Conduct of Business Flashcards
(145 cards)
1
Q
Define “foreign client”
A
A client who does not reside in the Republic.
2
Q
Define “foreign investment”
A
“Foreign investment” means the following JSE authorised investments:
1. securities listed on an external exchange;
2. units or any other form of participation in a foreign collective investment scheme approved by the Registrar of
Collective Investment Schemes in terms of section 65 of the Collective Investment Schemes Control Act, 2002;
3. units or any other form of participation in a collective investment scheme licensed or registered in a foreign
country; and
4. foreign funds intended for the purchase of such securities, units or participation.
3
Q
What type of advice is included in the definition of “advice”?
A
Any recommendation, guidance or proposal of a financial nature furnished, by any means or medium, to a client or
group of clients:
1. in respect of the buying and selling of securities; or
2. on any corporate action or other event affecting the rights or benefits in respect of securities; or
3. on the exercise or lapse of any right in respect of any JSE securities;
irrespective of whether or not such advice results in any transaction being effected.
4
Q
What type of factual advice is not included in the definition of “advice”?
A
Factual advice given merely :
1. on the procedure for entering into a transaction in respect of securities;
2. on the procedure relating to a corporate action or other event affecting the rights or benefits in respect of
securities;
3. in relation to the description of securities;
4. in answer to routine administrative queries;
5. in the form of objective information about securities; or
6. by the display or distribution of promotional material.
5
Q
In order for the content of an analysis or a report on a JSE authorised investment not to constitute “ advice”, what
must the analysis or report not contain?
A
Any express or implied recommendation, guidance or proposal that any particular transaction in respect of the
securities is appropriate to the particular investment objectives, financial situation or particular needs of a client.
6
Q
Define “investment services”
A
The services provided by an investment services provider to its clients, and includes:
1. exercising discretion in the management of JSE authorised investments on behalf of clients;
2. providing advice to a client in respect of JSE authorised investments;
3. executing transactions in JSE authorised investments other than equity securities; and
4. safeguarding JSE authorised investments other than uncertificated equity securities and funds intended for the
purchase of equity securities.
7
Q
Define “investment services provider”
A
A member which has been authorised by the JSE to perform investment services in terms of the rules.
8
Q
Define “manage” in relation to JSE authorised investments.
A
Any arrangement entered into between a client and a member which authorises such member to buy or sell JSE
authorised investments on behalf of such client, either with full discretion or with prior reference to the client or
exercise any rights attached to those investments.
9
Q
Define “money broking transactions”
A
Funds accepted by a member from a client and invested by the member in the money market with one or more banks,
in terms of the rules, and subject to any conditions published by the Registrar of Banks.
10
Q
Define “unsolicited call”
A
Any first communication made to a person by a member or an employee of a member, without an express or tacit
invitation from such person.
11
Q
What are the general standards of integrity which members are required to observe in their dealings with clients and
the JSE?
A
A member must :
1. not knowingly circulate information which is false or misleading;
2. not knowingly countenance any attempt to manipulate the market, nor to influence persons for such a purpose;
3. conduct its activities in a manner that is compatible with the objects of the Act and with full respect for the
reputation of the JSE; and
4. not participate in any dealings with other members, clients, the media or other persons which may be of such a
nature as to defame the JSE or any of its officers or employees
12
Q
What are the general standards of conduct which a member is required to observe in its dealings with a client?
A
- Act honestly and fairly.
- Act with due skill, care and diligence, and in the interests of clients.
- Exercise independent professional judgement.
- Act promptly on and in accordance with the instructions of a client, and exercise any discretion in a responsible
manner. AND - Avoid conflicts of interest and when they cannot be avoided, ensure fair treatment to clients by disclosure,
confidentiality or declining to act. A member must not unfairly place its interests above those of its clients.
13
Q
What are the general standards regarding disclosure of information to clients?
A
- The information must be :
a. factually correct;
b. provided in plain language, avoid uncertainty or confusion and not be misleading;
c. adequate and appropriate, in the circumstances. - Amounts, sums, values, fees must be stated in specific monetary terms or if not pre-determinable, the basis of
calculation must be adequately described. - The information need not be repeated to the same client unless any material or significant changes occur.
- Full and accurate information about fees and charges must be disclosed.
- Confidential information must not be disclosed.
- Restrictions or limitations that may affect access to their assets must be disclosed.
14
Q
What client records must be retained by a member?
A
- All communications relating to a service rendered to a client, including instructions given by the client to the
member. - All transaction documentation relating to clients.
- All contractual arrangements between the member and its clients, including mandates prescribed by the rules.
- All client particulars required to be provided in terms of the rules or which are necessary for the effective
operation of client accounts.
15
Q
For what period must the client records prescribed by the rules be retained?
