Archive for the 'Clearing and settlement' Category

Work starts on African exchanges linkage project

Africa’s stock exchanges, regulators, central banks, stockbrokers and clearing systems are working together on the African Exchanges Linkage Project (AELP), set to create trading and information links between the 7 leading securities exchanges.

Participating exchanges at the first capital markets stakeholders’ roundtable were the West African regional exchange Bourse Regionale Valeures Mobilieres (BRVM), Casablanca Stock Exchange, The Egyptian Exchange, Johannesburg Stock Exchange, Nairobi Securities Exchange, The Nigerian Stock Exchange and the Stock Exchange of Mauritius.

The linkage project is a joint initiative by African Development Bank and African Securities Exchanges Association. It aims to facilitate cross-border trading and settlement of securities, unlock pan-African investment flows, promote innovations and diverse investments, and address lack of depth and liquidity in Africa’s financial markets. For more background, see our recent article.

The project is backed by $980,000 grant through the African Development Bank Korea-Africa Economic Cooperation Trust Fund (KOAFEC).

Karim Hajji, ASEA President and chief executive of the Casablanca Stock Exchange, said according to the press release: “Regional integration is a high-priority continental agenda. By organically linking 7 exchanges in Africa which collectively have a market capitalization of over US$1.4 trillion, the AELP will stimulate intra-African flows and provide opportunities for investors and trading participants in over fourteen African countries.

“With the expected outcome of boosting liquidity in African capital markets, the AELP will unlock the powerful potential of African markets to access and redistribute domestic capital for economic development.”

Pierre Guislain, African Development Bank’s Vice-President, Private Sector, Infrastructure and Industrialization, said: “The partnership between us and ASEA complements the Bank’s interventions towards deep and resilient capital markets in Africa. The African Exchanges Linkage Project will contribute to a wider financing pool for African corporates and SMEs and help close Africa’s infrastructure deficit, estimated at US$67–107 billion annually. Indeed, the continent needs deep, liquid and linked capital markets that will enable accelerated mobilization of domestic resources and incentivize private financing of infrastructure”.

Participating partners at the workshop on 24 April at African Development Bank’s headquarters included:
• Regulators Le Conseil Régional de l’Epargne Publique et des Marchés Financiers, Autorité Marocaine du Marché des Capitaux, Securities and Exchanges Commission of Nigeria, and the Capital Markets Authority of Kenya.
• Central bank – Banque Centrale des Etats de l’Afrique de l’Ouest,
• Stockbrokers and exchanges associations – Association Professionnelle des Sociétés de Bourse, Association of Stockbroking Houses of Nigeria, Kenya Association of Stockbrokers and Investment Bankers
• Clearing systems – Association Professionnelle des Banques Teneurs de Compte Conservateurs, Maroclear, Central Securities Clearing System – Nigeria, Central Depository and Settlement Corporation Ltd. – Kenya
• Investment banking – Afrinvest West Africa.

Pierre Guislain of African Development Bank and Karim Hajji of African Securities Exchanges Association and Casablanca Stock Exchange

Africa’s jumbo stock exchanges to link in 2019?

An ambitious project to link Africa’s 7 biggest securities exchanges is moving to implementation with a call this month for a project manager for the coming year. The African Exchanges Linkage Project (AELP) aims to transform the number of trades on exchanges and investment flows across Africa by creating a platform so an investor in once country can buy or sell shares listed on an exchange in another country.

It’s a leading initiative of the African Securities Exchanges Association (ASEA) and the African Development Bank, and will feature a central linked trading platform linked to the different exchange trading systems. The roll-out was boosted last November 2018 by a grant of $980,000 through the African Development Bank Korea-Africa Economic Cooperation Trust Fund (KOAFEC).

At November 2018, the participating exchanges were listed as Johannesburg, Nigeria, Nairobi, Casablanca, Bourse Régionale des Valeurs Mobilières SA (BRVM) and the Stock Exchange of Mauritius, this year the Egyptian Exchange has been added. The initial 7 exchanges represent at least 85% of the market value of listed securities (market capitalization) across Africa. More exchanges are to join after the pilot phase.

