Taxonomies
South Africa
Financial Markets Act, 2012
Financial Markets Act Regulations, 2018
Government Notice R98 of 2018
- Published in Government Gazette 41433 on 9 February 2018
- Commenced on 9 February 2018
- [This is the version of this document from 9 February 2018.]
Chapter I
Interpretation
1. Definitions
In this Regulation,"the Act" means the Financial Markets Act, 2012 (Act No. 19 of 2012), and any word or expression to which a meaning has been assigned in the Act, bears the meaning so assigned to it and, unless the context indicates otherwise—"affiliate" means a company that controls, is controlled by, or is under common control with the clearing member or central counterparty;"asset class" means the underlying asset, security or event from which an OTC derivative derives its value, such as an interest rate, foreign exchange, credit, equity or a commodity;"authorised OTC derivative provider" means an OTC derivative provider authorised by the Authority under Regulation 2 and section 6(8) of the Act;"basis risk" means the risk that the relationship between the prices of similar but not identical commodities alters over time;"client" in relation to an OTC derivative provider, means any person, other than a counterparty, with whom an OTC derivative provider—(a)executes an OTC derivative transaction; or(b)enters into a relationship with the intention of executing OTC derivative transactions;"complex product" means a bespoke OTC derivative which combines two or more product types or embeds one or more derivatives into another;"credit rating agency" means a registered credit rating agency in terms of the Credit Rating Services Act, 2012 (Act No. 24 of 2012);"credit risk" means the risk that a counterparty will be unable to meet fully its financial obligations when due or at any time in the future;"counterparty" in relation to an OTC derivative provider, means—(a)another authorised OTC derivative provider;(b)an authorised user;(c)a bank;(d)a person who is registered, licensed or authorised—(i)to administer a collective investment scheme Collective Investment Schemes Control Act, 2002 (Act No. 45 of 2002);(ii)to provide financial services in derivative instruments in terms of the Financial Advisory and Intermediary 2002 (Act No. 37 of 2002);(iii)to conduct long-term insurance business of the Long-term Insurance Act, 1998 (Act No. 52 of 1998); and(iv)to conduct short-term insurance business of the Short-term Insurance Act, 1998 (Act No. 53 of 1998);(e)a person outside the Republic who—(i)is authorised by a supervisory authority to perform a service or services similar to one or more of the services referred to in the definition of an OTC derivative provider or the services performed by an authorised user; or(ii)is registered, licensed, recognised, approved or otherwise authorised to conduct the business of a bank or to render services of a business referred to in paragraph (d) by a supervisory authority with functions similar to those of the Authority referred to in the legislation listed in paragraph (d);(f)a central bank or other national monetary authority of any country, state or territory;(g)a private equity fund;(h)any other person who elects, in writing, to be categorised as a counterparty and who is not—(i)a natural person;(ii)a pension fund organisation as defined in section 1(1) of the Pension Funds Act, 1956 (Act No. 1956)(iii)a friendly society referred to in the Friendly Societies Act, 1956 (Act No. 25 of 1956);(iv)a medical scheme or the board of trustees of such scheme as defined in section 1(1) of the Medical Schemes Act, 1998 (Act No. 131 of 1998); and(i)any other person declared by the Authority to be a counterparty;with whom an OTC derivative provider executes an OTC derivative transaction or enters into a relationship with the intention of executing OTC derivative transactions;"custodian" means a person authorised by the Authority to hold assets, including securities, on behalf of another person and includes a nominee;"external central securities depository link" means a set of contractual and operational arrangements whereby the external central securities depository becomes a participant in the central securities depository to facilitate the transfer of securities between the participants for settlement services;"financial reporting standards" means such reporting standards as may be issued from time to time by the Financial Reporting Standards Council in terms of the relevant provisions of section 440 of the Companies Act, 1973, or section 29 read with section 203 of the Companies Act, 2008;"group" means a group of companies as defined in the Companies Act;"indirect clearing" means clearing services provided by a clearing member to an indirect clearing client, through a set of contractual arrangements between the central counterparty, the clearing member and the indirect clearing client;"indirect clearing client" means a