Conduct of Business (Part VII)

Question 1

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?

Answer 1

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.

Question 2

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?

Answer 2

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.

Question 3

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?

Answer 3

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.

Question 3

What information must an ISP who manages foreign investments furnish to a client on the client’s request?

Answer 3

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.

Question 3

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?

Answer 3

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.

Question 4

What must the written arrangement between a member and a controlled client contain regarding instructions relating to corporate actions?

Answer 4

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.

Question 5

Before accepting funds from a client for money broking transactions, what is a member required to obtain from the client?

Answer 5

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.

Question 6

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

Answer 6

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.