Archive for the 'Europe' Category

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.

How do stock exchanges stay relevant to their societies? SMEs and exchanges

“How do we become relevant to society again?” This is the challenge posed to world’s securities exchanges this morning by Ashish Chauhan, CEO of BSE India securities exchange. He told the World Exchanges Congress in London this morning (Tue) that stock exchanges that concentrate only on trading for the sake of trading are in a zero-sum game.
They should look to add value in areas where there will be gains. He sees the gains will be huge for proactive securities exchanges: “In next 20 years we will create more wealth than in last 10,000 years – will the exchange industry participate in that”.
Chauhan points out that India has 1 in 6 of world’s population but only 2% of its land mass, there are more people than Europe and USA combined and 50% of population are under 25 years old. The challenge is to create jobs and to provide the skills for employment. Exchanges should ask if that will be done by private equity and other channels, or will the exchanges be able to play a major part?
BSE India’s response is to set up BSE SME Platform. Its website “offers an entrepreneur and investor friendly environment, which enables the listing of SMEs from the unorganized sector scattered throughout India, into a regulated and organized sector.”
Chauhan says that going forward technology will change the world and India with its young population skilled in technology will be driving that change. How does each exchange solve the problems of the society it is operating in?

Europe’s integrated capital solutions to big issues

Earlier Cees Vermaas, in his first engagement as CEO of CME Europe, spoke of his vision of Europe in 2030. A centralized market and Europe-wide clearing and settlement will allow relentless pursuit of efficiency and falling costs. London will remain the financial centre, but smart networks will allow other specialist centres to grow all over Europe. This will include more exchange centres to provide funding for SMEs and for infrastructure. Exchange-linked investment into all forms of energy and will support transitions into new and efficient forms of green energy. European bond markets are only 30% of USA volumes at present but in coming years that will change fast with less fragmented bankruptcy regulatory frameworks