Non-Residents and Emigrants
The movement of funds across the national borders of the Republic of South Africa remains subject to exchange control, a function which the Treasury has delegated to the central bank, the South African Reserve Bank (the Bank). As with equity transactions and dealings in other South African securities, dealings by foreigners in futures are subject to the regulations of the Bank.
In turn, the Bank exercises its authority in regard to exchange control through "authorised dealers" which are banks (or in the modern terminology, deposit-taking institutions) that have been guaranteed a licence by Treasury to deal in foreign exchange.
Dealings via financial rand accounts (described below), are more narrowly controlled through "authorised banks" which are specific branches of the authorised dealers. Foreigners have been allowed to participate in the local futures market as clients of members of Safex since 2 December, 1991.
As a general principle, Safex and the Bank have endeavoured to maintain the established procedures for dealings by non-residents in other securities for non-resident futures trading. The important difference between an investment in a quoted or unquoted security and a futures position is the absence of scrip.
Beneficial ownership of a futures position is solely electronically registered by the clearing house. This difference has been turned to advantage to create simple and secure procedures for futures trading by foreign investors.
The Bank has guaranteed permission to Safex to admit two distinct groups of foreign clients.
Firstly there is the client that will use funds created outside South Africa. These participants are referred in the Exchange Control regulations and in the rules of Safex as "non-resident clients".
The second type of participant is the person that has emigrated from South Africa, but who left funds behind in a so-called emigrant's blocked account.
For purposes of exchange control, a non-resident or emigrant would be domiciled or, in the case of a non-resident company, registered outside the "Common Monetary Area" (CMA). The CMA includes South Africa, Walvis Bay, the satellite independent states of Bophuhatswana, Venda, Transkei and Ciskei, and the countries of Namibia, Lesotho and Swaziland.
Anyone within the CMA, but outside the borders of South Africa is a resident for the purposes of exchange control and dealing in futures, and as a client of a member would be treated in the same way as a person within South Africa's sovereign borders.
Client registration and protection
A resident member of Safex registers all off-shore clients with whom he trades. The clearing house confirms all deals directly to the client, as is the case locally.
However, Safex has accepted that recognition of clients is not the practice overseas, and therefore, non-resident clients, such as brokers, banks and fund managers may have undisclosed clients for whom they trade in futures on Safex. This exception will be reviewed once foreigners are permitted to become members of Safex.
The non-resident or emigrant client signs a non-resident or emigrant client agreement with the member. This agreement binds the client to the rules of Safex. He also confirms that he has read and understood a risk disclosure statement and that he is aware of the volatile natures of the futures market.
Naturally, an emigrant who has built assets in his new country of residence may utilize financial rand to participate in the futures market as well as any blocked rand he may have in South Africa. He would sign two separate agreements in his capacity as a non-resident and emigrant client and he would register separately in both instances.
In this connection, it must be noted that the rules of Safex preclude a foreigner from taking opposite positions in his capacity as a non-resident and as an emigrant client in order to deplete his blocked account balance.
The non-resident or emigrant client supplies his member with the normal details of name and address and so on and also gives details of his financial rand or emigrant blocked accounts and his non-resident account. The member is entitled to pass the details on to the clearing house where it is obviously kept in the strictest of confidence.
To facilitate exchange control, standard margins are required from non-resident clients and the full amount of margin is transferred to the clearing house. Members do not keep any additional or maintenance margin for foreign clients. To allow for clients of different financial standing, the member assigns a margin category to the client when he is registered.
A non-resident may therefore be required to pay 100, 125, 150, 175 or 200 percent of the Safex margin.