A
- All instructions given by clients to execute transactions must be kept for at least six months after the date of the
transaction. - All other client records prescribed by the rules must be kept for at least five years after the rendering of the
services.
16
Q
Can a member request or induce a client to waive any right or benefit conferred on a client in terms of the rules or
accept any such waiver from a client?
A
No, and any such waiver is void.
17
Q
What are the general standards of conduct which a member is required to observe regarding co-operation with the
JSE as its regulator?
A
- Deal with the JSE in an open and co-operative manner; and
- Keep the JSE promptly informed of anything concerning the JSE which might reasonably be expected to be
disclosed to it.
18
Q
What are the general principles that a member must adhere to in advertising its services to the public?
A
The advertising must:
1. Be carried out with a due sense of responsibility to the public and the profession.
2. Be consistent with the dignity of the profession.
3. Be in good taste without odious comparisons claiming superiority.
4. Conform to accepted norms of legality, decency, honesty and truthfulness.
5. Not contain testimonials or endorsements.
19
Q
What is the specific principle that a member must adhere to regarding advertising material about any JSE authorised
investment or any regulated service rendered by the member.
A
The advertising material must provide accurate, complete and unambiguous information about the JSE authorised
investment or required service.
20
Q
If an advertisement contains information about past performances, what type of statement must also be included in
the advertisement?
A
A warning that past performances are not necessarily indicative of future performances.
21
Q
What designation must a member use in publicity, promotional or advertising material or on its professional
stationery or on its name plates or on its office premises?
A
- Only the designation (name or logo) recognised by the JSE. AND
- That the member is “a member” of the JSE.
22
Q
What statement must accompany any written publication or circulation issued by a member relating to the trading
results of a listed company or which may influence the price of the securities?
A
The name of the person or persons who compiled it.
23
Q
If a member issues a newsletter, circular or other publication which contains an opinion on a listed company and the
member has an interest in that company, what disclosure must be included in the publication?
A
The existence of the interest.
24
Q
Can a member enter into a transaction with or on behalf of a client where the transaction is as a result of an
unsolicited call?
A
Yes, provided :
1. the general standards of conduct relating to disclosure to clients are complied with and;
2. the rules relating to advice on JSE authorised investments are complied with.
25
A member is requested to establish and maintain controls and procedures in relation to transactions executed for the
direct or indirect benefit of employees of a member. What must the controls and procedures be designed to achieve?
To avoid such transactions conflicting with the interests of the member's client.
26
What must the controls and procedures in relation to personal account transactions, as a minimum, make provision
for?
The review by the member of those transactions in order to identify any transactions which are in conflict with the
interests of the member’s clients.
27
What is the general principle regarding a member offering or accepting a valuable consideration as an inducement?
The member must take reasonable steps to ensure that it does not offer or accept such an inducement if it is likely to
conflict with any duty that it owes to its clients or any duty that the recipient of the inducement owes to its clients.
28
In terms of the rules, what type of inducement offered or accepted by a member is specifically prohibited?
Any valuable consideration offered or accepted in terms of an agreement with a client or a third party which relates to
the provision of regulated services by the member to its clients, and which does not directly relate to, and assist in the
provision of, such services to such clients or does not otherwise directly benefit the clients of the recipient of such
valuable consideration.
29
What must a member disclose to a client in writing if it accepts any valuable consideration from a third party as an
inducement in respect of a regulated service provided to a client?
1. The existence of the agreement.
2. The nature, extent, value and frequency of receipt of such valuable consideration. AND
3. The identity of the other person providing or offering the valuable consideration.
30
What information must a member obtain and maintain for each client account?
Sufficient information to enable it to identify:
1. The client.
2. The account holder of a controlled client account if the account holder is not a client of the member but is a
person on behalf of a client acting as an agent.
3. The person or persons responsible for placing instructions on the account.
31
What is the minimum information that a member must obtain in respect of each client?
1. Full name.
2. Identity number or registration number.
3. Physical and postal addresses.
4. Telephone number.
5. Legal status.
32
What is the minimum information that a member must obtain in respect of the beneficial owner of each controlled
client account if the account holder is not a client but a person on whose behalf a client is acting as an agent?
1. Full name.
2. Identity number or registration number.
33
Is a member permitted to open a client account with a name other than that of a person with legal status?
No. Accounts may not be opened with fictitious names or names that do not represent a person with legal status,
commonly referred to as trading account names.
34
Unless the client is a bank or a financial services provider or the foreign regulated equivalent of such entities, what
information must be obtained in respect of the persons responsible for placing instruction on a client account if the
person placing the instructions is not the individual in whose name the account is held or the account is not in the
name of an individual?
1. Full name.
2. Identity number.
3. Physical and postal addresses.
4. Telephone number.
35
Other than obtaining the information referred to in rules 8.60.2 to 8.60.4, what are the other requirements regarding
the prescribed information to be obtained from clients?
