Client Assets (Part III)

Question 1

What are the 2 rules which cater for the safeguarding of controlled clients’ funds?

Answer 1

1. Funds received in respect of or arising from the operation of an account for a controlled client which are not paid over to the client upon receipt of such funds, must be deposited for the account and in the name of the client with JSET.
2. The difference between the total of the funds balances on all controlled client accounts in the books of account of the member as at the close of business on the preceding business day and the total amount held by JSET on behalf of the clients of such member as at the same date must be paid to or received from JSET forthwith.

Question 2

Before accepting certificated equity securities from a client for safekeeping, what is a member required to obtain from a client and where must it be recorded?

Answer 2

1. The arrangements must be recorded in a written mandate containing the minimum requirements as prescribed by the JSE.
2. Electronic acceptance or signed acceptance of the client.
3. In a safe custody mandate register.

Question 3

Itemise 4 control procedures in the rules relating to the safeguarding of clients’ certificated securities.

Answer 3

1. They must be protected from unauthorised access and misappropriation.
2. No transfer deed may be attached until such securities are prepared for disposal or delivery.
3. No blank signed transfer deeds may be retained.
4. JSE must be satisfied that adequate insurance cover is held by the member.

Question 4

Before accepting clients’ assets other than equity securities for safekeeping or assuming the responsibility for accounting to a client, what is a member required to obtain from a client and where must it be recorded?

Answer 4

1. The arrangements must be recorded in a written mandate containing the minimum requirements as prescribed by the JSE.
2. Electronic acceptance or signed acceptance of the client.
3. In a safe custody mandate register.

Question 5

What are the requirements with which a member, who is responsible for clients’ assets other than equity securities, must comply?

Answer 5

1. The relevant assets must be segregated from the member’s own assets at all times. If the assets are held in an account maintained by another financial services provider, including a foreign financial services provider, the account shall either be opened in the client’s own name or, if the member opens a single account in respect of transactions executed on behalf of more than one client, the member shall procure that the account is clearly designated in the records of the relevant financial services provider as being an account utilised for investments made by the member on behalf of its clients.
2. A member must maintain proper accounting records in respect of all such assets purchased, sold or held on behalf of clients. These records must be updated forthwith in respect of any transactions in respect of such assets and must clearly identify the owners of all such assets at all times.
3. A member must balance its clients’ holdings in such assets, as reflected in the member’s records, with the accounts maintained by the other financial services providers who hold such assets, on a monthly basis. Any differences identified between the respective records must be rectified forthwith.
4. A member who is responsible for safeguarding client assets other than equity securities must implement and maintain an effective system of internal controls to protect such assets and prevent unauthorised access thereto.

Question 6

What is a member required to do with funds held on behalf of a client intended for the purchase of JSE authorised securities other than equity securities or, held by a member from time to time relating to regulated services (i.e. margins and cash collateral)?

Answer 6

Deposit the funds which have not been remitted in JSET for the account of the client for value on the date of receipt of such funds.

Question 7

Clients funds may not be deposited in JSET for the sole purpose of earning interest. True or False?

Answer 7

True.

Question 8

1. What must a TSP do prior to entering into an arrangement with another member to act as its settlement agent?
   AND
2. What may the agreement provide?

Answer 8

1. Advise the JSE of its intention to do so.
2. That the settlement agent:
   a. Assists the TSP in meeting its obligations to ensure settlement of proprietary trades and trades executed on behalf of non-controlled clients.
   b. Monitors unsettled proprietary and non-controlled clients’ trades.
   c. Institutes any action which is necessary to ensure the TSP meets its obligations to settle.