IRC Settlement PDF

IRC Settlement -------------- ### Settlement Assurance a trading member shall guarantee the fulfilment of all transactions in IRC securities entered into by the trading member for its own account and on behalf of a client or another trading member, executed on the central order book of the JSE tra...

IRC Settlement -------------- ### Settlement Assurance a trading member shall guarantee the fulfilment of all transactions in IRC securities entered into by the trading member for its own account and on behalf of a client or another trading member, executed on the central order book of the JSE trading system or reported to the JSE trading system. The IRC Rules regarding *Settlement Assurance* shall not apply to off book transactions where- - only one trading member is involved and where the clients who are parties to such transaction have, between themselves, concluded the terms of the transaction and instructed the trading member to report the transaction to the JSE trading system. A client shall have no recourse against a trading member in respect of such transaction; or - a trading member facilitates a transaction in bonds on a name give-up basis on behalf of a client or another trading member, and the trading member is not recorded as a counterparty to the transaction reported to the JSE trading system. The client or the other trading member shall have no recourse against the facilitating trading member in respect of such transaction. Except in the circumstances, any action by a client in respect of a market transaction shall be against the trading member who entered into the transaction on the instruction of such client and not against any other trading member or a client of such trading member. A trading member shall ensure that buyers and sellers of bonds are aware of their settlement obligations in terms of these rules. However, if a client is not aware of such settlement obligations, the client remains bound by the settlement rules. ### Settlement Principles for Bonds Settlement of bonds shall be effected in accordance with the following principles -- - trade by trade; - between the scrip root and the cash root; and - rolling and contractual. ### Settlement Authority The Settlement Authority will manage -- - the settlement of transactions in bonds executed on the central order book of the JSE trading system; - the settlement of all off-book transactions in bonds reported to the JSE trading system - the risks associated with the settlement of the transactions. In order to perform its functions, the Settlement Authority may -- - act when the settlement of a transaction in bonds is unlikely to take place on settlement date; - instruct a trading member to enter into a carry or repurchase transaction through the trading system for its own account or on behalf of a client in order to facilitate the settlement process, and assist the trading member, when necessary and where possible, to source a willing counterparty to the carry or repurchase transaction; - instruct a trading member to borrow bonds for its own account or on behalf of a client to facilitate the settlement process, and assist the trading member, when necessary and where possible, to source a willing lender of the bonds; - levy fees, as prescribed by directive, on trading members for the loan of bonds or funds to trading members or clients in order to facilitate the settlement process; - impose penalties, as prescribed by directive, on trading members for any action or omission by a trading member which is potentially disruptive or has the effect of disrupting the settlement process and the functions of the Settlement Authority; - instruct a trading member or a client (via the trading member) to close a purchase or sale transaction at a price; - in its sole discretion and in exceptional circumstances, instruct a trading member or client (via the trading member) to roll the settlement of a purchase or sale transaction; and - if at any stage it becomes aware of a transaction not being able to settle which may, in its sole discretion, cause systemic risk, defer the settlement of such transaction by notifying Strate accordingly and extending the times. ### Trading in Bonds A client shall only place an order in respect of bonds with a trading member if -- - the client has directly or indirectly appointed a CSDP; and - the client has taken the appropriate steps to ensure that settlement of the transaction will occur on settlement date. A trading member shall only place an order or report a transaction in respect of bonds on the JSE trading system if such trading member has appointed a CSDP as prescribed by directive, and has taken reasonable steps to satisfy itself that -- - if a client with whom or on whose behalf the trading member is trading is not a trading member settled client, the client has appointed a CSDP and the appointed CSDP has confirmed, in the manner determined by the JSE, that the details of that client held by the CSDP correspond with and match the details of the client held by the trading member; and - settlement of the transaction will occur on the settlement date. Borrowing, lending or use of clients' bonds With regard to the borrowing, lending or use of any bonds referred to in rule 9.60 or 10.90, a trading member may -- - deliver such bonds to the client on whose behalf they are being held or to his order; or - satisfy a sale made on behalf of the client concerned; or - sell the bonds being held on behalf of a client, under any of the circumstances set out in the IRC Rules; or - otherwise deal with the bonds, including the borrowing, lending, or