The central platform will enable free flow of trading information between the linked exchanges, and stockbrokers will be able to access the trading platform and place orders on the member exchanges through “sponsored access”, working through a locally registered stockbroker. It will use order-routing technology to channel orders through brokers into exchange trading systems.

Oscar Onyema and Karim Hajji, previous and present Presidents of African Securities Exchanges Association

Karim Hajji, CEO of the Casablanca Stock Exchange and President of ASEA, says: “We look forward to working with AfDB more closely and fostering a more connected African capital market,” according to a Nigerian online report.

Oscar Onyema, CEO of the Nigerian Stock Exchange and former president of ASEA, told stockbrokers at a workshop last November: “The AELP will start off with the 6 markets participating in the pilot with the goal of onboarding other markets in Africa who meet the minimum requirements. The countries participating in the AELP pilot phase are strategically spread across the continent as this will become instrumental in the scaling up of the project.

“The model for the linkage will be ‘sponsored access’, meaning that the cross-border trades will be required to pass through the risk-management system of the sponsoring broker before flowing to the exchange. We believe that this model will minimize the disruption to the local market and provide confidence for all stakeholders.

“Thus we anticipate that the initiative will be welcome by all stakeholders and will support ASEA’s goal of boosting intra-Africa capital-market trading activity. ”

According to a document from ASEA: “The AELP is aimed at addressing the lack of liquidity and promoting information-sharing in the African capital markets. It is envisaged that the linkage project would allow cross-border visibility and open up markets for investors to trade in any of the linked markets.”

Anticipated benefits include: more liquidity, measured by the number of deals and the value traded; better market openness; increased participation by foreign investors; more participation by African investment institutions such as the fast-growing pension funds across the continent; African businesses and other issuers being able to raise capital and floating shares across the continent; creating a bigger financial market; convergence towards international standards; and building capacity and sharing information.

In preparation for the project stockbrokers were asked to talk to clients to gauge potential interest in buying and selling securities on different exchanges, and to give their inputs into the design and rollout.

Regulated blockchain and commodity exchanges coming to Mauritius

GMEX Group is leading in plans to launch a revolutionary blockchain exchange platform in Mauritius with MINDEX Holdings Limited (MINDEX) linked to Mauritius International Derivatives and Commodities Exchange and Hybrid Stock Exchange Corporation Limited (HYBSE).

The new bourse will be called HYBSE International Marketplace. The partners are:
• MINDEX: a complete exchange, post trade and physical infrastructure, facilitating a variety of asset classes to be traded in Mauritius, supported by GMEX
• GMEX: a world leader in digital business and technology solutions for exchange and post-trade operators. GMEX serves as core of a network of stock exchanges and other trading and post-trade centres around the world.
• HYBSE: a global online marketplace based on blockchain technology that is part of the DIM-Ecosystem.

Daniel Liu of HYBSE and Hirander Misra of GMEX Group

According to the press release:
“The HYBSE International Marketplace will integrate blockchain solutions and technology with traditional financial industries providing a complete and governed ecosystem that digitalizes assets onto the Blockchain. This partnership will for the first time, enable institutional investors access to cryptocurrency ETF’s and other crypto-instruments.
“The following asset classes will be facilitated for trade in a digital tokenized format:
• Cryptonized shares
• Cryptonized currencies
• Commodities
• Indices
• Forex
• ETCs (Exchange-traded commodities)
• ETFs (Exchange-traded funds)
• CETFs (Crypto exchange-traded funds)

“SMEs (small and medium enterprises) will be able to use the HYBSE International Marketplace to seek capital by launching an Initial Blockshare Offering (IBO); a time-limited offer to purchase cryptonized-equities and other cryptonized-instruments, such as blockshares, from businesses registered on the HYBSE International Marketplace at special discounted rates.”

The decision to set up in Mauritius follows news that the regulator FSC will create new licensable activities for the Custodian of Digital Assets and Digital Asset Marketplace – see consultation paper issued in November 2018 – and provide a regulated environment for the exchange and safe custody of digital assets. The regulator in Mauritius has also issued guidelines on investment in cryptocurrency as a digital asset.

