IRC - Trading.docx

Settlement of Bond ETP Securities --------------------------------- - The Bonds Clearing and Settlement team performs the role of the Settlement Authority as required by the JSE Rules and Directives. - The Settlement Authority ensures that trades dealt in Cash Bond Securities listed on...

Settlement of Bond ETP Securities --------------------------------- - The Bonds Clearing and Settlement team performs the role of the Settlement Authority as required by the JSE Rules and Directives. - The Settlement Authority ensures that trades dealt in Cash Bond Securities listed on the JSE are settled accordingly. ### Functions of the JSE Clearing and Settlement division - Cash Bonds Market and ETP - Ensure Settlement Assurance for trades executed in the ETP Market - Monitoring Bond settlement - Performs lender of last resort between SARB and Primary Dealer - Lender of last resort for IRC members. - Balancing of the daily margin and maintenance levels of the Primary Dealers - Assist market regulation with cancellation of ETP trades when required to do so - Monitor settlements of all ETP trades - Monitoring Cash Bond settlements - Advising members of all uncommitted positions and potential issues. - Managing the same same-day window and extension thereof in the Cash Bonds Market - Issuing of fines for transgressions of the Rules and Directives in the Cash Bonds Market - Inward listing for bonds reporting ### Section 8 of the Bond ETP Rules and Directives Settlement principles for ETP securities The settlement of Bond ETP securities shall be effected in accordance with the following principles -- - trade by trade; - between the buyer and the seller; and - on a rolling and contractual basis, whereby transactions become contractually due to be settled a - prescribed number of days after the trade date. Settlement Authority The Settlement Authority will manage -- - the settlement of transactions in Bond ETP securities executed on the Bond ETP trading system and the ETP fails management trading system; and - the risks associated with the settlement of transactions in Bond ETP securities. In order to perform its functions, the Settlement Authority may take action when the settlement of a transaction in a Bond ETP security will not take place or is unlikely to take place on settlement date by -- - facilitating the settlement of Bond ETP securities in terms of the rolling of settlement procedures set out in the Bond ETP Rules and Directives, if the relevant circumstances merit such action; - facilitating the settlement of Bond ETP securities in terms of the default procedures as a result of the default of an ETP member; - deferring the settlement of Bond ETP securities transactions that in its view could cause - systemic risk if they were not to settle, by way of a notification to the CSD of the deferral - and the extension of the timeframes referred to Bond ETP Rules and Directives. Settlement of Bond ETP securities All transactions in Bond ETP securities shall be settled electronically through the CSD, in accordance with the principles. A trade in Bond ETP securities by a member shall -- - be committed to by the member's CSDP by no later than 18h00 on the business day preceding the settlement date; and - be settled on the third business day after the trade date. Member settlement obligations A member shall ensure that the settlement of a transaction in Bond ETP securities that has been effected by such member takes place. - A member must immediately inform the Settlement Authority of any transaction in Bond ETP securities that in its view is unlikely to settle on the settlement date. - No member may, on the settlement date, stop payment in respect of a CSD settlement. - If a member's CSDP has committed to settling a transaction in Bond ETP securities on behalf of the - member, the member may not instruct the CSDP to revoke its commitment to settle the transaction, unless the member receives an instruction to do so from the Settlement Authority. - By no later than 17h30 on the business day preceding the settlement date, a member must make the necessary arrangements to ensure that the CSDP of that member is in a position, by no later than 18h00 on the business day preceding the settlement date, to commit to settle the transactions in Bond ETP securities on the settlement date. - A commitment by a CSDP to settle a transaction in Bond ETP securities in respect of a member shall become unconditional as at 8h30 on the settlement date, If a member is unable to ensure that the member's CSDP commits to settling a transaction in Bond ETP securities by 18h00 on the business day preceding the settlement date, the member shall immediately notify the Settlement Authority. - If the Settlement Authority receives notification, the Settlement Authority will determine whether settlement of the relevant transaction will be rolled to a later date and, if so, the member must act in accordance with the instructions received from the Settlement Authority. - Despite a member's CSDP having committed to settle a sale transaction in Bond ETP securities prior to the settlement date, a member may be unable to settle the transaction on the settlement date due to a dependency on the settlement of another transaction in the same bond in respect of which the CSDP of the counterparty to that transaction has not yet committed to settling. Under these circumstances the member's CSDP may be required to retract their commitment to settle the sale transaction pending further action by the member or the resolution of the transaction on which there is a dependency. - If by 13h15 on the settlement date the member's CSDP has not committed to settle a sale transaction in Bond ETP securities, the member must take all necessary steps to ensure that the member's CSDP is in a position to recommit to settle the transaction as soon as possible but by no later than 15h00. - To ensure that the member's CSDP is in a position to commit to settle a Bond ETP securities sale transaction by no later than 15h00 on the settlement date if the circumstances arise, a member must take the necessary steps by 14h00 to cover the uncommitted sale transaction, failing which the Settlement Authority will instruct the member to borrow the relevant securities from National Treasury through the South African Reserve Bank to cover the transaction. The member must comply with the instructions given by the Settlement Authority and must ensure that the member's CSDP has recommitted to settling the sale transaction by no later than 15h00. Rolling of settlement In the event that the Settlement Authority receives notification from a member that the member is unable to settle a transaction in Bond ETP securities on the settlement date, the Settlement Authority will assess, based on all information available to it at the time, whether exceptional circumstances exist that warrant settlement of the transaction being rolled to a later date and whether the member will be able to settle the transaction on a later date. If the Settlement Authority determines that the circumstances warrant the settlement of the transaction being rolled to a later date and that the member will be able to settle the transaction on a later date, the Settlement Authority may roll the settlement of the transaction. The rolling of settlement of a Bond ETP securities transaction will be carried out in the following manner: - The Settlement Authority will obtain a list of Bond ETP settlements from the CSD which are not going to be effected on the due settlement date, following notification by the failing member and a determination by the Settlement Authority. This list will include the failed trade leg as well as the opposite trade leg; - The