use of such bonds, in a manner set out in the mandate signed by the client and held by the trading member. ### Recording of bonds All bonds received which has been purchased on behalf of trading member settled clients shall be recorded in the trading member's accounting records on that day, so as to establish the identity of the client entitled thereto. ### Settlement of bonds All transactions in bonds shall only be settled electronically through Strate in accordance with the prescribed principles. A trade in bonds by a trading member shall -- - be allocated to a client or a trading member's proprietary account on the trade date provided that for same day trades due to settle on the trade date or trades due to settle on the first business day after the trade date, or where a trade on a suspense account dedicated to a particular client has not been allocated on the trade date to underlying accounts under the control of that client, to ensure that the trade still settles on settlement date, allocations to the underlying accounts may be made -- - up to 12h00 on trade date for same day trades due to settle on the trade date; - up to 17h00 on trade date for trades due to settle on the first business day after the trade date; or - up to 12h00 on the first business day after the trade date for trades due to settle on the second or third business day after the trade date. All late allocations, in contravention of this rule, will be effected by the Settlement Authority subject to the payment of the fee as prescribed by directive. Any late allocation shall be communicated to and accepted by the client within sufficient time to allow for the CSDP of the client; - if the trade is effected through a principal assignment stock account, be assigned to a client on the trade date Provided that for same day trades due to settle on the trade date or trades due to settle on the first business day after the trade date, or where a trade has not been assigned on the trade date to ensure that the trade still settles on settlement date, principal assignment trades must be effected by the trading member -- - up to 12h00 on trade date for same day trades due to settle on the trade date; - up to 17h00 on the trade date for trades due to settle on the first business day after the trade date; or - up to 12h00 on the first business day after the trade date for trades due to settle on the second or third business day after the trade date. All late principal assignment trades, in contravention of this rule, will be effected by the Settlement Authority subject to the payment of the fee as prescribed by directive. Any late principal assignment trades shall be communicated to and accepted by the client within sufficient time to allow for the CSDP of the client; - be communicated to a client on the trade date; - in the absence of notification from the client to the contrary by no later than 18h00 on the business day after the original trade, be deemed to have been accepted by the client; - with the exception of trades, be committed to by the CSDP of the trading member or client by no later than 13h00 for same day trades due to settle on trade date or by no later than 19h00 on the business day preceding the settlement date for trades due to settle on the first, second or third business day after the trade date; - if there is a direct or indirect dependency on the settlement of an off-market transaction for which an exception applies in terms of the Strate Directives, be committed to by the CSDP of the trading member or client as soon as possible on the settlement date but no later than 13h00; - with the exception of trades, be settled on the trade date or the first, second or third business day after the trade date, as stipulated by the counterparties to the trade when the trade is executed on the trading system; - if the trade is a carry transaction or a forward transaction, which the counterparties to the transaction agree will be settled more than three business days after the trade date, be settled on such date as may be agreed to by the counterparties and shall be committed to by the CSDP appointed by the trading member or client by no later than 19h00 on the business day preceding the settlement date Notwithstanding rules above -- - allocation corrections in respect of trades due to settle on the third business day after the trade date or a later settlement date may be effected up to 18h00 on the first business day after the trade date if they have not been effected on the trade date. All late allocation corrections after 18h00 on the first business day after the trade date will be corrected by the Settlement Authority subject to the payment of the fee as prescribed by directive. Any late allocation corrections shall be communicated to and accepted by the client within sufficient time to allow for the CSDP of the client; - allocations corrections in respect of trades due to settle on the first or the second business day after the trade date may be effected -- - up to 18h00 on the trade date for trades due to settle on the first business day after the trade date; or - up to 18h00 on the first business day after the trade date for trades due to settle on the second business day after the trade date. Despite a trading member or client's CSDP having committed to settle a transaction prior to the settlement date, a trading member or client may be unable to settle the transaction on the settlement date due to a dependency on the settlement of another transaction in the same bond in respect of which the CSDP of the counterparty to that transaction has not yet committed