non- resident securities by verifying that the securities have been transferred from another non-resident account operated by another member, a CSDP or a financial services provider and retaining a record of such verification. 3. Under no circumstances may a CSP transfer securities within a nominee register from a resident controlled client account to a non-resident controlled client account, other than in respect of the settlement of transactions in securities where the transfers are automatically generated by the BDA system. 4. In order to ensure that certificates which are dematerialised by a CSP on behalf of a non-resident controlled client reflect a non-resident endorsement when they are submitted for dematerialisation, certificates held on behalf of non-residents reflecting a non-resident endorsement must be submitted for dematerialisation in separate batches from certificates held on behalf of residents which are not endorsed. 5. The covering document submitted by a CSP with their non-resident batches of certificates for dematerialisation must clearly indicate that the certificates are held on behalf of non-resident controlled clients, to enable the CSD participant of the relevant member to confirm on the covering document, by signing such document, that all of the certificates in the batch are endorsed non-resident. 6. The covering document signed by the CSD participant, referred to in BK 5, must be retained by the CSP as evidence that the relevant certificates were endorsed non-resident at the time of dematerialisation. 7. No CSP may submit certificates held on behalf of a non-resident controlled client for dematerialisation if they do not reflect a non-resident endorsement. 8. If a CSP wishes to dematerialise a certificate held on behalf of a non-resident client but the certificate was not endorsed at the time that the securities were acquired by the client or came into the possession of the member, the CSP should obtain an endorsement prior to submitting the certificate for dematerialisation. 9. If a CSP wishes to dematerialise a certificate held on a non-resident client account but the certificate does not reflect a non-resident endorsement and the member identifies that the client is not in fact a non-resident and the Exchange Control indicator on the Client Maintenance (CLMNT) screen on the BDA system is incorrect, the CSP should transfer the shares to a resident account in the name of the client prior to submitting the certificate for dematerialisation Page 24  Directive BL Transactions in Inward Listed Securities – Exchange Control 1. For the purpose of this directive, “inward listed securities” means shares issued by foreign companies which have been listed on the JSE in terms of the South African Reserve Bank’s exchange control regulations. 2. A member may not trade in inward listed securities for a non-resident blocked rand account (emigrant client). In the event that the Settlement Authority identifies a transaction for or on behalf of an emigrant client, the Settlement Authority will instruct the member to transfer the transaction from the client’s account to the member’s misdeals account and the member will assume responsibility for settling the transaction on settlement day. Directive BR Pledge of Certain Items Forbidden …. 2. Pledge of JSE authorised investments 2.1 A member which pledges or retains in pledge any JSE authorised investments shall – 2.1.1 ensure that the quantities, certificate numbers (where applicable) and securities codes of all deposits and withdrawals of JSE authorised investments are recorded into the BDA system; 2.1.2 ensure that all cash receipts from clients for banking on that day are processed, and 2.1.3 furnish the bank with a provisional computer report (PBNKBP) daily when JSE authorized investments are pledged detailing the investments pledged and whether or not such investments are available for pledge at that time. 2.2 The member shall, at the commencement of business on the following business day, furnish the bank with the final computer report (PBNKPL) produced in the overnight run which will report updated values, and details of JSE authorised investments which should not have been pledged. The bank shall be provided with explanations for these items. 2.3 The member shall ensure that arrangements with its bankers clearly specify that only items appearing on the final report (PBNKPL) as available for pledge, will be legally enforceable as having been pledged. FMA Section 18 Restriction on borrowing against and repledging of securities belonging to other persons 18. No authorised user may— (a) borrow against pledged listed securities an amount in excess of the outstanding balance of any amount which the authorised user may have lent the pledgor against the pledged securities; (b) repledge listed securities without the written consent of the pledgor Page 25 9. Client Assets 1.40 In the rules “client assets” means JSE authorised investments safeguarded by a member on behalf of clients; “controlled client custody means an equity securities account with a CSDP in the name of a member’s account” nominee company which reflects the uncertificated equity securities balances of the member’s controlled clients and through which settlement of transactions in equity securities for such controlled clients is effected; “CSP” means a custody services provider; “custody services” means the services provided by a custody services provider on behalf of its clients or another member and that member’s clients, in relation to the exercising of control over uncertificated equity securities and funds intended for the purchase of equity securities, held by a member on behalf of controlled clients; “custody services provider” means a member which has been authorised by the JSE to perform custody services in terms of the rules; “financial products” has the same meaning as that contained in section 1 of the FAIS Act, and by definition includes JSE authorised investments; “JSE authorised investments” means – (a) equity securities; (b) JSE listed securities traded on the JSE derivatives trading system or the Yield-X trading system;