Settlement Authority will advise the failing and non-failing members that the transaction will be rolled to a revised settlement date determined by the Settlement Authority; - The failing and non-failing members will be instructed to re-book the original transaction at the original yield for settlement on the revised settlement date; and - The transaction will be reported by the failing and non-failing members to - the ETP fails management trading system. If settlement does not take place on the revised settlement date, the Settlement Authority will, under exceptional circumstances, roll the settlement to another revised settlement date. However, if the Settlement Authority determines that settlement will not be able to take place on the further revised settlement date, the JSE will consider whether the member is in default and, if this is the case, deal with the transaction in terms of those default rules. Mark-to-market of Bond ETP securities The JSE may, in terms of the calculation method set out in the directives, on any business day and at any time, mark-to-market the unsettled transactions in Bond ETP securities, if the JSE in its sole discretion determines: - that such is necessary in respect of a particular member, or the unsettled transactions of all members of the Bond ETP market; or - that the market conditions in respect of Bond ETP securities warrant such calculation. Margin on Bond ETP securities transactions **Initial margin** Initial margin shall be paid by a member into the member's CPD margin account in an amount calculated by the JSE based on calculation methods agreed with the Market Committee. The initial margin shall be commensurate with the loss that could arise as a result of the default of the member in terms of its settlement obligations that relate to transactions in Bond ETP securities. **Mark-to-market adjustments to initial margin** - The JSE shall, in its sole discretion, determine, as a result of the marking-to-market of transactions, when mark-to-market adjustments to initial margin shall be paid to or by a member in respect of a transaction in Bond ETP securities. Under normal circumstances the JSE will calculate mark-to-market adjustments to initial margin on a daily basis. - An amount due by a member shall be paid by no later than 12h00 on the business day following the day on which such payment was calculated, or at such other time as specifically agreed upon between the member and the JSE. - Failure by a member to pay initial margin and any adjustments thereto in contravention of these rules may, in the discretion of the JSE, be deemed to be an act of default. - A member may establish a margin deposit in the member's CPD margin account in order to meet the member's margin obligation from time to time. Any amount held in a member's CPD margin account which is in excess of the member's margin obligation on a particular day may be withdrawn by the member with the approval of the Settlement Authority. Fees - The Settlement Authority, in consultation with the Market Committee, may charge any member the fees associated with settlement of Bond ETP securities as prescribed by directive. - Payment of the fees charged shall be made to the Settlement Authority within five business days of notification. IRC Settlement -------------- ### Settlement Assurance a trading member shall guarantee the fulfilment of all transactions in IRC securities entered into by the trading member for its own account and on behalf of a client or another trading member, executed on the central order book of the JSE trading system or reported to the JSE trading system. The IRC Rules regarding *Settlement Assurance* shall not apply to off book transactions where- - only one trading member is involved and where the clients who are parties to such transaction have, between themselves, concluded the terms of the transaction and instructed the trading member to report the transaction to the JSE trading system. A client shall have no recourse against a trading member in respect of such transaction; or - a trading member facilitates a transaction in bonds on a name give-up basis on behalf of a client or another trading member, and the trading member is not recorded as a counterparty to the transaction reported to the JSE trading system. The client or the other trading member shall have no recourse against the facilitating trading member in respect of such transaction. Except in the circumstances, any action by a client in respect of a market transaction shall be against the trading member who entered into the transaction on the instruction of such client and not against any other trading member or a client of such trading member. A trading member shall ensure that buyers and sellers of bonds are aware of their settlement obligations in terms of these rules. However, if a client is not aware of such settlement obligations, the client remains bound by the settlement rules. ### Settlement Principles for Bonds Settlement of bonds shall be effected in accordance with the following principles -- - trade by trade; - between the scrip root and the cash root; and - rolling and contractual. ### Settlement Authority The Settlement Authority will manage -- - the settlement of transactions in bonds executed on the central order book of the JSE trading system; - the settlement of all off-book transactions in bonds reported to the JSE trading system - the risks associated with the settlement of the transactions. In order to perform its functions, the Settlement Authority may -- - act when the settlement of a transaction in bonds is unlikely to take place on settlement date; - instruct a trading member to enter into a carry or repurchase transaction through the trading system for its own account or on behalf of a client in order to facilitate the settlement process, and assist the trading member, when necessary and where possible, to source a willing counterparty to the carry or repurchase transaction; - instruct a trading member to borrow bonds for its own account or on behalf of a client to facilitate the settlement process, and assist the trading member, when necessary and where possible, to source a willing lender of the bonds; - levy fees, as prescribed by directive, on trading members for the loan of bonds or funds to trading members or clients in order to facilitate the settlement process; - impose penalties, as prescribed by directive, on trading members for any action or omission by a trading member which is potentially disruptive or has the effect of disrupting the settlement process and the functions of the Settlement Authority; - instruct a trading member or a client (via the trading member) to close a purchase or sale transaction at a price; - in its sole discretion and in exceptional circumstances, instruct a trading member or client (via the trading member) to roll the settlement of a purchase or sale transaction; and - if at any stage it becomes aware of a transaction not being able to settle which may, in its sole discretion, cause systemic risk, 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 | | +-----------------------------------+-----------------------------------+ Conduct of Business =================== Conduct of business ------------------- ### General Provisions #### Trading and position limits JSE Clear may, in terms of the JSE Clear rules, limit the aggregate exposure arising from the proprietary positions of a clearing member, the positions of the clients of the clearing member, the positions of trading members with which the clearing member has entered into clearing agreements and the positions of the clients of such trading members in a manner determined by JSE Clear. The clearing member may, in terms of the JSE