to settling. Under these circumstances the trading member or client's CSDP may be required to retract their commitment to settle the transaction pending further action by the trading member or client, or the resolution of the transaction on which there is a dependency. If by 13h00 on the settlement date, the trading member or client's CSDP has not committed to settle a transaction affected by the retraction of a previous commitment to settle, the trading member and/or client must act, as applicable. If a CSDP has not committed to settle a transaction by 13h00 on the settlement date and the trading member has not subsequently taken the necessary steps, with or without the instructions of the Settlement Authority, to ensure that the trading member of client's CSDP has committed to settling the transaction by 15h00, the transaction shall be declared a failed trade and shall be dealt with in terms of the failed trade procedure, unless the Settlement Authority rolls the settlement of the transaction to a subsequent date. If a trading member advises the Settlement Authority at any stage that the CSDP of the trading member or the CSDP of a client will not be in a position to settle a transaction on settlement day and the Settlement Authority does not roll the settlement to a subsequent date, the transaction shall be declared a failed trade by no later than 15h00 on settlement day and shall be dealt with in terms of the failed trade procedure. ### Non-member settled client settlement obligations A non-member settled client shall in respect of off book transactions, ensure and procure that his CSDP is in a position to commit to settle the transaction on his behalf on the settlement date -- - by no later than 13h00 on the trade date for same day trades due to settle on the trade date; or - by no later than 19h00 on the business day preceding the settlement date for trades due to settle on the first, second or third business day after the trade date, with the exception of trades for which that rule will apply. A commitment by a CSDP to settle a transaction on behalf of a non-member settled client shall become unconditional as at 08h30 on the settlement date. To ensure that a non-member settled client's CSDP is in a position to recommit to settle a transaction by no later than 15h00 on the settlement date if the circumstances arise, the client must take the necessary steps by 14h00 to cover the uncommitted transaction, which may include the borrowing of bonds or funds or entering into a carry or repurchase transaction. In the event that a non-member settled client fails to comply, or is advised by the Settlement Authority that the transaction may not settle on the settlement date, the trading member which effected the transaction -- - is obliged to take the necessary steps to ensure that the transaction settles on settlement day, including the borrowing or lending of bonds or funds or entering into a carry or repurchase transaction on such non-member settled client's account; and - may proceed in the manner prescribed in the IRC Rules. Subject to any agreement between the trading member and the client to the contrary and the action of the Settlement Authority, in the event that a non-member settled client fails to comply with the provisions set out in the Rules, the trading member may -- - in respect of a sale transaction, buy such bonds for the account of the client; or - in respect of a purchase transaction, sell such bonds for the account of the client. The non-member settled client shall remain liable for any losses, costs and charges incurred, or charges imposed, by the trading member as a result of the trading member acting or any action taken by the Settlement Authority. ### Trading member settled client settlement obligations A trading member settled client shall, in respect of off book transactions, ensure that the trading member which effected the transaction for or on behalf of such client will be in a position to settle the transaction on settlement day -- - by no later than 13h00 on the trade date for same day trades that are due to settle on the trade date; or - by no later than 19h00 on the business day preceding the settlement date, for trades that are due to settle on the first, second or third business day after the trade date, with the exception of trades for which that rule will apply. To ensure that the trading member's CSDP is in a position to recommit to settle a transaction on a trading member settled client's account by no later than 15h00 on the settlement date if the circumstances arise, the client must take the necessary steps by 14h00 to cover the uncommitted transaction, which may include the borrowing of bonds or funds or entering into a carry or repurchase transaction. In the event that a trading member settled client fails to comply with the provisions, the trading member which effected the transaction -- - is obliged to take the necessary steps to ensure that the transaction settles on settlement day, including the borrowing or lending of bonds or funds or entering into a carry or repurchase transaction on such trading member settled client's account; and - may proceed. - Subject to any agreement between the trading member and the client to the contrary and the action of the Settlement Authority, in the event that a trading member settled client fails to comply with the provisions set out in the IRC Rules, the trading member may -- - in respect of a sale transaction, buy such bonds for the account of the client; or - in respect of a purchase transaction, sell such bonds for the account of the client. The trading