1. All of the information must be confirmed by the client in writing and the member must maintain a record of such
confirmation. Any changes to the said information shall be advised by the client in writing as soon as practicable.
2. As a minimum, the identity of the client must be authenticated by the member and the member must maintain a
record of the means of such authentication.
36
What must a member do before effecting a transaction with a person whom the member reasonably believes requires
authorisation as a discretionary service provider?
Take reasonable steps to ascertain that such person has the required authorisation.
37
A member is required, at all times, to adhere to the best execution principle when acting for a client in the purchase
or sale of equity securities. What is a member required to do to adhere to this principle?
1. Take reasonable care to obtain the result which is the best available for the client, subject to the terms and
conditions of the agreed mandate with the client.
2. All transactions must be conducted through the central order book of the JSE equities trading system unless the
execution of an off-book trade is in the best interests of the client.
38
What is a member required to do before acting as a principal with a client?
Obtain the client's prior consent.
39
What are the requirements as to how a member determines the value or rate of commission to be charged to a client
on an agency transaction?
The commission must be mutually agreed with the client in advance of the transaction.
40
Is a member permitted to charge a fee in respect of a transaction executed as principal with a client?
Yes, provided it has been mutually agreed with the client in advance of the transaction.
41
Other than the agreed commission, is a member permitted to make a profit on an agency transaction?
No.
42
By what time is a member required to issue a client a contract note or transmit to a client, via electronic means
acceptable to the JSE, a confirmation of a transaction?
By 12h00 on the day following the transaction.
43
What shall a contract note or electronic confirmation of a transaction in equity securities disclose?
1. The date and time of the transaction.
2. The identification number of the transaction.
3. The amount and nature of the member's charges in connection with the transaction.
4. The price at which the transaction was executed and the total consideration due from or to a client.
5. The settlement date of the transaction.
6. Whether the member acted as an agent or as a principal in the transaction.
44
What is a specifically designated suspense account and what are the provisions regarding the use of such accounts in
relation to the issuing of contract notes with average prices?
1. It is an account to which a member may, with the prior consent of a client, initially book transactions.
2. It may be opened either:
a. in the name of the client; or
b. in the name of an agent appointed by the client to transact on his behalf.
3. Transactions in the same security on the same day may be allocated from the suspense account to the accounts
of the underlying beneficiaries at an average price based on the instruction of the client or agent.
4. Contract notes or confirmations must disclose that the transactions are at an average price.
5. The member must notify the client or agent that the prices and times of each transaction are available from the
member on request.
45
In respect of which clients is a member not required to obtain consent to allocate transactions to such clients at an
average price nor to notify the client that the prices and times of each transaction are available from the member?
Clients whose equity securities are managed by the member.
46
What must an ISP obtain from a client prior to managing JSE authorised investments on behalf of a client?
A written mandate recording the arrangement containing the minimum requirements prescribed by the JSE signed by
the client or accepted by the client by electronic means.
47
What information is an ISP required to obtain from a client prior to exercising discretion in the management of JSE
authorised investments on behalf of the client?
Information regarding the client's financial situation, investment experience and particular needs and objectives in
connection with the services required, to enable the member to make an appropriate investment decision.
48
In exercising discretion in the management of JSE authorised investments, what steps is an ISP required to take prior
to making an investment decision, based on the information provided by the client?
1. Conduct an analysis, based on the information obtained, for the purpose of making an investment decision.
2. Identify the JSE authorised investments that will suit the client's risk profile and financial needs, subject to the
terms of any mandate provided to the member by the client.
49
In exercising discretion in the management of JSE authorised investments, what steps is an ISP required to take prior
to conducting transactions in derivative instruments?
1. Obtain consent in writing from the client authorising it to invest in derivative instruments on behalf of the client.
2. Consider whether such investments are appropriate for the client in relation to the client's financial situation,
investment experience and investment objectives.
3. Advise the client, in writing, of the risks associated with trading in derivative instruments.
50
In exercising discretion in the management of JSE authorised investments, what steps is an ISP required to take prior
to entering into transactions in foreign investments on behalf of a client?
1. Ensure that the mandate provided by the client:
a. stipulates that the ISP is authorised to invest in foreign investments;
b. contains a statement pertaining to the risks associated with foreign investments, with particular reference to
any currency risk;
c. states whether there are any jurisdictional restrictions in respect of the particular foreign investments; and
d. contains full particulars of a manner in which such foreign investments shall be made and in whose name
such investments shall be held or registered; and
2. Confirm that the client has obtained a tax clearance certificate from SARS.
51
What information must an ISP who manages foreign investments furnish to a client on the client's request?
1. The name of the licensed external exchange on which the foreign investments are listed, if applicable.
2. The country in which the foreign investments are licensed or registered and the name and address of the
relevant licensing or registration authority, if applicable.