Clear rules, limit the aggregate exposure arising from the proprietary positions of a trading member and the positions of the clients of such trading member. A clearing member may stipulate a limit to the number of futures and option contracts or a nominal value of bonds that may constitute a transaction by a particular trading member at any one time. #### Trading and Position Records A trading member shall at all times maintain records of -- - its proprietary transactions and transactions for or on behalf of other trading members and clients; - margin and other payments to and from JSE Clear, other trading members and their clients. A trading member shall confirm to a client at least once a month -- - the transactions done with or on behalf of the client during the period; - the futures and option contract positions of the client at the time of reporting; - the bonds positions of the client at the time of reporting, where a trading member has custody and control over such instruments; - the balances of additional and retained margin held for the client at the time of reporting; and - all payments to and from the client made or accrued during the period, including payments of margin, fees, and interest. The records shall be kept for a period of at least five years. #### Telephone Recordings - The JSE and trading members may tape-record all telephone calls. - A trading member must tape-record all telephonic orders received from or made to clients. - With respect to such telephone calls, the tape-recording shall be admissible as evidence in any disciplinary or dispute resolution proceedings contemplated in these rules: Provided that the person who intends to rely on such tape recordings in evidence shall bear the onus of proving the authenticity thereof. - All parties to the prescribed agreements shall in such agreement acknowledge and confirm that they are aware that telephone calls may be recorded, and they shall be deemed to have irrevocably consented thereto. - No trading member shall tamper with any tape-recording of any telephone call. - Tape-recordings shall be retained by the trading member for a period of at least 14 days. ### Management of trading members' and clients' accounts #### Separation of funds and IRC securities A trading member -- - shall at all times separate a client\'s or other trading member\'s assets, including funds, the IRC securities and other corporeal and incorporeal things of the client or other trading member, from its own assets; - may not co-mingle the funds or IRC securities of any client or another trading member with its own; - may not allow the use of funds or IRC securities or corporeal or incorporeal things belonging to any client or other trading member to finance its own transactions or the transactions of any other person; - may not allow the use of funds or IRC securities or corporeal or incorporeal things of any client or other trading member to operate its own business; and - in respect of the transactions or positions of a trading member or client, may not retain any funds, IRC securities or other corporeal or incorporeal things given by such trading member or client or received by the trading member on behalf of any person other than additional margin or retained margin, or IRC securities. #### Management of funds by JSE Clear JSE Clear shall separate the margins and other monies, IRC securities and other corporeal and incorporeal things of any clearing member, trading member or client from its own assets and will manage and invest such margins and other monies in a manner and subject to such terms and conditions as the controlling body of JSE Clear may decide. - A clearing member may deposit any additional margin kept by the JSE Clear. - A trading member may deposit any additional margin kept by it in respect of its resident clients with JSE Clear. JSE Clear will monthly in arrears, retain an interest consideration as determined and published in a notice by JSE Clear on any margins held by it in respect of any position registered in the name of any person during the month. #### Trading members\' bank accounts - The provisions of this rule apply in respect of additional margin and retained margin not deposited by a trading member with JSE Clear, and in respect of any other client funds held by a trading member. - A trading member shall, at all times, keep a separate bank account into which it must deposit, or in which it must hold, any additional margin kept by, any retained margin held on behalf of a client, or any other client funds held by the trading member. - A trading member shall, at all times, ensure that the correct amount of additional margin as required by the client agreement with the client is held in respect of each client with which it has entered into a client agreement. - A trading member's records shall, at all times, reflect the amount of additional margin, retained margin or other client funds held in respect of each client. #### Trading members\' accounts at CSDPs for bonds A trading member which has control over and custody of the bonds holdings of one or more of its clients shall operate separate accounts at its CSDP for the purpose of segregating the custody positions of its clients from its proprietary positions. #### Trading members' control of client holdings in bonds - Where a trading member has control over the bond's holdings of its clients, the details of such client bonds holdings shall be recorded in its accounting records in a manner that will render it possible at any time to establish readily the identity of the persons entitled to the ownership of such bonds. - A trading member that controls bonds holdings on behalf of its clients must balance and reconcile, on at least a weekly basis, its own client holdings records with the custody balances as reflected by its CSDP. Any reconciling differences identified between the respective records must be rectified within one day, unless there are circumstances beyond the control of the trading member that prevent a difference from being resolved within one day, in which case the difference must be rectified as soon as is reasonably possible. - At the request of the JSE, the trading member shall provide the JSE with a copy of the reconciliations performed in terms of rule the above, together with full details and explanations of reconciling items. - Any arrangements entered into between a client and a trading member whereby the trading member exercises control over the client's bonds holdings, shall be provided for in the client agreement that shall contain the minimum requirements as set out in Directive DD. - A trading member shall ensure that only suitably authorised persons are able to withdraw or transfer a trading member settled client's bonds from a client custody account held with the CSDP of the trading member. - A trading member shall be precluded from controlling or having custody over the holdings of its non- resident clients in bonds unless it is an authorised bank. #### IRC securities held as collateral In accordance with section 39 of the Financial Markets Act, a pledge or cession in securitatem debiti of uncertificated bonds held by a trading member on behalf of a client must be effected by means of an entry by the trading member in the pledgor or cedent's account in the trading member's accounting records specifying -- - the name of the pledgee or cessionary (either the trading member or a third party); - the quantity of uncertificated bonds pledged or ceded; and - the date of the entry. A pledge or cession referred to in rule 10.95.1 should not be effected without a written agreement between the parties to the pledge or cession and the trading member should keep a record of such agreements. #### Relaxation