member settled client shall remain liable for any losses, costs and charges incurred, or charges imposed, by the trading member as a result of the trading member acting in or any action taken by the Settlement Authority. ### Trading member settlement obligations - A trading member shall at all times endeavor to ensure that the settlement of a transaction in bonds effected by the trading member takes place. - The settlement officer of a trading member must immediately inform the Settlement Authority when any transaction in a bond is unlikely to settle. - No trading member may, on settlement day, stop payment in respect of a Strate settlement. - A trading member shall, in respect of reported transactions, ensure that the CSDP of the trading member or of a non-member settled client, as applicable is in a position to commit to settle the transactions of the trading member or its clients on the settlement date -- - by no later than 13h00 on the trade date for same day trades due to settle on the trade date; or - by no later than 19h00 on the business day preceding the settlement date, for trades due to settle on the first, second or third business day after the trade date, with the exception of trades for which that rule will apply. - A commitment by a CSDP to settle a transaction in respect of a trading member settled client and the proprietary transactions of a trading member shall become unconditional as at 08h30 on the settlement date. - Notwithstanding a failure to comply with the IRC Rules, if by 19h00 on the business day preceding the settlement date, a trading member settled client remains unable to settle a reported transaction that is due to settle on the first, second or third business day after the trade date, the trading member shall continue to take the necessary steps to ensure that, by no later than 13h00 on the settlement date, the CSDP of the trading member commits to settle any transactions in respect of that trading member settled client. If by 13h00 the trading member's CSDP has still not committed to settling the transaction, the trading member must take the necessary steps to cover the uncommitted transaction, which may include the borrowing or lending of bonds or funds or entering into a carry or repurchase transaction on the client's account. - Notwithstanding a failure to comply with IRC Rules, if by 19h00 on the business day preceding the settlement date, a non-member settled client remains unable to ensure and procure that his CSDP will be in a position to commit to settling a reported transaction that is due to settle on the first, second or third business day after the trade date, the trading member shall continue to take the necessary steps to ensure that, by no later than 13h00 on the settlement date, the CSDP of the non- member settled client commits to settling the transaction. If by 13h00 the CSDP of the non-member settled client has still not committed to settling the transaction, the trading member must take the necessary steps to cover the uncommitted transaction, which may include the borrowing or lending of bonds or funds or entering a carry or repurchase transaction on the client's account. - To ensure that the trading member or non-member settled client's CSDP is able to commit to settle a transaction by no later than 15h00 on the settlement date, if the circumstances arise, the trading member must take the necessary steps by 14h00 to ensure that the uncommitted transaction is covered. If the trading member fails to take the necessary steps to cover the uncommitted transaction by 14h00, the Settlement Authority will instruct the trading member to take the necessary steps to cover the transaction, and the trading member must ensure that the trading member or non-member settled client's CSDP has committed to settling the transaction by no later than 15h00. - If a client, at any stage, advises a trading member or the trading member otherwise becomes aware, that the client is not able to settle a transaction, the trading member shall endeavor to enter an arrangement to ensure that the transaction settles on settlement day. If the trading member is unable to enter into such an arrangement, the trading member shall immediately notify the Settlement Authority. - If the Settlement Authority receives notification, and either rolls the settlement, or declares the transaction to be a failed trade, the trading member shall act in accordance with the instructions received from the Settlement Authority. - A trading member shall not use a client\'s bonds balances to settle the obligations of -- - another client; or - the trading member. - A contravention of the IRC Rules by a trading member may, in the discretion of the JSE, be deemed to constitute an act of default. ### Rolling of settlement The rolling of settlement will be carried out in the following manner- - The Settlement Authority will obtain a list of failed settlements from Strate, which will include the failed trade leg, as well as the opposite trade leg and any other trades that may be linked to the failed settlement; - The Settlement Authority will advise the failing and non-failing trading members that the transaction will be rolled to a revised settlement date determined by the Settlement Authority; - The failing and non-failing trading members will be instructed to re-book the original transaction at the original yield for settlement on the revised settlement date. - If settlement does not take place on the revised settlement date, the transaction may, at the discretion of the Settlement Authority, either be rolled to another revised settlement date, under