3. The name and address of the foreign financial services provider used by the ISP to purchase or hold the foreign
investments, if applicable.
4. The name and address of the regulator of the foreign financial services provider and whether such foreign
financial services provider is approved or registered by such regulator.
52
In providing advice in respect of JSE authorised investments to a client, other than a professional client, what steps
must an ISP take prior to providing such advice?
1. Take reasonable steps to obtain information regarding the client's financial situation, investment experience, and
particular needs and objectives in connection with the services required, to enable the member to provide the
client with sound advice.
2. Conduct an analysis, based on the information obtained, for the purpose of advising the client.
3. Identify the JSE authorised investments that will suit the client's risk profile and financial needs, subject to the
terms of any mandate provided to the member by the client.
4. Take reasonable steps to ensure that the client understands any advice that has been provided, as well as the
nature and material terms and risks involved in the relevant transaction, so as to enable the client to make an
informed decision and;
5. Ensure that any advice provided is not for the primary purpose of maximising the income of the member.
53
What must a member do before providing unsolicited advice to a client with the purpose of encouraging or inducing
the client to transact in derivative instruments?
1. Consider whether such investments are appropriate for the client in relation to the client's financial situation,
investment experience and investment objectives.
2. Advise the client, in writing, of the risks associated with trading in derivative instruments.
54
What must the written arrangement between a member and a controlled client contain regarding instructions relating
to corporate actions?
1. Whether the client wishes to receive all company reports, proxy forms, notices, circulars, listing particulars and
any other issuer communications in respect of equity securities of which such client is a beneficial owner.
2. Whether the member is entitled and obliged to utilise its discretion in electing particular options in respect of all
or certain corporate action events which require such an election to be made.
3. Whether the member may utilise its discretion in exercising voting rights on behalf of the client.
4. The means of communication between the member and the client if the member is not granted discretion to act.
This will apply to the communication of the relevant issues to the client by the member as well as the client's
response thereto.
5. The date and time by which the client is required to make an election, if applicable.
6. The option which the member may elect if the client fails to advise the member of their election before the
relevant deadline.
55
Before accepting funds from a client for money broking transactions, what is a member required to obtain from the
client?
A written mandate incorporating the conditions published by the registrar of banks or the JSE, subject to the type of
money broking transactions to be conducted.
56
What are the two types of bank accounts that a member may open to conduct money broking transactions on behalf
of a client?
1. An account with a bank in the name of the member where clients' funds are pooled and the member forwards
statements to the client.
2. An account in the name of the client with the bank forwarding account statements directly to the client.
57
If a member conducts money broking transactions via a pooled account in the name of the member, which regulation,
other than the JSE rules, is the member required to comply with in conducting such transactions?
The conditions published by the Registrar of Banks under paragraph (gg) of the definition of "the business of a bank"
in the Banks Act.
58
If a member accepts funds from a client pursuant to a money broking transaction and the funds have not been
deposited with a bank on the day of receipt, what is a member required to do?
Deposit the funds with JSET for same day value pending the deposit of the funds with the relevant bank.
59
What is the maximum amount of cash (coin and paper money) a member may receive or accept from any person in a
single deposit?
R5 000.
60
At what intervals must a member provide statements to its clients?
1. At regular intervals which may not exceed 3 months unless the clients agree in writing not to receive statements
because they are able to access the information made available by the member through electronic means, such
as the internet on a continuous basis.
2. Monthly if the client's portfolio managed by a member includes any transactions or positions in derivative
instruments.
3. At such intervals of less than 3 months as the client requests, although the member is not obliged to provide
statements more frequently than monthly or;
4. At such intervals as may be agreed between the member and a professional client.
61
List 5 items of information which a client's statement must contain.
1. The quantity, description and market value of each investment comprising the portfolio held by the member or
for which the member is accountable to the client, at the reporting date.
2. The amount of funds held by the member or which have been invested by the member on behalf of the client
and for which the member is accountable to the client, at the reporting date.
3. If any of the JSE authorised investments are reflected in a foreign currency, the relevant currency exchange rate
at the reporting date must also be reflected.
4. JSE authorised investments purchased or sold during the reporting period.
5. Receipts and payments of funds during the reporting period.
6. Details of income earned and expenditure incurred during the reporting period.
7. Non-cash transactions during the reporting period, including non-cash components of corporate actions and
option expiries.
8. JSE authorised investments transferred into and out of the portfolio during the reporting period.
9. Identification of those JSE authorised investments which at the reporting date were loaned to any third party but
for which the member is still accountable to the client.
10. The quantity, description and market value of any financial products, or the amount of funds, held as collateral
by the member on behalf of the client in respect of any loans made by the client.