or indulgence given by a trading member A trading member who gives any relaxation or indulgence to a client regarding the payment of margin, whether initial margin, settlement margin, variation margin, top-up margin or additional margin, shall be deemed to have granted the client a loan repayable on demand in the amount of the shortfall for the period of the relaxation or indulgence at a rate of interest specified in the client agreement between them. If no rate is specified, the trading member's customary rate shall apply or if there is no customary rate, the rate determined in terms of the Prescribed Rate of Interest Act No. 55 of 1975 shall apply. The trading member shall, if such loan is for a period exceeding two business days, immediately inform the client thereof in writing. #### Acceptance of cash deposits No trading 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 trading 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. ### Non-Resident and Emigrant Clients #### Bank accounts Before a trading member trades with a non-resident client, the non-resident client shall open a non-resident account at an authorised bank to be used for the purposes of trading in IRC securities. #### #### Margins payable The initial margin payable with respect to the open futures and option contract positions of a non-resident client shall be the initial margin that would otherwise have been payable by or to a trading member or a resident client in relation to equivalent positions, adjusted by the margin category assigned by the trading member in question to the non-resident client, and a trading member may not hold any retained or additional margins in relation to the positions of any non-resident client. #### Settlements With respect to his open futures and option contract positions, a non-resident client shall pay from his non-resident account to, or receive into his non-resident account from the client trust account of the trading member with whom he traded to open such positions, the net amount of the initial margin and variation margin provided that -- - the initial margin to be paid shall be the initial margin that would otherwise be required to be paid to JSE Clear in respect of equivalent positions of a trading member or a resident client adjusted by the margin category assigned by the trading member to the non-resident client in question; - a trading member must comply with any applicable Exchange Control Regulations as determined by the South African Reserve Bank regarding the payment of any interest and fees respectively in respect of a non- resident client; and - a trading member may not hold any retained or additional margin with respect to the positions of a non-resident client.97 The confirmation contained in the SWIFT non-resident account notification to the authorised bank shall confirm the net settlement amounts to be paid or received and shall require the authorised bank to release or accept this amount to or from the trading member concerned. The clearing member or JSE Clear, as the case may be, may off-set amount due to it against amounts due by it to or from a trading member: Provided that it can be ascertained from the statements passing between them that no margins or other monies of a non-resident client are being held by either JSE Clear or the clearing member. A trading member may not off-set the amounts due to a non-resident client against any amount due from any other non-resident client. A trading member shall not retain any interest paid to it by JSE Clear or its clearing member with respect to the open futures and option contract positions or unsettled bonds positions of a non-resident client, and on the second business day following the end of each month during which a non-resident client had a position registered in his name, the trading member shall pay to the authorised bank concerned for the credit of that non-resident client\'s non-resident account an amount equal to the amount received by it from its clearing member or JSE Clear, as the case may be, in respect of interest on margins provided that a clearing member who has a clearing agreement with the trading member concerned shall pay to the trading member an amount equal to that which it received in respect of the non-resident client\'s position from JSE Clear. A trading member may not off-set amounts due to be paid from a non-resident client's non-resident account against amounts to be paid into that non-resident client's non-resident account. The amount of interest shall be paid by the trading member to the authorised bank concerned by midday on the next business day after the business day on which the SWIFT non- resident account notification was received by the authorised bank concerned. #### Trading, clearing and settlement fees The trading member shall be entitled to claim payment for trading, clearing and settlement fees in respect of transactions with a non-resident client from the authorised bank concerned out of that non- resident client\'s non-resident account: Provided that-- - a trading member shall not be entitled to offset such fees against margin due by it to a non-resident client or against any balance due to the non-resident client; and - the authorised bank concerned shall compare the transactions referred to in the non-resident account clearance certificate against the transactions referred to in the trading member\'s statement claiming such fees in respect of such transactions and may inform the JSE of any discrepancy. ### Ethics and conduct #### Code of conduct **Standards of integrity** A trading member shall, in the conduct of its business, observe high standards of integrity and fair dealing. It must -- - not provide, or accept material inducements of a non-business nature to, or from any person to obtain business; - not knowingly circulate information or submit information to the JSE or JSE Clear which is false or misleading, or which affects or tends to affect unfairly the price of any an IRC security; - not knowingly countenance any attempt to manipulate the market, nor to influence persons for such a purpose; - not be a party to or facilitate or enter into a transaction which is fictitious, or which has a dishonest or unlawful motive; - conduct its activities in a manner that is compatible with the objects of the Act and with full respect for the dignity of the JSE; and - not participate in any dealings with other trading members, clients, the media, or other persons, which may be of such a nature as to discredit the JSE. **General conduct towards clients** In its dealings with clients, a trading member shall -- - act honestly and fairly; - act with due skill, care, and diligence, and in the interests of clients; - exercise independent professional judgement; - act promptly on and in accordance with the instructions of a client, and exercise any discretion in a responsible manner; - avoid conflicts of interest and when they cannot be avoided, ensure fair treatment to clients by disclosure, confidentiality or declining to act. A trading member shall not unfairly place its interests above those of its clients; and - not make any statement, promise, or forecast which it knows to be misleading or is likely to be misleading and that has the effect or may have the effect of inducing a client to enter into a client agreement. **Furnishing of investment advice and exercise of discretion-** In providing investment advice to a client or exercising discretion in relation to the management of JSE authorised investments, a trading member shall -- - take reasonable steps to seek from the client information regarding the client's financial situation, investment experience, particular needs, and objectives in connection