exceptional circumstances, or be declared to be a failed trade, and the affected trading members must act in accordance with the instructions received from the Settlement Authority. ### Failed trade procedure applicable to transactions in bonds A failed trade arising out of a transaction in bonds shall be dealt with in the following manner - the Settlement Authority will obtain a list of failed settlements from Strate, which will include the failed trade leg as well as the opposite trade leg and any other trades that may be linked to the failed settlement; - the transactions selected shall be closed at a price to be determined by the Settlement Authority in accordance with principles set out in the directives. This price may differ from the original transaction price and will include compensation for the trading members or clients whose transactions are being closed; - the non-failing trading member shall claim any losses and compensation resulting from the close out of the transaction from the failing trading member. Failure by the failing trading member to pay such funds shall be in contravention of these rules and directives, and may, in the discretion of the JSE, be deemed to constitute an act of default. ### Failed trade principles and procedures (Dir EG) - A transaction, or any part thereof, which will not settle as a result of a failed trade must be dealt with on the basis set out in this directive. - A trading member or client that has complied with its obligations to settle a transaction in terms of the rules (the "non-failing party"), whose transaction will not settle as a result of a failed trade executed by another party, must, through its funds settlement account at its CSDP, receive a monetary payment placing the non-failing party in a monetary position equivalent to that in which the non-failing party would have been had the transaction settled in accordance with the rules. - In determining the monetary payment, the Settlement Authority will calculate the difference between -- - the price at which the bonds in question were purchased or sold, as the case may be, (the "transaction price"); and - a price determined by the Settlement Authority, in consultation with the Market Controller, with reference to the ruling price and the volume weighted average price (the "determined price"). The overriding objective in ascertaining the determined price will be to place the non-failing party in the same or equivalent position it would have been in had the transaction settled in accordance with the rules. For the purpose of this directive, \"volume weighted average price\" means, in respect of the period between 09h00 and 11h00 on the third business day after the trade date, the price determined by aggregating the volume multiplied by the price of each trade, divided by the total volume. - In the event that there is a differential of greater than a percentage, as determined by the JSE from time to time (which percentage is dependent on the liquidity of the relevant bonds), between the ruling price and the volume weighted average price, and the Settlement Authority, in consultation with the Market Controller and the Director: Market Regulation, forms the opinion that the ruling price of the said bonds may have been artificially manipulated to the benefit of the non-failing party, the Settlement Authority may elect to have the original trade corrected in accordance with the correction trade procedure. - if the determined price has moved to the detriment of the non-failing party, the non-failing party must be paid the difference between the transaction price and the determined price; or - if the determined price has moved to the benefit of the non-failing party, at the discretion of Settlement Authority the non-failing party will pay any differential between the price movement and the compensation to the failing party, unless the failing party has been declared to be in default, in which case the non-failing party must pay the relevant amount to the Guarantee Fund. - For the purpose of this directive, a non-failing party will be entitled to receive only cash compensation. The non-failing party will not be entitled to receive bonds as compensation equivalent to the bonds which were the subject of the failed trade. - In respect of reported transactions, the difference between the original value of the trade that failed, and the value based on the close out price as established in accordance with IRC Rules and this directive will be payable from the failing trading member to the non-failing trading member. Borrowing of bonds and carry or repurchase transactions to prevent a trade from failing If a trading member is not able to comply with Rules in respect of a transaction; or at any time notifies the Settlement Authority or the Settlement Authority otherwise becomes aware, that a trading member or client will not be able to settle a transaction on settlement day, the Settlement Authority will instruct the trading member to borrow, the bonds or enter into a carry or repurchase transaction, as is necessary for the trading member or client to comply with their obligations to settle the transaction. Operation of accounts of a trading member at its CSDP (Dir EB) A trading member must as a minimum open and maintain the following accounts at its CSDP -- - a custody account; - a funds settlement account; and - if the trading member has custody of client bonds, a separate custody account must be opened with Strate for those bonds. ### Information to be submitted to the Settlement Authority (Dir EC) No trading member may conduct a transaction in