Hirander Misra, CEO of GMEX Group, commented: “He added, “We welcome the new regulatory framework for digital assets in Mauritius and we are thrilled to be at the forefront of market development as one of the first ventures to set up under the new regime. We are firmly convinced that there is a massive opportunity for Mauritius to position itself as a major global hub in this dynamic space underpinned by strong governance and regulation to ensure trust”.

In a blog post he noted that Mauritius has also set up a National Regulatory Sandbox Licence Committee to consider sandbox licensing of fintech activities. “Sham ICOs have to be stopped and robust KYC / AML processes and rules must be put in place. In addition technology if developed and deployed well can ensure that some of the crypto exchange hacks we have heard of in other parts of the world can be avoided. Ultimately the current regulatory confusion will correct itself as there will be a flight to quality to those jurisdictions with robust laws and regulations in place. The unregulated bucket shop exchanges with poor controls will cease to exist, as properly run and secure technology enabled digital exchanges and digital asset custodians come into the market to facilitate increased institutional business and wholesale retail business.”

Commodity platform – gold from mine to vault
In June, GMEX had announced it was part of the initial consortium to launch Mauritius International Derivatives and Commodities Exchange (MINDEX), which will become a multi-commodity and derivatives exchange platform. The Mauritius Financial Services Commission will exercise full regulatory oversight.
GMEX has been working closely with the British High Commission Mauritius and Department for International Trade (DIT) Mauritius since it opened a regional headquarters in Mauritius International Financial Centre (IFC) during 2017.

MINDEX Clearing will act as central counterparty clearing house (CCP) to clear all trades.

The GMEX consortium led investment in the MINDEX project amounts to $35 million to build a gold refinery, a secure vault, launch of an advanced technologically enabled spot exchange, derivatives exchange and clearing house. This is expected to create 104 direct jobs over 2 years and an additional 408 new secondary jobs over the next 2 years in Mauritius.

The Department for International Trade’s Minister for Investment Graham Stuart MP said: “As an international economic department, we are pleased to be working with GMEX in Mauritius on an investment which will sustain and create jobs in Mauritius and the UK. The MINDEX project will support an ecosystem which creates opportunities in gold mining, refining, storage, recycling, and in commodities trading and financial technology.

“We will continue support companies’ overseas investments where there is benefit to the UK by offering practical support to investors, facilitating introductions to ease market entry and using our expertise to explain political sensitivities and cultural differences to British businesses.”

Top learning on the future of African exchanges – BAFM seminar this week 19-20 April

The 7th Building African Financial Markets (BAFM) seminar has a top lineup and tomorrow (17 April) is the last day to register The seminar is part of the annual programme of capital markets development and synergies of the African Securities Exchanges Association and is also backed by the World Federation of Exchanges. It is hosted by Nairobi Securities Exchange, will be on 19-20 April at the Villa Rosa Kempinski Hotel in Nairobi.

Leading the programme will be William Ruto (Deputy President of Kenya), Geoff Odundo (CEO, Nairobi Securities Exchange), Samuel Kimani (Chairman of the Nairobi SE), Oscar Onyema (President of ASEA and CEO of the Nigerian Stock Exchange), Paul Muthaura (CEO of the Capital Markets Authority of Kenya).

Topics are focused on market structures, innovation, new technology and linkages, including top international speakers:

• Adaptive innovation and the blueprint for orderly markets in Africa – Siobhan Cleary (Head of Policy and Research, World Federation of Exchanges) and Stebbings Archie (Principal, Oliver Wyman)
• Building blocks for innovative markets: effective risk management for clearing and settlement, a CCP in a box – Stuart Turner (Founder, Avenir Technology)
• Building new markets in a frontier economy and the impact on indigenized solutions: The Kenyan experience – Terry Adembesa (Director, Derivatives Markets, Nairobi SE)
• Linking African exchanges organically – Selloua Chakri (Managing Director, SCL Advisory)
• Building blocks for innovative markets: A guide for managing cyber risk – Joseph Tegbe (Partner and Head of Technology Advisory at KPMG, Nigeria)
• FinTech as an enabler for sustainable development: An innovation showcase – Panel with moderator Catherine Karita (Executive Director at NIC Securities), Farida Bedwei (Co-Founder and Chief Technical Officer, Logiciel Ltd), David Waithaka (Chief Strategist at Cellulant Kenya), Candice Dott (Head of Market Development and Customer Experience across Africa, Thomson Reuters), Alex Siboe (Head of Digital Financial Services at KCB Bank Kenya) and Julianne Roberts (F3 Life)
• RegTech: Leveraging technology in the effective risk management and regulation of African capital markets – Michele Carlsson (Managing Director, Middle East and Africa, Nasdaq)
• Effective financial education: The role of emerging technology in contemporary Africa – Abimbola Ogunbanjo (Managing Partner, Chris Ogunbanjo & Co.)
• Financial innovations in SME financing: Opportunities for African MSMEs – Sofie Blakstad (CEO, Hiveonline)
• Disruptive technologies reshaping the future of African financial markets: M-Akiba – Irungu Waggema (Head of IT, Nairobi Securities Exchange)
• Impact of EU Regulation on African Capital Markets (EMIR, BMR, MIFID II, GDPR) – Anne Clayton (Head of Public Policy, Johannesburg Stock Exchange)
• Financing sustainable development: Product and market innovations – Anthony Miller (Coordinator at the Sustainable Stock Exchange Initiatives)
• Disruptive technologies: Blockchain – the future of finance or a flash in the pan? – panel with moderator Ade Bajomo (Executive Director, Information Technology and Operations, Access Bank), Reggie Middleton (CEO and Founder of Veritaseum), Abubakar Mayanja (MD of ABL), Adriana Marais (Head of Innovation SAP Africa) and Samuel Maina (Research Scientist at IBM Research Lab Africa)

It’s a key gathering for Africa’s securities exchanges and key learning for all interested in the future of capital markets and their role in African development. For more information and for bookings, rush to this registration link.

Strate’s CEO Monica Singer steps down to focus on blockchain

Monica Singer, the former CEO of South African central securities depository Strate, stepped down at the end of August 2017. Monica had been the project manager of Strate since its inception, and has led the organization for nearly 20 years. She will concentrate full time on blockchain.

Maria Vermaas, who has been Head of the Legal and Regulatory Division since the start of Strate, has been appointed as Interim CEO. The long-standing executive team will continue to drive strategic objectives, according to an announcement from Strate, which adds that Monica is leaving “to fulfil her dream of living in Cape Town and to pursue new opportunities”.

“Monica’s entrepreneurial spirit, together with her visionary leadership” drove the introduction of electronic settlement for South Africa’s financial markets. Strate is proud of “being a Conscious Company that creates shared value for all stakeholders” and globally recognized as one of the most progressive CSDs.

Monica says (in the statement): “I have always had a passion for innovation and technology that drives societal change. With the potential disruption that the financial markets may face, particularly with disruptive technologies like blockchain, I will continue to research to stay ahead of developments which may lead me to consulting on these topics.”

She has been key in several networks that share ideas internationally including as Vice President of the Africa & Middle East Depositories Association (AMEDA), over 18 years in the International Securities Services Association (ISSA), World Forum of CSDs (WFC) and Americas’ Central Securities Depositories Association (ACSDA).

Strate Chairman Rob Barrow, comments: “The Board, together with the Executive team and staff, would like to thank Monica for her contribution to Strate and the legacy that she has left behind. We would like to wish her all the best for her future endeavours.”

Full time in blockchain
According to this news story by Michael de Castillo on Coindesk, Monica is devoting her considerable energies “to dedicate her career to bringing blockchain to industries from finance and insurance to medicine and retail”.

Monica Singer: Blockchain is coming and its going to change the world (Photocredit: coindesk)

“In her first conversation with the media since her resignation, Singer explained how she believes the tech could help her finally cut out what she describes as ‘unnecessary middlemen.’

“Singer told CoinDesk: ‘I’m so in love with blockchain, that the only thing I’m doing, all the time, is telling the world, “Guys, wake up! This is coming, and this is going to change the world.”’ According to the story, Monica will use her global contacts to widen her interest beyond the financial sector. The article mentions ethereum startup ConsenSys and digital ledger startup Ripple among the “fintech” companies Monica is interested in working with.