with the services required, to enable the trading member to provide the client with sound investment advice or make an appropriate investment decision; - conduct an analysis, based on the information obtained, for the purpose of advising the client or making an investment decision; - identify the JSE authorised investments that will suit the client's risk profile and financial needs, subject to the terms of any client agreement entered into between the client and the trading member or any other mandate provided to the trading member by the client; - take reasonable steps to ensure that the client understands any investment advice that has been provided, as well as the nature and material terms and risks involved in the relevant transaction, so as to enable the client to make an informed decision; and - ensure that any investment advice provided, or discretion exercised is not for the sole purpose of maximising the income of the trading member. **Disclosure to clients** In rendering a service to a client, any representations made, and information provided by a trading member -- - must be factually correct; - must be provided in plain language, avoid uncertainty or confusion and not be misleading; - must be adequate and appropriate in the circumstances of the particular service, considering the factually established or reasonably assumed level of knowledge of the client; - 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; - 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. A trading member -- - must disclose full and accurate information about the fees and any other charges that may be levied on clients; - 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; - must advise a client in advance of any restrictions or limitations that may affect the access of that client to their funds or JSE authorised investments. **Maintenance of client records** - A trading member must maintain proper, complete, accurate and secure records in relation to the services rendered to its clients. - A trading member must have appropriate procedures and systems in place to store and retrieve, in a manner safe from destruction, a record of all -- - communications relating to a service rendered to a client, including instructions given by the client to the trading member; - transaction documentation relating to clients; - contractual arrangements between the trading member and its clients, including client agreements and mandates prescribed by these rules; and - client particulars required to be provided in terms of these rules or which are necessary for the effective operation of client accounts. - The client records may be kept in printed, electronic or voice-recorded format. - Trading members need not keep the records themselves but must be capable of making such records available for inspection within seven days. - 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 must be kept for at least five years after the rendering of the services concerned. **Contact with the trading member** A trading member must provide for the necessary resources and functionality to ensure that clients are able to readily contact the trading member. **Waiver of rights** A trading 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 this code or these rules, or recognise, accept, or act on any such waiver by the client, and any such waiver is void. **Adequacy of financial resources** A trading member shall ensure that it maintains adequate financial resources to meet its business commitments and to withstand the risks to which its business is subject. **Internal resources and risk management** A trading member shall effectively employ the resources and procedures that are necessary for the proper performance of its business activities and to eliminate, as far as is reasonably possible, the risk that clients will suffer financial loss through theft, fraud, other dishonest acts, poor administration, negligence, professional misconduct, or culpable omissions. It shall organise and control its internal affairs in a reasonable manner and keep proper records. Its staff shall be suitable, adequately trained and properly supervised. **Co-operation with regulators** A trading member shall deal with the JSE as its regulator in an open 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 trading 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 trading member. **Enforcement of code on employees** A trading member shall enforce the provisions of this code on all its employees. #### Unsolicited calls A trading member may enter into a transaction with or on behalf of a person where the transaction is as a result of an unsolicited call, provided that the trading member has complied with the requirements of the IRC Rules. #### Advertising by trading members Advertising material of a trading member -- - must provide accurate, complete, and unambiguous information about any JSE authorised investment or any service rendered by the trading member; - must emphasise the risk of loss and uncertainty of future results; - must discern fact from opinion; - may not be comparative in relation to another trading member; and - may not make the statement or suggest that trading in derivative instruments on the JSE is appropriate for all persons. An advertisement by a trading member -- - may not contain any statement, promise, or forecast which is fraudulent, untrue, or misleading must, if it contains -- - performance data (including awards and rankings), include references to their source and date; - illustrations, forecasts, or hypothetical data -- - contain support in the form of clearly stated - basic assumptions (including, but not limited to, any relevant assumptions in respect of performance, returns, costs and charges) with a reasonable prospect of being met under current circumstances; - make it clear that they are not guaranteed and are provided for illustrative purposes only; and - also contain, where returns or benefits are dependent on the performance of underlying assets or other variable market factors, clear indications of such dependence; - a warning statement about risks involved in buying or selling a JSE authorised investment, prominently display such statement; and - information about past performances, also contain a warning that past performances are not necessarily indicative of future performances; and - must, if the investment value of a JSE authorised investment mentioned in the advertisement is not guaranteed, contain a warning that no guarantees are provided. In the event that the JSE considers that a trading member has failed to conform to any of the advertising requirements published by the JSE under rule 10.230.1 or 10.230.2, it may at its discretion (without prejudice to its other powers under these rules) require that no further advertising material or other promotional or marketing material shall be published by or on behalf of such trading member unless it has been submitted to the JSE in advance and the JSE has notified the trading member that the material is suitable for publication. #### Contraventions to be reported Every trading member shall report to the JSE any contravention of the Act, these rules, and the directives that comes to its attention. Management of investments ------------------------- ### Authority to manage investments in IRC securities All trading members are authorised to manage investments comprising IRC securities provided that they comply with the provisions of this rule, and all other applicable rules, and undertake such management in compliance with the client agreement. This rule shall, however, not apply to a trading member if the trading member is a bank or if the majority of such trading member's intermediary services do not