bonds unless the following information has been advised in writing to the Settlement Authority -- - the name of the trading member's CSDP; - the trading member's Strate client account code; - the trading member's Strate settlement account reference; - the custody account number at the trading member's CSDP; - the funds settlement account number at the trading member's CSDP; - the custody account number at the trading member's CSDP for their trading member settled clients; and - the name and contact details of the trading member's settlement officer and its alternate. ### Client account opening procedures - A trading member may not place an order to trade in bonds on behalf of a client unless the trading member has opened a trading account for the client on the trading system, and - - in the case of a non-member settled client, has verified the account details against the client's details on the Strate system and has obtained authorisation to open the account from the client's CSDP, in terms of this directive; or - in the case of a trading member settled client, has opened an account for the client on the Strate system and has obtained authorisation to open the account from the trading member's CSDP, in terms of this directive. - A trading member may only open a trading account on behalf of a client on receipt of a client agreement and registration form from the client, duly completed and signed. - To register a member settled client on the Strate system for the settlement of bonds transactions, the trading member must record on the client's trading account on the trading system that the client is a trading member settled client. - Upon the loading of a client as a trading member settled client, the trading member must contact the Settlement Authority, who will obtain the Strate client account code and Strate settlement account reference and notify the trading member to update the trading system accordingly. - To register a non-member settled client on the Strate system for the settlement of bonds transactions, the trading member must record the following information on the non-member settled client's trading account -- - the non-member settled client's custody account number at its CSDP; - the non-member settled client's cash account number at its CSDP; - the non-member settled client's CSDP's BPID; - the non-member settled client's Strate client account code; and - the non-member settled client's Strate settlement account reference. - Upon the loading of a client as a non-member settled client in terms of EE 6, the trading member must contact the Settlement Authority, who will obtain the Strate client account code and Strate settlement account reference and notify the trading member to update the trading system accordingly. ### Penalties and fees - The Settlement Authority may -- - impose a penalty on a trading member which fails to effect instructions or settlement in accordance with the settlement timetable as prescribed by directive; and - charge any trading member the fees associated with settlement of bonds as prescribed by directive. - The penalty referred to above shall be levied in accordance with a schedule as prescribed by directive below. - Payment of the penalty imposed, or fees charged shall be made to the Settlement Authority within five business days of notification. - A client must pay any penalty imposed on the trading member by the Settlement Authority where the client was at fault or where the client was responsible for causing a failed trade. #### Directive EI (Penalties) The penalties will be levied by the JSE in respect of transgressions relating to the settlement of transactions in bonds. Despite the provisions of this directive, further disciplinary action may be taken by the JSE in appropriate circumstances in terms of section 4 of the rules, in relation to the transgressions. The following penalties will apply: +-----------------------------------+-----------------------------------+ | 1. Pre-trade: | | +-----------------------------------+-----------------------------------+ | 1. a trading member has not | | | opened a custody and funds | | | settlement account with a | | | CSDP and has not been set up | | | on the trading system, Strate | | | system and CSDPs system; | | +-----------------------------------+-----------------------------------+ | 2. where a transaction has been | | | booked to a client's account | | | that has not been registered | | | in terms of directive EE. | | +-----------------------------------+-----------------------------------+ | 2. T | | +-----------------------------------+-----------------------------------+ | 3. T | | +-----------------------------------+-----------------------------------+ | 4. Commitments to settle | | | | | | 3. T+1, T+2 and T+3 trades: | | | | | | Same day trades | | | | | | Where a trading member is unable | | | to place the CSDP of the trading | | | member or a non-member settled | | | client in a position to commit to | | | settle the same day transactions | | | of the trading member or its | | | clients by 13h00 on settlement | | | date in terms of rule 9.100.5 | | +-----------------------------------+-----------------------------------+ | 5. Where a trading member | | | introduces a trade for which | | | settlement is rolled in terms | | | of rule 9.125 | | +-----------------------------------+-----------------------------------+ | 6. Where a trading member | | | introduces a proprietary or | | | client trade which is | | | declared a failed trade in | | | terms of rule 9.70.525 | | +-----------------------------------+-----------------------------------+