11. Identification of those JSE authorised investments which at the reporting date were utilised to secure loans to
the client or borrowings made on behalf of the client.
12. Identification of those JSE authorised investments which at the reporting date were utilised as margin in respect
of open positions in any financial product.
13. In respect of investments in derivative instruments, a description of the underlying financial product, index,
commodity or thing, the expiry month and the exercise or strike price.
14. If the statement reflects any JSE authorised investments which are not held by the member and for which the
member is not accountable to the client, it should clearly indicate that fact in relation to such JSE authorised
investments.
62
What are the only circumstances in which a member is permitted, with the prior written concurrence of the Director:
Market Regulation, to instruct their bank to amend any transfer of funds by the JSE through the facility of the BDA
system between the member's business account and trust account or JSE trustees?
1. Where the member is aware that the transfer will result in insufficient funds being held in the member's trust
account or JSET.
2. Where the member is of the opinion that the transfer will result in the amount to be held in the member's trust
account or JSET being materially in excess of what it should be.
63
What is the consequence of a member not having sufficient funds or facilities available to effect transfers from its
current account to a trust bank account in accordance with the requirement to segregate client's funds?
The JSE may declare the member to be in default.
64
Under what circumstances are sundry client accounts permitted to be used?
By prior arrangement with the Director: Market Regulation in respect of new issues or similar instances or to
maintain the balance in securities held on behalf of clients where securities have been delisted or suspended.
65
What records are required to be kept as support for all sundry accounts?
Appropriate records identifying the clients on whose accounts the transactions have been executed or on whose
behalf the securities are held.
66
By when must all purchases and sales executed with or on behalf of clients be allocated to the client?
By the close of business on the date of the transaction.
67
What is a member required to demonstrate if it allocates transactions to interested parties from suspense accounts?
That no client is prejudiced as a result of the use of a suspense account.
68
What controls are required to be implemented to prevent prejudice to clients when utilising suspense accounts?
1. Use of separate suspense accounts for interested parties, e.g. employee suspense.
2. Use of separate suspense accounts dedicated to specified clients.
3. Use of separate suspense accounts where the trading instruction and allocation vests with one person, such as a
portfolio manager.
4. Ensuring that an employee on whose behalf the member operates a full discretionary managed account has no
influence over either the trading instruction or the allocation instruction.
69
Who is considered to be an interested party in relation to the use of suspense accounts?
A
A member or employee of the member who has a direct or indirect beneficial interest in a trade.
70
Is a member permitted to realise a profit or loss in a suspense account?
No.
71
What is the sole purpose of a misdeals account?
It is an account in which all error transactions and missed deals shall be recorded.
72
In what manner are members obliged to close out positions on misdeals accounts?
Only through the JSE equities trading system.
73
How are transactions placed into a client account resulting from a missed deal required to be booked and why?
Via the on-line backdating facility in the BDA system using the code MD to ensure that the contract note reflects that
the member traded as a principal with the client.
74
What is the main objective in ensuring that transactions recorded in misdeals accounts are appropriatly controlled?
That any potential prejudice to clients affected by such transactions is avoided.
75
What client information must a member ensure is loaded on the client maintenance (CLMNT) screen on the BDA
system?
1. The full name.
2. Address.
3. Telephone number.
4. Identification or registration number of the account holder.
76
What information must be loaded on either the client maintenance (CLMNT) screen or the account relationship
(ARMNT) screen on the BDA system using the REL code if the person placing the instructions on a client account is not
the individual in whose name the account is held or the account is not in the name of an individual, unless the client is
a bank, or a financial services provider, or the regulated foreign equivalent of such entities?
1. The full name.
2. Address.
3. Telephone number.
4. Identification or registration number of such person.
77
If an account holder is not an individual, what information must be loaded in the Institution Code field of the Client
Maintenance screen on the BDA system?
The legal status of the client as referred to in the rules.
78
On which client accounts must a staff indicator be loaded in the relevant field on the client maintenance screen on the
BDA system?
All accounts in which an employee of a member has a beneficial interest or on which they place instructions.
79
What steps is a member required to take prior to loading a controlled client account as a non-resident?
1. Obtain documentation confirming that the client is in fact a non-resident.
2. Maintain a record of such verification.
80
How is a CSP required to ensure that securities received from a non-resident controlled client are in fact non-resident
securities?
By verifying that the securities have been transferred from another non-resident account operated by -
1. another member;
2. a CSDP; or
3. a financial services provider;
and retaining a record of such verification.
81
Under what circumstances is a CSP permitted to transfer uncertificated securities within a nominee register from a
resident controlled client account to a non-resident controlled client account?
Under no circumstances.
82
What procedures are required to be followed by a CSP when submitting certificates for dematerialisation to ensure
that certificates submitted on behalf of a non-resident client reflect a non-resident endorsement?