relate to trading in JSE listed securities as an authorised user of any of the JSE markets. Such a trading member shall be required to obtain a licence to operate as a financial services provider in terms of the FAIS Act in respect of any advice or intermediary services which it provides to clients relating to IRC securities, and the relevant provisions of that Act shall apply to such advice or intermediary services. ### Trading as an investment manager in IRC securities - A trading member may not trade as an investment manager in IRC securities for or on behalf of a client unless it has concluded a discretionary client agreement with the client and the client has been registered with the JSE as a client of that trading member. - An investment manager may not directly or indirectly buy or sell IRC securities for or from his own account or any account in which an employee has a direct or indirect beneficial interest, to or from a client. ### Management and investment advice in respect of JSE authorised investments other than IRC securities - This rule is only applicable to trading members whose investment management activities in relation to IRC securities are regulated by the JSE. - The provisions of rules shall not apply to a trading member if the trading member is a bank or if the majority of such trading member's intermediary services do not relate to trading in JSE listed securities as an authorised user of any of the JSE markets. Such a trading member shall be required to obtain a licence to operate as a financial services provider in terms of the FAIS Act in respect of any advice or intermediary services which it provides to clients relating to JSE authorised investments other than IRC securities and the relevant provisions of that Act shall apply to such advice or intermediary services. - The provisions of the rules shall not apply to a trading member in respect of transactions in JSE authorised investments other than IRC securities where such transactions relate to securities listed on an exchange other than the JSE, and where such transactions are conducted as an authorised user of such exchange. Such transactions will instead be subject to the rules of the relevant exchange. - A trading member may not enter into transactions as an investment manager in JSE authorised investments other than IRC securities on behalf of clients or provide investment advice to any clients in respect of such investments unless it has notified the Director: Market Regulation, in writing, of its intention to effect such transactions or provide such investment advice. - In order for the JSE to identify the scope of an investment manager's activities in JSE authorised investments other than IRC securities, the written notification to the Director: Market Regulation shall indicate which specific investments the investment manager is intending either to transact in on behalf of its clients or to provide investment advice on, or both. - The details which are required to be submitted to the Director: Market Regulation shall specify the particular types of JSE authorised investments other than IRC securities in which activity is to be conducted but need not include the name of the particular investments. - The failure by an investment manager to provide the notification prior to undertaking the relevant activity may result in the JSE imposing restrictions or a prohibition on the investment manager's activities in JSE authorised investments other than IRC securities. - If an investment manager has previously notified the Director: Market Regulation of its intention to conduct activity in any JSE authorised investments other than IRC securities and the investment manager ceases to conduct activity in respect of one or more particular types of investments, with no intention of resuming activity in such investments in the foreseeable future, the investment manager shall notify the Director: Market Regulation forthwith, in writing, of such cessation of activity. - Any decision by an investment manager to invest in JSE authorised investments other than IRC securities on behalf of a client shall be made with due regard to the relevant provisions regarding the conduct of trading members, particularly the provisions relating to the general conduct towards clients and the exercise of discretion. - An investment manager shall not effect transactions in JSE authorised investments other than IRC securities on behalf of a client unless the client has given his general consent to such transactions being effected in a written mandate. - Every investment manager who purchases JSE authorised investments other than IRC securities on behalf of a client and who is accountable to the client for the client's investment in such instruments shall comply with the following requirements -- - the relevant investments shall be segregated from the investment manager's own assets at all times. If the JSE authorised investments other than IRC securities are held in an account maintained by another financial services provider, the account shall either be opened in the client's own name or, if the investment manager opens a single account in respect of transactions executed on behalf of more than one client, the investment manager shall procure that the account is clearly designated in the records of the relevant financial services provider as being an account utilised for investments made by the investment manager on behalf of its clients; - the investment manager shall maintain proper accounting records in respect of all JSE authorised investments other than IRC securities purchased or sold on behalf of clients. These records shall be updated forthwith in respect of any transactions in JSE authorised investments other than IRC securities and shall clearly identify the beneficial owners of all such investments at all times; and - the investment manager must balance its clients' holdings in JSE authorised investments other than IRC securities, as reflected in the investment manager's records, with the accounts maintained by the other financial services providers who hold such investments, on a monthly basis. Any differences identified between the respective records must be rectified forthwith. - Every investment manager who holds JSE authorised investments other than IRC securities on behalf of a client or who is accountable to a client for such investments shall implement and maintain an effective system of internal controls to safeguard such investments and prevent unauthorised access thereto. - Transactions by an investment manager in JSE authorised investments other than IRC securities which constitute foreign investments. ### Management of Foreign Investments For the purpose of this rule, foreign investments mean -- - securities listed on an external exchange; - 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; - units or any other form of participation in a collective investment scheme licensed or registered in a foreign country; and - foreign funds intended for the purchase of such securities, units, or participation. An investment manager shall not enter into transactions in foreign investments on behalf of a client unless- - the mandate entered into between the investment manager and the client -- - stipulates that the investment manager is authorised to invest in foreign investments; - contains a statement pertaining to the risks associated with foreign investments, with particular reference to any currency risk; - states whether there are any jurisdiction restrictions in respect of the particular foreign investments; and - contains full particulars of the manner in which such investments shall be made and in whose name such investments shall be held or registered; - the