She still believes CSDs can provide important services, even if blockchain means they will “not have a role to play” in the blockchain world. She is set to speak at the Sibos banking conference in October on blockchain in the cash and securities settlement space and at the World Federation of CSDs in Hong Kong in November.

It quotes her saying: “I love saying to people: ‘Give me a brief description of your industry.’ I can quickly tell them in which way that industry will be affected by this new, incredible technology. So, that’s what I need to do.

“I was the person who moved South Africa’s financial markets from paper to digital.. When I discovered blockchain, I thought this is exactly what we need in the world.”

Brief history of clearing and settlement in South Africa
Johannesburg Stock Exchange rang the final bell on 108 years of open-outcry trading on 7 June 1996. Most recently trading had been in a huge hall at the bottom of its then headquarters in Diagonal Street, so the noise of trading filled the whole building when the market got busy. From market open on 10 June all equity trading has been on the automated Johannesburg Equity Trading system. As volumes increased, stockbroker back offices talked about “how many feet of work do you have?” referring to the huge piles of share certificates and transfer forms stacked high on desks, while the motorcycle delivery drivers at the back of Diagonal Street and Kerk Street, Johannesburg, got ever busier.

Electronic clearing and settlement were urgently needed but the banks that dominate this aspect of capital markets had each invested in their own systems. They had further formed the Bond Market Association to create a self-regulating bond exchange in 1990 and had worked with the South African Reserve Bank the same year to form UNEXcor to set up an electronic settlement system using a CSD. The first fully electronic settlement through UNEXcor and the CSD (called CD Ltd) had been on 26 October 1995.

Monica, famous for long-term vision backed by unstoppable energy, was brought in to break the logjam and move the market forward in 1998. Gold-mining group Harmony was the first equity on the JSE to move to full dematerialization of securities in 1999 and the whole market followed in orderly stages.

According to a brochure by Strate a few years ago: “The transition to an efficient electronic-settlement system increased market activity and improved the international perception of the South African market by reducing settlement and operational risk in the market, increasing efficiency and ultimately reducing costs. Accordingly, by heightening investor appeal, Strate has enabled South Africa to compete effectively with other international markets and not just those of emerging markets.

“Since 2000, Strate has used the South African Financial Instruments Real-time Electronic Settlement system (SAFIRES), an adaptation of the Swiss securities settlement system (SECOM), operated by SIX SIS Ltd, to continuously provide investors with secure and efficient settlement of equities.”

UNEXcor merged with Strate in 2003 and as the platform became more aged, Strate began market consultation to replace the technology and move to a Securities Ownership Register for bonds.

Participants set up the Money Market Forum in 2002 for dematerialization of money-market securities and awarded the contract to do this to UNEXcor, which devolved to Strate after the merger. After extensive market consultation, Strate developed the business requirement and employed Tata Consultancy Services (TCS) to develop the code. Successful testing was completed on 1 October 2008 and Rand Merchant Bank issued the first electronic security to Strate via FirstRand Bank in November 2008. Electronic settlement of newly issued money market securities began in the second half of 2009.

The latest transformation was the switch to T+3 settlement across the South African capital market, carried out successfully on 11 July 2016 and profiled on this blog.

Namibian SX and Bank of Namibia poised to launch paperless

The Namibian Stock Exchange and the central Bank of Namibia are working together to create a central securities depository (CSD) for equities, bonds and bills traded. They are waiting for laws and regulations to be passed to get the new system operational.

According to Kazembire Zemburuka, Deputy Director: Corporate Communications at the Bank of Namibia, quoted in a Southern Times newspaper article: “In an effort to develop the domestic capital market, the Bank of Namibia and the Namibian Stock Exchange have collaborated to jointly create a Central Security Depository company that will be licensed by NAMFISA (regulator) to hold and safeguard financial instruments in electronic format.”.