1. The certificates held on behalf of non-resident clients reflecting non-resident endorsement must be submitted in
separate batches from certificates held on behalf of residents which are not endorsed.
2. The covering document submitted with those batches must clearly indicate that the certificates are held on
behalf of non-resident clients to enable the CSD participant to confirm by their signature on the covering
document that all of the certificates in those batches are endorsed non-resident.
83
If a CSP wishes to dematerialise a certificate held on behalf of a non-resident and the certificate is not endorsed nonresident,
what is the CSP required to do prior to submitting the certificate for dematerialisation?
Either:
1. Obtain an endorsement; or
2. Where the client is identified as not in fact being a non-resident and the Exchange Control Indicator on the
CLMNT screen on BDA is incorrect, transfer the shares to a resident account in the name of the client.
84
What are "inward listed securities"?
Means shares issued by foreign companies which have been listed on the JSE in terms of the South African Reserve
Bank's exchange control regulations
85
Can companies, trusts, partnerships and banks trade and hold inward listed securities?
Yes
86
Do institutional clients have to obtain Exchange approval prior to trading in inward listed securities?
No
87
Can a member trade in inward listed securities for emigrant clients?
No.
88
If the Settlement Authority picks up a trade in inward listed securities on an emigrant client's account what will the
member be instructed to do?
Move the deal to a misdeals account and assume responsibility for the settlement on settlement day.
89
Are members knowingly permitted to transact business on behalf of a partner or member of the staff of the auditor of
its firm if such staff or partner is involved with the audit of the member?
No.
90
If a member wishes to repledge listed securities which have been pledged by a client, what information do they need
to obtain from the client?
The written consent of the client.
91
If a client has paid in full for securities which have been purchased but the securities have not yet been allocated to
the client, is the member permitted to pledge those securities?
No.
92
What is a member which pledges or retains in pledge any JSE authorised investments required to do on the day of
such pledge?
A member which pledges or retains any JSE authorised investments shall-
1. Ensure that the quantities, certificate numbers (where applicable) and securities codes of all deposits and
withdrawals of JSE authorised investments are recorded into the BDA system.
2. Ensure that all cash receipts from clients for banking on that day are processed.
3. Furnish the bank with a provisional computer report (PBNKBP) daily when JSE authorised investments are
pledged detailing the investments pledged and whether or not such investments are available for pledge at that
time.
93
What is a member which pledges or retains in pledge any JSE authorised investment required to do on each day such
investments remain in pledge?
The member shall, at the commencement of business on the following business day, furnish the bank with the final
computer report (PBNKPL) produced in the overnight run which will report updated values, and details of JSE
authorised investments which should not have been pledged. The bank shall be provided with explanations for these
items.
94
What must a member ensure with its bankers regarding the pledging of JSE authorised securities?
That the arrangements clearly specify that only items appearing on the final report (PBNKPL) as available for pledge
will be legally enforceable as having been pledged
95
Define "client assets"
JSE authorised investments safeguarded by a member on behalf of clients.
96
Define "controlled client account"
An account reflecting the equity securities and funds of a controlled client.
97
Define "controlled client"
A client or an account holder on whose behalf a client is acting, whose funds and uncertificated equity securities are
under the control of a CSP or whose settlements take place via the CSDP of a member.
98
Define "controlled client custody account"
An equity securities account with a CSDP in the name of the member’s nominee company which reflects the
uncertificated equity securities balances of the member’s controlled clientsand through which settlement of
transactions in equity securities for such controlled clients is effected.
99
Define "custody services"
The services provided by a custody services provider on behalf of its clients or another member and that member's
clients, in relation to the exercising of control over uncertificated equity securities and funds intended for the
purchase of equity securities, held by a member on behalf of controlled clients.
100
Define "custody services provider"
A member which has been authorised by the JSE to perform custody services in terms of the rules.
101
Define "JSE authorised investments"
1. equity securities;
2. JSE listed securities traded on the JSE derivatives trading system or the Yield-X trading system;
3. securities listed on an exchange in the republic other than the JSE;
4. securities listed on an external exchange;
5. participatory interests in a collective investment scheme as defined in the Collective Investment Schemes Control
Act, 2002 (Act No.45 of 2002), and units or any other form of participation in a foreign collective investment
scheme approved by the Registrar of Collective Investment Schemes in terms of section 65 of that Act;
6. units or any other form of participation in a collective investment scheme licensed or registered in a foreign
country; and
7. funds intended for the purchase of such securities, units or participation.
102
Define "safeguarding"
Safeguarding means the activities performed by an authorised user –
(a) for the purposes of holding securities or funds in custody on behalf of another person; or
(b) where the authorised user is accountable to another person for a third party’s holding of securities or funds
in custody on behalf of that other person, and includes the administration of matter incidental to those
securities or funds
103
A member may accept from or hold uncertificated equity securities or funds intended for the purchase of equity
securities for a client for safekeeping. Who must control such assets?