client has obtained the prescribed tax clearance certificate from the South African Revenue Service (SARS). - An investment manager must, on request by a client, furnish the client with the following information regarding any foreign investments made by the investment manager on behalf of the client -- - the name of the licensed external exchange on which the foreign investments are listed, if applicable; - the country in which the foreign investments are licensed or registered and the name and address of the relevant licensing or registration authority, if applicable; - the name and address of the foreign financial services provider used by the investment manager to purchase or hold the foreign investments, if applicable; and - the name and address of the regulator of the foreign financial services provider rand whether such foreign financial services provider is approved or registered by such regulator. ### Trading with a discretionary financial services provider A trading member shall not effect a transaction with a person whom the trading member reasonably believes requires authorisation as a discretionary financial services provider or the status of a representative in terms of the FAIS Act, without having taken reasonable measures to ascertain that such person has the required authorisation or status. ### Conducting business with a nominee A trading member may not operate a client account on behalf of a person whom the trading member believes, or suspects requires approval to act as a nominee under section 76 of the Act without having taken reasonable measures to ascertain that such person has the necessary approval.108 ### Client statements An investment manager must provide a written statement to a client on a monthly basis which complies with the rules. A client statement must contain such information as is reasonably necessary to enable the client to -- - produce a set of financial statements; - determine the composition of the investments comprising the portfolio held by the trading member or for which the trading member is accountable to the client and the changes thereto over the reporting period, if applicable; and - determine the market value of the investments comprising the portfolio held by the trading member or for which the trading member is accountable to the client and the changes therein over the reporting period, if applicable. Pursuant to compliance with rules of clients statements, 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 - - the quantity, description and market value of each investment comprising the portfolio held by the trading member or for which the trading member is accountable to the client, at the reporting date; - the amount of funds held by the trading member, or which has been invested by the trading member on behalf of the client and for which the trading member is accountable to the client, at the reporting date; - if any of the investments or funds are reflected in a foreign currency, the relevant currency exchange rate at the reporting date must also be reflected; - investments purchased or sold during the reporting period; - receipts and payments of funds during the reporting period; - details of income earned, and expenditure incurred during the reporting period; - non-cash transactions during the reporting period, including non-cash components of corporate actions and option expiries; - investments transferred into and out of the portfolio during the reporting period; - identification of those investments which at the reporting date were loaned to any third party but for which the trading member is still accountable to the client; - the quantity, description and market value of any financial products, or the amount of funds, held as collateral by the trading member on behalf of the client in respect of any loans made by the client; - identification of those investments or funds which at the reporting date were utilised to secure loans to the client or borrowings made on behalf of the client; - identification of those investments or funds which at the reporting date were utilised as margin in respect of open positions in any financial product; - in respect of investments in derivative instruments, a description of the underlying financial product, index, commodity or thing, the expiry month and in the case of options, the exercise or strike price; and - if the statement reflects any investments or funds which are not held by the trading member and for which the trading member is not accountable to the client, it should clearly indicate that fact in relation to such investments or funds. The information may be provided to the client in separate statements either during the reporting period or as at the reporting date. A client statement shall be provided either to the client or to an agent or third party nominated by the client in writing. ### Exercising of discretion and provision of investment advice by employees A trading member shall, in the course of its business, exercise discretion in the management of JSE authorised investments and provide investment advice to its clients on the buying and selling of JSE authorised investments only through an employee who has obtained such qualification as may be prescribed in the directives. Complaints and Disputes ----------------------- ### Complaints **Client complaints** For the purposes of Section 5 of the rules, a client complaint is defined as any complaint in relation to the provision of regulated services, in which the client alleges that he has suffered, or is likely to suffer, financial prejudice as a result of the trading member -- - contravening or failing to comply with any instruction given by the client, or any agreement or mandate entered into with the client; - contravening or failing to comply with the rules and the directives; - acting dishonestly, negligently, or recklessly; or - treating the client unreasonably or unfairly. Every trading member must establish and maintain appropriate procedures for the handling of client complaints. **Internal complaint handling procedures** A trading member's internal complaint handling procedures must provide for -- - information regarding the JSE Ombud Scheme to be provided to a client at the time that the member notifies the client of the member's decision, which information must include the existence of the Scheme, the Scheme's contact details, and the procedure for lodging an unresolved complaint with the Scheme; - the receipt of oral or written complaints; - the appropriate investigation of complaints; - an appropriate decision-making process in relation to the response to a client complaint; - notification of the decision to the client; and - the recording of complaints. A trading member's internal complaint handling procedures must be designed to ensure that -- - all complaints are handled fairly, effectively, and promptly; - recurring or systemic problems are identified, investigated, and remedied; - the number of unresolved complaints to be referred to the JSE in terms of the rule 5.60 are minimised; - complaints are investigated by an employee of sufficient competence who, where appropriate, was not directly involved in the matter which is the subject of a complaint; - the employee responsible for the resolution of complaints has the necessary authority to resolve complaints or has ready access to an employee who has the necessary authority; and - relevant employees are aware of the trading member's internal complaint handling - procedures and comply with them. **Timeous response to complaints** A trading member must respond to a client complaint within 4 weeks of receiving the complaint or, within such period, provide the complainant with an appropriate explanation