clearing client of a clearing member whose transaction is cleared through the central counterparty, using the clearing services of a clearing member;"operational risk" means the risk of loss resulting from inadequate or failed internal processes, people or systems or from external events, including legal risk such as exposure to fines, penalties, or punitive damages resulting from supervisory actions and private settlements, but excludes strategic or reputational risk;"OTC derivative" means an unlisted derivative instrument that is executed, whether confirmed or not confirmed, excluding—(a)foreign exchange spot contracts; and(b)physically-settled commodity derivatives;and "OTC derivative transaction" has a corresponding meaning;"OTC derivative provider" means a person who as a regular feature of its business and transacting as principal—(a)originates, issues or sells OTC derivatives; or(b)makes a market in OTC derivatives;"product type" means a sub-category of an asset class;"related party", in relation to a person (the "first person") means a person connected to the first person in a manner described in section 2(1)(a), (b) or (c) of the Companies Act;"reserves" means appropriation of retained earnings for a designated purpose which is not available for dividends to the shareholder which is of a permanent nature and able to fully absorb losses in going concern situations;"unfunded credit-derivative instrument" means a contract in terms of which the protection seller does not provide collateral to a protection buyer for the settlement of the protection seller's potential future obligations;"valuation" means the current market value or net present value of an OTC derivative transaction; and"value date" means the day on which the payment, transfer instruction, or other obligation is due and the associated funds and securities are available.Chapter II
Requirements for the regulation of OTC derivatives
(Section 5(1)(a))2. Requirement to be authorised
3. Reporting obligations
4. Clearing
Chapter III
Category of regulated person
(Section 5(1)(b))5. Category of regulated person
An authorised OTC derivative provider is a regulated person in terms of section 5(1)(b) of the Act.Chapter IV
External central securities depositories links
(Section 5(1)(c), 35(4) and 107(1)(b))6. Approval of an external central securities depository as a special category of participant
A licensed central securities depository may, for the purpose of establishing a central securities depository link to perform settlement services in terms of the depository rules, approve an external central securities depository that has been recognised in terms of section 6A of the Act, as a participant of the central securities depository as contemplated in section 35(4) of the Act.7. Requirements for an external link
A central securities depository that has established a link with an external central securities depository as contemplated in Regulation 6, must—Chapter V
Assets and resources requirements for certain market infrastructures
(Sections 8(1)(a), 28(1)(a), 48(1)(a), 55(1)(a))8. Assets and resources requirements for exchanges, central securities depositories, clearing houses and trade repositories
Chapter VI
Central counterparties
(Sections 48(1)(a), 48(1A), 53(2A) and 107(1)(b))For the purposes of this Chapter, unless the context indicates otherwise, references to “central counterparty” also mean an applicant for a central counterparty licence and licensed central counterparty;9. Legal basis
10. Access and participation
11. Governance
12. Risk committee
13. Risk management framework
14. Related parties, subsidiaries and associates
The Authority must be satisfied that any relationship between a central counterparty and a related party of that central counterparty will not prevent the effective exercise of the supervisory functions of the Authority.15. Outsourcing
16. Compliance function
17. Efficiency, disclosure and transparency
18. Internal audit function
19. Business continuity
20. Custody, settlement and physical deliveries
21. Qualifying capital
For purposes of this Regulation—"capital" means, in relation to a central counterparty, subscribed capital on the annual accounts and consolidated accounts of the central counterparty in so far as it has been paid up ordinary shares, plus the related share premium accounts, if applicable, which is of a permanent nature and able to fully absorb losses in going concern situations, and, in the event of insolvency or liquidation, it ranks after all other claims;“qualifying capital” includes capital, retained earnings and reserves, but no amount relating to any profit or earnings of a central counterparty constitutes qualifying capital unless the controlling body of the central counterparty formally appropriated the amount by way of a resolution to constitute retained earnings of the central counterparty.122. General capital requirements