An authorised CSP.
104
Before accepting equity securities and funds from a controlled client for custody, what is a member required to obtain
from a client and where must it be recorded?
1. The arrangements must be recorded in a written mandate incorporating the minimum requirements as
prescribed by the JSE.
2. Electronic acceptance or signed acceptance of the mandate by the client.
3. In a custody mandate register.
105
What is a CSP required to do regarding the safeguarding of controlled clients' equity securities?
1. Keep a nominee register, in terms of criteria prescribed by directive, of the controlled client equity securities that
are being held from time to time. Full details of any change must be recorded forthwith in the nominee register.
2. Pre-validate equity securities in terms of generally accepted market practice.
3. Dematerialise equity securities that are eligible to be dematerialised in terms of the processes required by the
member's CSDP.
4. The necessary details of all equity securities of a controlled client must be recorded and stored in a nominee
register in the BDA system in a manner which will render it possible at any time thereafter to establish readily
the identity of the person entitled to the ownership of those equity securities. Such equity securities must be
held in a securities custody account with a CSDP.
106
When is dematerialisation of equity securities complete?
When notification has been received by the member's CSDP that the equity securities are available for electronic
settlement.
107
A CSP that controls a nominee register must balance the equity securities with the securities custody account at the
CSDP on a daily basis. What must be confirmed in the monthly certificate to be furnished to the Director: Market
Regulation on the third business day after BDA month end?
1. The equities securities balances in the nominee register have been agreed with the CSDP controlled client
custody account balances or, if there are differences, explaining the reasons for such differences.
2. The equities securities balances in the nominee register have been reconciled daily with the CSDP controlled
client custody account balances and that all differences occurring during the month were either rectified within
one day or if circumstances beyond the control of the CSP prevented any differences from being rectified within
one day, those differences were rectified as soon as was reasonably possible; and
3. No circumstances have arisen that have resulted in the improper use of controlled clients' equity securities.
108
What is a CSP required to do when it receives certificated equity securities from a controlled client?
Forthwith issue a dated and signed receipt recording the:
1. Name.
2. Quantity.
3. Certificate number.
4. Registered holder of the equity security.
109
What is a member required to do if equity securities belonging to a controlled client are held as collateral in respect of
a loan of funds or securities?
1. The CSP must record those securities in the nominee register as being collateral for a loan.
2. If a pledge is required by the member the CSP must keep a record or register of the pledges held.
110
What are the 2 rules which cater for the safeguarding of controlled clients' funds?
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.
111
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?
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.
112
Itemise 4 control procedures in the rules relating to the safeguarding of clients' certificated securities.
1. The certificates must be marked with the necessary details recorded and stored in BDA to readily establish the
identity of the owner.
2. They must be protected from unauthorised access and misappropriation.
3. No transfer deed may be attached until such securities are prepared for disposal or delivery.
4. Name of issuer and number of shares must be inserted on the transfer deed before the registered owner signs
for it.
5. No blank signed transfer deeds may be retained.
6. JSE must be satisfied that adequate insurance cover is held by the member.
7. A signed receipt recording the name of the securities, number of securities and certificate number must be
issued forthwith on receipt of the securities.
113
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?
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.
114
What are the requirements with which a member, who is responsible for clients' assets other than equity securities,
must comply?
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.
115
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)?
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.
116
Clients funds may not be deposited in JSET for the sole purpose of earning interest. True or False?
True.
117
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?
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.
118
If a settlement agent has been appointed by a TSP, who is ultimately responsible for meeting the TSP's settlement
obligation?
The TSP itself.
119
What are the key objectives regarding their structures, systems and resources which a member applying to be
authorised to perform custody services be able to demonstrate to the JSE so as to assure continuity of business and
the total protection of client assets?
1. MANAGEMENT OVERSIGHT which evidences commitment to effective control.
2. PEOPLE AND RESOURCE - adequate numbers of suitably qualified personnel of integrity.
3. INTERNAL CONTROL - documented, designed to ensure business is properly conducted and that the assets of a
member are safeguarded.
4. CONTINUITY OF BUSINESS - adequate financial resources and risk management systems.
5. INFORMATION TECHNOLOGY SYSTEMS - documented, designed to prevent unauthorised use, properly tested to
assure continuity of operation.
120
The CSP is ultimately responsible for any obligation to the JSE or other broking members or its TSP's clients through
the performance of its function as a CSP. True or false?
False
121
The arrangement between a TSP and its CSP shall be recorded in writing, a copy of which must be lodged with the JSE.
What shall such arrangement provide?
1. That the functions for which the CSP is responsible are performed strictly in terms of the Act, rules and
directives.