as to why the trading member is not, at that time, in a position to respond and must indicate by when the trading member will respond. **Redress** - Where a trading member decides that redress in the form of compensation is appropriate in resolving a complaint, the trading member must provide the complainant with fair compensation and must comply with any offer of compensation made by it which the complainant accepts. - Where a trading member decides that redress in a form other than compensation is appropriate in resolving a complaint, the trading member must provide the redress as soon as practicable. **Recording of complaints** A trading member must maintain a record of all client complaints. The record of each complaint must include- - the identity of the complainant; - the substance of the complaint; and - all correspondence in relation to the complaint. The records must be retained by the trading member for a period of 5 years from the date of the receipt of the complaint. **Unresolved client complaints** - A client complaint will be deemed to be unresolved if the complainant is not satisfied with the resolution of the complaint proposed by the trading member. - A complainant may lodge an unresolved complaint, in writing, with the Director: Market Regulation giving full particulars of the matter concerned. - In order for an unresolved complaint to be considered by the JSE Market Regulation Division, the complaint must be lodged with the Director: Market Regulation within 4 weeks of the receipt by the complainant of the trading member's response and within 6 months of the conduct by the trading member giving rise to the complaint. - An unresolved complaint which is lodged subsequent to the period will be considered, provided that failure to lodge the complaint within the relevant period was through no fault of the client. - The JSE Market Regulation Division may request the trading member and the complainant to provide copies of all relevant correspondence and documentation that is required to review the complaint. - The JSE Market Regulation Division will endeavor to facilitate a resolution of the complaint between the trading member and the complainant. - If the JSE Market Regulation Division is unable to facilitate a resolution of the complaint within 4 weeks of lodging of the complaint with it, the Director: Market Regulation will refer the unresolved complaint to the Company Secretary of the JSE to be dealt with in terms of the dispute resolution rules. ### Disputes **Applicability of dispute resolution rules** "The dispute resolution rules" are intended to facilitate the equitable and expeditious settlement of disputes that -- - a client has with a trading member, in respect of an unresolved complaint; - a trading member has with another trading member, in respect of transactions in IRC securities; or - a trading member has with a client, in respect of transactions in IRC securities. The dispute resolution rules only apply -- - where the amount in dispute is in excess of R2 000; - where the dispute is not the subject of existing litigation; - in the case of a dispute that a client has with a trading member, where the amount in dispute either does not exceed R500 000 or, where the amount in dispute exceeds R500 000, if the consent of both parties to proceed has been obtained; - in the case of a dispute that a trading member has with another trading member, and the trading members are able to evidence to the satisfaction of the Director: Market Regulation that reasonable endeavours have been made by the said trading members to resolve the dispute, if the consent of both parties to proceed has been obtained; - in the case of a dispute that a trading member has with a client if the consent of the client to proceed has been obtained. **Reporting of a dispute** - An unresolved client complaint that the JSE Market Regulation Division is not able to resolve will be reported as a dispute by the Director: Market Regulation to the Company Secretary of the JSE if the client elects to pursue the dispute resolution process. - A dispute between two trading members in respect of transactions in IRC securities must be reported, in writing, by either trading member, to the Company Secretary of the JSE, within 1 week of the circumstance giving rise to the dispute having arisen. - A dispute that a trading member has with a client in respect of transactions in IRC securities must be reported, in writing, by the trading member, in writing to the Company Secretary of the JSE, within 6 months of the circumstance giving rise to the dispute having arisen. - The Company Secretary of the JSE may, at any time, request any of the parties to a dispute to furnish him with such further information relating to the dispute as may be required. **Declaration of a dispute** A dispute reported will, having been met, be declared a dispute by the Company Secretary and will be referred by the Company Secretary to a duly appointed ombud for consideration. **Consideration by an ombud** - The Ombud Committee will appoint an ombud to consider a dispute, who is a retired judge of the High Court of South Africa or a Senior Counsel.20 - Within 3 weeks of the dispute having been referred to the ombud for consideration, the claimant must set out the subject matter of the claim in a written statement, including all the material facts, and furnish this statement, along with all relevant documentation upon which the claim is based, to the ombud. - The ombud may require the claimant to expand upon his statement of claim or provide further evidence or particulars as he deems necessary within such reasonable time as is specified by the ombud. - The other party to the dispute, hereafter referred to as the defendant, must be provided with a copy of the written statement of claim by the ombud. The defendant must furnish the ombud with its written response to the statement of claim within 3 weeks of having received such. In addition to the defendant\'s written response, the defendant must attach thereto all other evidence relating to the dispute. - The ombud may require the defendant to expand upon its response or provide further evidence or particulars as he deems necessary within such reasonable time as specified by the ombud and may require the claimant to provide a written reply to the defendant\'s response within such reasonable time as he may specify. - The ombud may at its discretion decide that a number of disputes based on similar occurrences or similar facts be consolidated and treated as a single dispute. - After ascertaining the party's availability, the ombud will furnish the parties with written notification of the date on which the dispute will be heard. - The ombud may decide regarding any issues relating to the dispute or consider the dispute on the basis of the documents submitted without the necessity of a hearing. - The dispute resolution proceedings will be conducted without legal representation of any of the parties, unless the ombud in his sole discretion decides otherwise. - The ombud, in reaching a decision, may consult with any third party regarding any issue relating to the dispute. The ombud has the discretion to call upon any third party to participate in the dispute resolution proceedings. - The ombud must apply principles of equity, where appropriate, when dealing with a dispute. - The ombud will, after having considered the information as presented to him by the parties and such other information as he may request, make his decision within 3 weeks of having considered the dispute. The ombud must, at the request of any party to the dispute, provide written reasons for his decision. - The ombud's decision will be furnished to the parties in writing.