The Structure of the Market
registrar of financial markets
The central regulatory authority is the Registrar of Financial Markets, who is also the executive officers of the Financial Services Board (FSB). The FSB is a privately funded body which has statutory powers to regulate the activities of insurance companies, pension funds, unit trusts and financial markets such as the bond market, futures market and the stock exchange.
The Registrar is responsible to the Minister of Finance who appoints the Financial Markets Advisory Board to advise the Registrar. The governing legislation is the Financial Markets Control Act of 1989.
The South African Futures Exchange (SAFEX)
Safex is an association of members. It is licensed as a financial exchange, in terms of the Financial Markets Control Act. The Stals & Jacobs Committees' reports on which the Act is based recommended an approach of minimal intervention, allowing Safex to regulate the futures market through its rules and resolutions.
The Executive Committee is elected annually by members from within their ranks. Day-to-day running is in the hands of the Executive Officer who is also the Managing Director of the clearing house.
There are two types of broking members - clearing and non-clearing members - who may trade with clients. However, a non-clearing member must trade through a clearing member, who guarantees all of the trades that he clears.
The Exchange is ultimately under the control of its members, who approve the constitution and the rules through which they are regulated.
All trading in futures must be done through a member of Safex, of which there are now 68. As a non-profit association, it is the purpose of Safex to provide a central place where members can trade financial futures in an environment where transaction or settlement risk has been eliminated and losses due to insolvency of a futures broker minimised.
As the accredited futures market place, Safex offers standardised contracts which are based on a limited range of well-defined underlying assets, which may be a basket of shares like those that make up the JSE indexes, capital market or money market instruments.
A person trading in futures must do so through a member. The member reports every trade to Safex as it occurs. Each member's trades must be cleared through a clearing member (a registered financial institution with a net worth of at least R20m and guaranteed by an acceptable third party for a further minimum R10m).
Each clearing member has a position limit imposed by Safex which relates to the amount of guarantee provided by him. The clearing member stipulates trading limits for the members who deal through him.
When a client buys or sells futures through a member, he will need to put up margin. He should maintain sufficient funds on deposit to cover many losses that may occur as the price of the futures moves.
If there are gains, the excess will be deposited into a brokerage account and earn interest. Any losses must be paid in immediately and any gains can be paid over as they occur.
Safex members must maintain separate bank accounts for each client's funds, the money to be used for the purpose the client tends and the funds not mingled with the member's funds. The clearing house matches each contract brought to the contract sold, so Safex becomes the buyer to every seller and the seller to every buyer.
The Safex Clearing Company (Pty) Ltd (Safcom)
Safcom is the recognised clearing house for Safex, with clearing members as the shareholders. Safcom delegates much of the risk management and operating functions to the clearing members, to keep the clearing house structure streamlined. Besides clearing all transactions, Safcom supplies compliance and surveillance and other exchange services to Safex.
Safex recognises three types of clients: resident, non-resident and emigrant clients, all of whom have to be legal personal.
The Institute of Financial Markets
The Financial Markets Control Act requires that the rules of the Exchange should provide for training, experience and qualifications of members and the involved employees of a corporate member.
With this in mind the FMAB established an examination sub-committee that in turn recommend the establishment of the Institute which could endorse the qualifications conferred on those who passed its examinations.
There are three classes of members based on the level of examination passed:
The rules of Safex prescribe that a dealer must have passed the Junior Examination and a dealer who deals for clients must have passed the Ordinary Examination.