23. Specific capital requirements for credit risk, counterparty credit risk and market risk which are not covered by specific financial resources as referred to in Regulations 31, 33, 35 and 36
24. Specific capital requirements for business risk and for winding-up or restructuring
25. Capital calculation requirements for operational risk
26. Capital calculation requirements for credit risk
A licensed central counterparty must use the Standardised Approach for the measurement of its exposure to credit risk.27. Capital calculation requirements for counterparty credit risk
For the purposes of this Regulation“current exposure” means the loss that a central counterparty would face immediately if a clearing member or counterparty were to default;“potential future exposure” means any potential credit exposure that a central counterparty could face at a future point in time;“qualifying central counterparty” means a central counterparty that—(a)is licensed to perform functions as a central counterparty, which license may include a license granted by way of a specific exemption;(b)is permitted by the relevant Authorities to perform central counterparty functions with or in respect of specified products and counterparties;(c)is prudentially supervised, and which the Authority and the South African Reserve Bank have publicly confirmed is continuously subject to Regulations, standards and rules that are consistent with the relevant Principles for Financial Market Infrastructures4, developed by the Committee on Payment and Settlement Systems (“CPSS”) and the International Organization of Securities Commissions (“IOSCO”), and issued from time to time; and(c)in respect of an external central counterparty, is based in an equivalent jurisdiction in which it is prudentially supervised by an authority that publicly confirms that all relevant central counterparties performing functions in that jurisdiction are continuously subject to Regulations, standards and rules that are consistent with the relevant CPSS-IOSCO Principles for Financial Market Infrastructures, issued from time to time;“trade exposure” in relation to counterparty credit risk includes the current exposure and the potential exposure of a clearing member or client to a central counterparty arising from(i)Transactions in OTC derivative instrument;(ii)Transactions in exchange-traded derivatives;(iii)Securities financing transactions; or(iv)Initial margin,Provided that the current exposure of a clearing member included any variation margin due to the clearing member but not yet received“securities financing transaction” in relation to a central counterparty's exposure to counterparty credit risk includes—(i)repo-style transactions, that is, transactions such as repurchase or resale agreements, and securities lending or borrowing transactions; and(ii)other capital-market-driven transactions, that is, transactions such as derivatives instruments and margin lending.Number of working days after the contracted settlement date | Risk multiplier |
---|---|
From 5 to 15 | 8% |
From 16 to 30 | 50% |
From 31 to 45 | 75% |
46 or more | 100% |
28. Calculation requirements of the minimum required capital for CVA risk
In terms of the minimum required capital for CVA risk, calculated in terms of the standardised approach, a central counterparty must calculate the relevant additional required amount of capital on a portfolio basis in accordance with the formula specified below:provided that, subject to the prior written approval of, and such conditions as may be determined by the Authority, when a counterparty is also a constituent of an index on which a credit default swap is used to hedge the central counterparty’s exposure to counterparty credit risk, the notional amount attributable to that relevant single name, as per its reference entity weight, may be subtracted from the relevant index credit default swap notional amount and treated as a single name hedge (Bi) of the individual counterparty with maturity based on the maturity of the index.29. Calculation of a central counterparty’s credit exposure in terms of the current exposure method
30. Specific capital calculation requirements for market risk
31. Liquidity risk
32. Segregation and portability
33. Margin requirements
34. Default procedures
35. Default fund
A central counterparty must—36. Other financial resources
37. Default waterfall
38. Collateral requirements
39. Investment strategy and safeguarding of assets
40. Review of models, stress testing and back testing
A licensed central counterparty must—41. Interoperability arrangements
42. Record keeping
A central counterparty must—Chapter VII
Transitional arrangements and commencement
43. Transitional arrangements
44. Commencement and short title
These Regulations are called the Financial Markets Act Regulations and come in effect on the date of publication.History of this document
09 February 2018 this version
Commenced