2. That the CSP acts as an agent for the TSP in all actions it performs.
3. That the CSP permits an audit of its role as a CSP on behalf of the TSP.
4. That the CSP utilise the BDA system.
122
What is a TSP who appoints a CSP required to ensure regarding the processing of receipts and payments on the TSP's:
- Current banking account.
- Settlement banking account.
- Non-resident banking account and
- Trust account?
That the CSP has the necessary authority to process receipts and payments.
123
What is a TSP who appoints a CSP required to do regarding the TSP's security transfer stamp?
Grant authority to the CSP to utilise the stamp together with an authorised signatory of the CSP for use on transfer
forms and other similar documents.
124
What is a TSP who appoints a CSP required to ensure regarding custody accounts?
1. That an account in the name of a nominee company owned by the TSP be opened at the TSP's CSDP.
2. That the CSDP will only accept instructions, other than settlement instructions, from the CSP.
3. The member shall not be permitted to open an account in its own name.
125
In the event of either a TSP or CSP becoming aware of any irregular behaviour relating to the operation of client
accounts the TSP or its CSP should promptly advise the other party of such behaviour. Itemise 5 types of irregular
behaviour mentioned in Directive FL 7.
1. Issuing of fraudulent instructions.
2. Provision of false information.
3. Presentation of forged, fraudulent or stolen documents of title or instruments of payment.
4. Fraudulent electronic transfers of funds or securities to the TSP or its CSP.
5. The theft of clients' securities or funds.
126
Following the discovery of any loss or occurrence likely to give rise to a loss to the TSP and/or its clients which may be
covered in terms of the "in and out" fidelity policy and which may have occurred in the operations of the CSP, what is
the member who discovered the loss or occurrence required to do?
1. Promptly advise the other party (TSP or CSP).
2. Both parties to consider whether they may have suffered any actual or potential loss or incurred an actual or
potential liability to a 3rd party and if so;
3. Promptly give notice in writing of the discovery to the insurance brokers acting for the JSE.
127
Prior to terminating an arrangement with a CSP, what is a TSP required to do?
Obtain the consent of the JSE.
128
Define "certificated equity securities"
Equity securities evidenced by a certificate.
129
Define "contract note"
Notes issued in respect of trades executed on the JSE equities trading system by a member on any particular day :
1. on behalf of a client, a confirmation from the member to the client in respect of such trades; and
2. on behalf of a member’s proprietary account, the aggregate trades executed on such account
130
Define "CSDP"
A central securities depository participant that has been accepted by a central securities depository as a participant in
that central securities depository.
131
Define "dematerialisation"
The process of converting a certificated equity security into an uncertificated equity security.
132
Define "failed trade"
A transaction in equity securities which the Settlement Authority deems to be a failed trade on the basis that neither
the client, the member nor Settlement Authority is able to ensure that the transaction will settle on the settlement
date or any revised settlement date.
133
Define "funds settlement account"
A funds account with a CSDP in the name of a member used exclusively for the settlement for funds relating to
transaction in equity securities.
134
Define "JSE settlement system"
The computer system or systems and associated network or networks operated or used by the JSE for the purpose of
settling transactions in equity securities.
135
Define "margin"
A payment made or guarantee provided by a member to the JSE to assure settlement of transactions in equity
securities by that member or its clients.
136
Define "non-controlled client"
A client or an account holder on whose behalf a client is acting, who has appointed his own CSDP to settle transactions
in equity securities on his behalf.
137
Define "registered owner"
A person or entity which appears on the main register of an issuer kept in terms of the Companies Act, and a person
or entity which appears on the uncertificated securities register of that issuer kept by a CSDP in terms of the
Companies Act.
138
Define "ring-fencing"
The process in terms of which linked deliveries and receipts which emanate from off book trades are separated and
distinguished from deliveries and receipts which emanate from transactions in the central order book of the JSE
equities trading system.
139
Define "settlement agent"
Means a CSP or other member appointed by a member in terms of directive FI to assist the member in managing the
settlement of transactions executed by the member on behalf of non-controlled clients.
140
Define "Settlement Authority"
The person or persons appointed by the JSE to manage the settlement of transactions in equity securities effected
through the JSE equities trading system in terms of the rules and directives.
141
Define "settlement commitment"
An electronic undertaking by a CSDP to settle a transaction in equity securities.
142
Define "settlement date"
Settlement date means, in respect of a transaction in equity securities, the date on which the transaction is due to be
settled.
143
Define "terminating transaction"
A purchase of equity securities which have not subsequently been sold or a sale of equity securities which have not
subsequently been purchased.
144
Define "uncertificated equity securities"
Equity securities that are not evidenced by a certificate and are transferable by book entry without a certificate.
145
Define "uncommitted settlement"
A settlement obligation for which a CSDP has not provided a settlement undertaking.
