Conduct of Business 3

Question 1

What are the two types of bank accounts that a member may open to conduct money broking transactions on behalf of a client?

Answer 1

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.

Question 2

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?

Answer 2

The conditions published by the Registrar of Banks under paragraph (gg) of the definition of “the business of a bank” in the Banks Act.

Question 3

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?

Answer 3

Deposit the funds with JSET for same day value pending the deposit of the funds with the relevant bank.

Question 4

What is the maximum amount of cash (coin and paper money) a member may receive or accept from any person in a single deposit?

Answer 4

R5000

Question 5

At what intervals must a member provide statements to its clients?

Answer 5

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.

Question 6

List 5 items of information which a client’s statement must contain.

Answer 6

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. JSE authorised investments purchased or sold during the reporting period.
3. Receipts and payments of funds during the reporting period.
4. Details of income earned and expenditure incurred during the reporting period.
5. Non-cash transactions during the reporting period, including non-cash components of corporate actions and option expiries.

Question 7

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?

Answer 7

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.

Question 8

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?

Answer 8

The JSE may declare the member to be in default.

Question 9

Under what circumstances are sundry client accounts permitted to be used?

Answer 9

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.

Question 10

What records are required to be kept as support for all sundry accounts?

Answer 10

Appropriate records identifying the clients on whose accounts the transactions have been executed or on whose behalf the securities are held.

Question 11

By when must all purchases and sales executed with or on behalf of clients be allocated to the client?

Answer 11

By the close of business on the date of the transaction.

Question 12

What is a member required to demonstrate if it allocates transactions to interested parties from suspense accounts?

Answer 12

That no client is prejudiced as a result of the use of a suspense account.

Question 13

What controls are required to be implemented to prevent prejudice to clients when utilising suspense accounts?

Answer 13

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.

Question 14

Who is considered to be an interested party in relation to the use of suspense accounts?

Answer 14

A member or employee of the member who has a direct or indirect beneficial interest in a trade.

Question 15

What is the sole purpose of a misdeals account?

Answer 15

It is an account in which all error transactions and missed deals shall be recorded.

Question 16

In what manner are members obliged to close out positions on misdeals accounts?

Answer 16

Only through the JSE equities trading system.

Question 17

How are transactions placed into a client account resulting from a missed deal required to be booked and why?

Answer 17

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.

Question 18

What is the main objective in ensuring that transactions recorded in misdeals accounts are appropriatly controlled?

Answer 18

That any potential prejudice to clients affected by such transactions is avoided.

Question 19

What client information must a member ensure is loaded on the client maintenance (CLMNT) screen on the BDA system?

Answer 19

1. The full name.
2. Address.
3. Telephone number.
4. Identification or registration number of the account holder.

Question 20

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?

Answer 20

1. The full name.
2. Address.
3. Telephone number.
4. Identification or registration number of such person.

Question 21

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?

Answer 21

The legal status of the client as referred to in the rules.

Question 22

On which client accounts must a staff indicator be loaded in the relevant field on the client maintenance screen on the BDA system?

Answer 22

All accounts in which an employee of a member has a beneficial interest or on which they place instructions.

Question 23

What steps is a member required to take prior to loading a controlled client account as a non-resident?

Answer 23

1. Obtain documentation confirming that the client is in fact a non-resident.
2. Maintain a record of such verification.

Question 24

How is a CSP required to ensure that securities received from a non-resident controlled client are in fact non-resident securities?

Answer 24

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.

Question 25

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?

Answer 25

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.

Question 26

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?

Answer 26

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.

Question 27

What are "inward listed securities"?

Answer 27

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

Question 28

Can companies, trusts, partnerships and banks trade and hold inward listed securities?

Answer 28

Yes

Question 29

Do institutional clients have to obtain Exchange approval prior to trading in inward listed securities?

Answer 29

No

Question 30

Can a member trade in inward listed securities for emigrant clients?

Answer 30

No

Question 31

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?

Answer 31

Move the deal to a misdeals account and assume responsibility for the settlement on settlement day.

Question 32

What is a member which pledges or retains in pledge any JSE authorised investments required to do on the day of such pledge?

Answer 32

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.

Question 33

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?

Answer 33

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.

Question 34

What must a member ensure with its bankers regarding the pledging of JSE authorised securities?

Answer 34

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

Question 35

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?

Answer 35

The written consent of the client.