Prudential Requirements Flashcards
(26 cards)
Minimum requirements of the FMA regarding the content of a member’s accounting records?
Records to contain details of:
1. Receipts and payments
2. Income and expenditure, explaining the nature thereof;
3. assets and liabilities
4. Purchases and sales
5. Receipts and dispatch of documents of title,
6. Securities and documents of title in the possession or control of the member showing:
- physical location
- owner
- purpose for which held
- whether they are subject to any change
How frequently should a member reconcile all balances with banks and custodians
as frequently as is appropriate for the volume of transactions on the accounts but NOT LESS THAN EVERY TWO DAYS
In extending credit to a client or counterparty, either through a loan of funds or securities or an indulgence i.r.t an obligation of a client or counterparty to member the member must ensure?
That:
1. The granting of credit does not compromise its ability to meet its financial resources requirements
2. the granting of credit does not adversely impact its liquidity to the extent that it cannot meet its short term requirements
3. The realised value of any collateral or other security provided by the client or counterparty which reduces the exposure on which the member’s Counterparty Risk Requirement is calculated, in terms of DC 9.4, can be RELIABLY MEASURED
By when should members submit returns reflecting their risk positions and their financial resources (CAPAD Return) to the Director: Market Regulation
- within 10 business days of the end of each month
Within how many months of a member’s financial year end must these reports ( annual financial statements, annual recon statement, auditor’s special reports) be submitted to the Director: Market Regulation?
3 months
What criteria must be met to include redeemable preference shares as capital in determining a member’s financial resources?
- The initial period to redemption shall be at least 2 years
- The remaining period to redemption shall be at least 3 months
To include loan accounts, including shareholders loan accounts as capital in determining its financial resources, what is a member to do?
Ensure that they are LEGALLY SUBORDINATED in a manner prescribed by the Director: Market Regulation
What criteria must be met to include guarantees received as capital in determining a member’s financial resources?
- Guarantor approved by Director: Market Regulation
- Guarantee irrevocable for a period of 3 months into the future
- Guarantee capable of being drawn upon presentation
Which 6 types of assets aren’t included in ADJUSTED LIQUID CAPITAL?
- Intangible assets (Goodwill, Capitalised Development costs, licences, trademarks, etc.)
- The maximum current exposure of the member arising from any guarantee given or assets pledged to secure the obligations of a third party.
-
Holding in credit institutions and investments IF
• > 10% of Issuer’s capital
• > 10% of member’s available capital resources
Itemise 6 important points in connection with the appointment of an auditor by a member?
Must
1. Be a C.A. (SA) registered under the public accountants and auditors act and be engaged in public practice.
2. Be approved by the Director: Market Regulation
3. Not be an officer or employee of another member
4. Not be an officer or employee of the member
5. Not be a close relative of an officer of the member
5. Not have a DIRECT OR INDIRECT FINANCIAL INTEREST in the member
Can the JSE decide that a special audit be done by the JSE Market Regulation Division or an auditing firm nominated by it?
Yes
Events that members are required to notify the Director: Market Regulation when these event take place or are likely to take place? (9)
- Breach of FINANCIAL RESOURCE REQUIREMENTS
- INABILITY TO PAY the JSE, an exchange or clearing house by due date THEREBY CAUSING A DEFAULT.
- Inability to submit any required financial statement or report.
- Contingency claims >10% OR > R500000
Events that members are required to notify the Director: Market Regulation when these event take place or are likely to take place? (9) continued
- Believes any previous reporting statement to be MATERIALLY MISLEADING
- Claims on PROFESSIONAL INDEMNITY INSURANCE POLICY
- Qualified auditor’s report on annual financial statements
- Change of financial year-end.
- Inability to comply with JSE rules and directives
Things the member should ensure in relation with the production and distribution of client statements?
- Effective controls implemented
- Clients are able to REVIEW the activity of their accounts and performance of their portfolios at appropriate and regular intervals
- Utilise BDA or any other system that reflects the same information on client statements as BDA.