He said the Central Security Depository (CSD) Company is already in existence and has a Board of Directors comprising representatives from the two institutions. Following industry-wide consultations, systems requirements for the Namibian CSD were developed and a vendor has been appointed to provide a system. It will cater for both equities and bonds.

“Full implementation of the system awaits the finalisation of the necessary legislation and regulations. This process is already at an advanced stage,” explained Zemburuka. The company will provide electronic settlement of equities and bonds transactions concluded on the NSX and settle transactions in money market securities. It will be regulated by the Namibian Financial Institutions Supervisory Authority (NAMFISA).

Earlier, Tiaan Bazuin the NSX CEO told Namibian Economist newspaper why the 2 institutions are working together: “It is not a requirement to work jointly, it is preferred as it is a national project, in fact we have a market steering committee with all the market participants involved, including the banks, asset managers [amongst others].”

Interested stakeholders would be able to join as shareholders in future. “We have already indicated once it is up and running, others will also be able to join as shareholders if they want to. Typically some market participants wish to have a strategic stake in financial market infrastructure.”

In many African countries there are often two CSDs, with the central bank and the exchange each running their own systems, but it is much more efficient and reduces risk if both are integrated and built to work seamlessly with the capital markets trading such as the securities exchanges. Bank of Namibia and the local banks have worked together over decades and built advanced payment systems between the banks. Similar systems extending across most other countries in the Southern African Development Community (SADC) and it is hoped eventually that crossborder securities trading will also become more widespread.

Since the NSX was founded, it has operated using physical or paper certificates representing ownership of equities and bonds. It set up a very streamlined system for this, settling domestic equities on T+5 and South African stocks on T+3, and working closely with the banks involved in including global custodians.

Only treasury bills are paperless. Dual-listed South African and other shares are settled on the home country central securities depository, for example Strate in South Africa.

London Stock Exchange £24.5bn merger with Deutsche Börse in doubt

Doubt has been cast on the EUR29bn (£24.5bn) merger between London Stock Exchange Group plc and Deutsche Börse AG this week, after the European Commission demanded LSE must sell off its 60% stake in fixed-income trading platform MTS S.p.A. This is a part of LSE’s Italian business and an important clearing house for European government bonds, including Italian government debt.
The LSE says the EC is “unlikely to provide clearance” after it surprised the City and refused to comply with the demand. It said on Sunday that the request was “disproportionate”.
The deal had been announced a year ago as a “merger of equals” to create a mega-exchange capable of taking on the US exchanges. The European Commission could announce its verdict on 4 April.
LSE and Deutsche Börse had previously agreed to sell the French part of LSE’s clearing business, LCH, to satisfy competition concerns. Rival Euronext was the interested bidder. That may not go ahead.
LSE said that selling its stake in MTS would require approval from several European national regulators and hurt its wider Italian business, where MTS is classified as a “systemically important regulated business”. The LSE also owns Borsa Italiana, based in Milan.
In its statement, LSE said: “Taking all relevant factors into account, and acting in the best interests of shareholders, the LSE Board today concluded that it could not commit to the divestment of MTS.”
US exchanges, including Intercontinental Exchange, headquartered in Atlanta, may now start bidding for the LSE Group.
The 2 leading European exchanges had previously tried to merge in 2000 and 2005. In the current deal, Deutsche Börse, which operates Frankfurt Stock Exchange, will have a 54% stake in the enlarged business but the headquarters was forecast to stay in London. There were concerns post UK’s “Brexit” vote to leave the European Union that considerable volumes of clearing, especially securities denominated in euros, would move to Europe.
LSE and Deutsche Börse say the deal is still on, pending the European Commission verdict. Fees so far to City bankers, lawyers and public relations advisers have so far topped £300m, according to calculations on an announcement.
Deutsche Börse also operates the Luxembourg-based clearing house Clearstream and derivatives platform Eurex. It commented: “The parties will await the further assessment by the European commission and currently expect a decision by the European commission on the merger of Deutsche Börse and LSE by the end of March 2017.”

Paternoster Square with London Stock Exchange at right (credit: Wikipedia)

JSE switches to T+3 on 11 July

The Johannesburg Stock Exchange is switching to a shorter T+3 settlement cycle for the equity market from 11 July. It will reduce risk and add an estimated R50 billion ($3.3bn) of cash into circulation. Currently it is still working on T+5.

