Prudential Requirements (Part IV)

Question 1

A member whose adjusted liquid capital is R800 000 has the following open equity positions in its stock account –

Share position Market value
A: Long (Illiquid) R 280 000
B: Short (Highly liquid) R 250 000
C: Short (Illiquid) R 15 000

What is the member’s large exposure requirement?
Show your workings

Answer 1

Share Market value 25% of ALC Balance x Specific Risk % x 2 LER
A 280 000 200 000 80 000 x 15% x 2 24 000
B 250 000 200 000 50 000 x 5% x 2 5 000
C 15 000 200 000 Nil
Total LER 29 000

Question 2

A CSPs records reflect that it is holding a total R2,023,070,000 made up of funds in JSE Trustees and assets in custody on behalf of its own clients and those of members for whom it acts as a CSP.
Calculate the CSPs custody and settlement risk requirements (CSRR).

Answer 2

1% on 1st R300 million 1% x 300 000 000 R 3 000 000
0.1% on excess of R300 million up to R2 billion 0.1% x 1 700 000 000 R 1 700 000
0.01% on excess of R2 billion 0.01% x 23 070 000 R 2 307
Total CSRR R 4 702 307

Question 3

What is the minimum amount of Professional Indemnity Insurance an auditor of a member is required to have?

Answer 3

R7 500 000

Question 4

Itemise 6 important points in connection with the appointment of an auditor by a member.

Answer 4

1. Must be C.A.(SA) registered under the Public Accountants and Auditors Act and be engaged in public practice.
2. Must be approved by the Director: Market Regulation.
3. Must not be an officer or employee of another member.
4. Must not be an officer or employee of the member.
5. Must not be a close relative of an officer of the member.
6. Must not have a direct or indirect financial interest in the member.

Question 5

Can the JSE decide that a special audit of a member be conducted either by the JSE Market Regulation Division or an auditing firm nominated by it?

Answer 5

Yes.

Question 6

Members are required to notify the Director: Market Regulation when certain events take place or are likely to take place. Itemise these events.

Answer 6

1. Breach of financial resource requirements.
2. Inability to pay the JSE, an exchange or clearing house by due date thereby causing a default.
3. Inability to submit any required financial statement or report.
4. Contingency claims greater than 10% of ALC or R500 000.
5. Believes any previous reporting statement materially misleading.
6. Claims on professional indemnity insurance policy.
7. Qualified auditor’s report on annual financial statements.
8. Change of financial year-end
9. Inability to comply with JSE rules and directives

Question 7

What is a member required to ensure in connection with the production and distribution of client statements?

Answer 7

1. Effective controls are implemented.
2. Clients are able to review the activity of their accounts and performance of their portfolios at appropriate and regular intervals.
3. Utilise the BDA system or other system reflecting the same information on client statements as BDA.
4. Statements can be produced in hard copy or electronic form, provided that the member obtains the written consent of a client to distribute statements in an electronic form. The member is required to retain a record of the consent.
5. There must be a segregation of duties between those persons responsible for transactions and those responsible for the distribution of the statements.