- Statements can be produced in hard copy of electronic form, provided that the member obtains written consent of a client to distribute statements in electronic form. The MEMBER IS REQUIRED TO RETAIN A RECORD OF THE CONSENT.
- Segregation of duties between persons responsible for transactions and those responsible for the distribution of statements
What is the minimum amount of Professional Indemnity Insurance an auditor of a member is required to have?
R7 500 000
How is Foreign Exchange Requirement calculated unless permission is granted by Director: Market Regulation to use a simulation technique?
Member shall CALCULATE A NET OPEN POSITION for all currencies and TRANSLATE THEM TO RAND USING PREVAILING SPOT RATES
FER is 10% of the higher of:
1. The aggregate of the net open long positions in each currency OR
2. The aggregate of the net open short positions in each currency.
How is counterparty risk calculated on
1. Amounts due for payment or owed on closed out transactions?
2. Loans to clients?
3. Other receivables?
- 100% of amount unsecured
- 100% of amount unsecured
- 100% of amounts due for more than 30 days.
Calculating counterparty risks on SWAPS, Forward Contracts, OTC options, Contracts for differences and off exchange futures?
“Credit equivalent amount” * appropriate risks
1. State/state guaranteed entity = 0%
2. Regulated exchanges, JSE members, Supranational organisations and Regulated banking institutions = 2%
3. Other counterparty = 10%
What PRR applies to units in a collective investment scheme?
10% of realisable value.
How is counterparty risk on swaps, forward contracts, OTC options, contracts for differences and off exchange futures calculated?
“Credit equivalent amount” as defined, multiplied by the appropriate risk %
1. State or state guaranteed entity - 0%
2. Regulated exchanges, JSE members, Supranational organisations and Regulated banking institutions - 2%
3. Any other counterparty - 10%
How is counterparty risk on unsettled securities transactions on behalf of controlled clients calculated?
From trade date onwards?
1. 100% of TRANSACTION VALUE - MARKET VALUE +
2. Position risk requirement on the net unsettled purchase and sale transactions per security on each client’s account.
How is counterparty risk calculated on the following?
1. Options purchased for a client
a. Non payment of purchase price 1 day after purchase.
b. Thereafter.
2. Exchange traded margined transactions.
a. 1 day since shortfall.
b. 2 days and over since shortfall.
3. Repurchase or reverse repurchase agreements (including lending and borrowing and sale and buy back
agreements)
- Options purchased for a client
a. Purchase price - market value or if market value not readily available 100% of premium.
b. 100% of option premium unpaid. - Exchange traded margined transactions
a. Nil.
b. 100% of margins unpaid - On the difference between the current market values of the asset received and the security provided or the
asset provided and the security received. During the period of the agreement:
a. Where the counterparty is a regulated financial institution or a regulated banking institution – Nil
b. All other counterparties - 25%
c. Subsequent to settlement date, all counterparties - 100%
Calculating counterparty risk on unsettled uncertificated securities transactions on behalf of non-controlled clients:
- Where CSDP has committed? Nil.
- Where CSDP has NOT committed?
a. Trade date (T0) = 2% of the aggregate value of uncommitted purchases or sales in each security
b. T+1 = nil
c. T+2 = 100% of TRANSACTION VALUE - MARKET VALUE + PRR on each security on each clients accoutn
How is counterparty risk on the following unsettled securities calculated?
1. Transactions executed on BESA
a. 0-1 day after settlement.
b. More than 1 day after settlement.
2. Free deliveries: Non payment against securities delivered where the client is a bank or regulated institution.
3. Non delivery of securities against payment where the client is not a bank or regulated institution.
- Transactions executed on BESA
a. 50% of (transaction value - market value).
b. 100% of (transaction value - market value) + PRR on market value of securities. - Free deliveries
a. 1 day since delivery Nil
b. 1 - 7 days since delivery 25% of amount due
c. Over 7 days since delivery 100% of amount due - 100% of market value of securities.