Last week the JSE announced that the final market-testing phase of the project has been successfully completed and the transition to a new post-trade dynamic will go ahead as planned. In the equity market, “T+3” is an abbreviation and means that ownership of equities is delivered in exchange for cleared payment in 4 days from the date of the trade. The current T+5 means this post-trade settlement cycle happens within 6 days. International best practice settlement standards are usually T+3 to allow time for international funds transfers to reach the target account in time for settlement. Many African securities exchanges are already on T+3 and some, such as Egyptian Exchange, are faster.

JSE Executive Director Dr Leila Fourie said: “South Africa must ensure that it remains as attractive as possible for foreign inflows of capital, and settlement assurance is vital for us to retain and keep attracting investment from outside of the country. Global investors need to be assured that, if they trade on our market, their trades will settle seamlessly. Currently, 37% of equity trades are held by non-residents with approximately 30% trading on a daily basis.

JSE celebrates 20 years since closing its trading floor on 7 June (photo Claudelle von Eck)

JSE celebrates 20 years since closing its trading floor on 7 June (photo Claudelle von Eck)


“A further benefit of a shorter settlement cycle is that it dramatically reduces the amount of unsettled trades at any given point. So, in the event of a market default, the number of unsettled trades that we have to unwind is reduced significantly. This reduces potential losses between trading parties, and enhances investor protection during the process.”

“The move to a shorter settlement cycle will catapult the country and the JSE to compete confidently among global equity markets, making it a matter of major importance for SA Inc. It will result in additional benefits to the market such as cash being released earlier in the settlement cycle, increasing the funds in circulation. Based on the average value traded per day of R25bn, this will create a release of R50bn into circulation.”

The entire market and all participants are affected, including listed companies, traders, investors, clearing and back-office participants, the central depository Strate, the JSE and all regulators. The JSE is leading the move in close collaboration with the South African Reserve Bank, National Treasury, Financial Services Board and numerous other stakeholders to ensure system and process readiness ahead of the move.

South Africa’s rate for failed trades has been close to zero over the past 15 years. The new, shorter settlement cycle will increase the number of trades that roll and do not settle on time. The JSE expects that between 5% and 10% might roll in the new environment, but aims to maintain a target of less than 5%. Fourie says: “We are working with participants to minimize this percentage by improving the availability of securities for lending and borrowing activity and also by actively encouraging behaviour changes where required.”

The JSE has requested that listed companies avoid corporate actions between 4 and 18 July in order to reduce complexity during the cutover week. The JSE thanks all participants, both local and abroad, “for their tremendous support in making market testing a great success”, according to the announcement.

Global community heading to World Exchange Congress 22-23 March

Momentum building fast ahead of the key event for securities exchanges worldwide, the World Exchanges Congress, now in its 11th year and back in central London from 22-23 March.

This is the key gathering where more than 300 members of the global exchange community get together from all continents to share trends and to hear from experts and bourse leaders. Topics of interest in the fast-changing world of established and emerging trading venues regulated exchanges include “new customers, new revenues and new partnerships”.

For more information, check the website here.

The World Exchanges Congress was launched in London in 2005 and has been hosted in Istanbul, Madrid, Doha, Monaco, Dubai and Barcelona. CEOs from virtually every exchange and trading venue in the world have attended. In 2010, the event expanded to look at technology opportunities and challenges and there is strong participation from chief technology officers (CTOs) and other top executives with a focus on trends and innovations.

In 2016, the congress continues to be seen as the unofficial AGM of exchanges and it is the most significant date on every exchange executive’s diary. It gives bourse leaders the opportunity to harness the latest innovations, overcome their biggest challenges and be inspired to drive their organisations forward.

The gathering will focus on the most critical future trends affecting exchanges and changing the exchange landscape, including cyber-security, crowd-funding, bitcoin, big data, crypto-currency and post-trade automation. Core topics running through the programme are the growth of financial centres, market integrity and finding ways to succeed through innovation.

Confirmed speakers are CEOs and other leaders from securities exchanges and other trading venues around the world as well as from the World Federation of Exchanges. They will explain their successes and challenges driving into new partnerships and revenue opportunities including commodities, derivatives and FX, regional expansion, the trading landscape under Europe’s MiFID II directive, opportunities for automation, over-the counter (OTC) trading on exchanges, distributed ledger/block chains, attracting more listings, crowdfunding platforms, data and index revenues for exchanges, post-trade models, innovation pitches, latest developments in central clearing, cyber security and finding new customers and new partnerships.

The conference has a strong tradition of formal and informal networking. It continues to be the key place where exchanges come to meet their peers and colleagues, benchmark their organizations and share ideas. Interactive exchange-led roundtables in 2016 mean that this year’s event will be no different.

For more details and to book your attendance, please head to the conference website.

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JSE Clear gets approval from European regulator ESMA

In a step forward for derivatives, clearing and settlement in Africa, the European Securities and Markets Authority (ESMA) has recognized JSE Clear, the derivative central counterparty (CCP) owned by the Johannesburg Stock Exchange. Stephen Maijoor, Chairman of ESMA’s Board of Supervisors, says in a letter to the JSE: “JSE Clear is recognized as a third country CCP under Title III of Chapter 4 of EMIR.”

This means that the European Union’s regulator recognizes JSE Clear as “equivalent” to CCPs in the EU.

The JSE and the Financial Services Board (FSB) worked together closely to obtain EU recognition, says Leila Fourie, Executive Director of the JSE. JSE Clear’s process to securing ESMA recognition was undertaken in conjunction with the FSB, and successfully finished 2 pieces of work:
• Obtain decision from the EU recognizing that South Africa’s legal framework and supervisory practices are equivalent to those contemplated within the EU regulations
• Obtain EU acknowledgement of the appropriateness of our CCP design and risk management processes in terms of the functioning of the market it is meant to serve.

Fourie commented in a press release on 1 Feb: “This achievement is hugely important for the JSE, our regulator the FSB and participants in South Africa’s financial markets. Today’s announcement means that EU-based market participants that clear trades through JSE Clear will be permitted to continue clearing for investors trading on the JSE.”

JSE Clear is required to apply for recognition by ESMA (the European Securities and Markets Authority), as a result of the fact that the CCP has Clearing Members that are either branches or subsidiaries of European registered entities.

Fourie added: “ESMA recognition strengthens our global credibility and fulfils a key requirement for multinational clearing members operating in the local market. Participation from these multinationals helps to distribute the credit, liquidity, operational and legal risk on our market – instead of concentrating this risk in a smaller number of clearing members.”

Central counterparty - graphic from www.economist.com

Central counterparty – graphic from www.economist.com

SA rules are globally relevant
“It is vital for South Africa that its rules are globally relevant and consistent with financial centers such as the EU. This milestone demonstrates that our CCP is robust and meets global standards in promoting financial stability and reducing systemic risk. The recognition of equivalence is a significant indicator of the rigidity of SA’s market infrastructures, and will aid in attracting international flows to our emerging market.

“The JSE is grateful to the FSB for their contribution in obtaining this major milestone for JSE Clear and the South African markets.”

“Clearing” denotes all “post-trade” activities from the time a securities transaction is executed until it is settled. A CCP is an organization that helps to reduce risk and safeguard against losses that could be incurred by a default of a trading participant when trading on the JSE’s markets.

JSE Clear was among the first in the world to be granted QCCP IOSCO status, i.e. marking it out as a “qualifying” CCP in terms established by the Basel Committee on Banking Supervision in July 2012. CPSS-IOSCO is a global standard for risk management aimed at any organization enabling the clearing, settlement and recording of a transaction.

The decision from ESMA follows earlier equivalence determinations for CCPs in Australia, Singapore, Japan and Hong Kong.

The JSE is one of the top 20 exchanges in the world in terms of market capitalization and is a member of the World Federation of Exchanges (WFE) and Association of Futures Markets (AFM). The JSE offers a fully electronic, efficient, secure market with world class regulation, trading and clearing systems, settlement assurance and risk management.