On 22 April 2016, the Financial Services Board (“FSB”) released a set of proposed amendments to the Johannesburg Stock Exchange (“JSE”) Derivatives Rules in Board Notice 49 of 2016.

Historically, margin has been provided in cash and paid by the client to the JSE member who then pays the JSE. The proposed amendments would allow market participants to post collateral directly to the JSE by pledging securities in accordance with section 39 of the Financial Markets Act, 2012 (“section 39”). It remains to be seen how members will practically effect the pledges to the JSE, while still following the strict wording of section 39 and minding common law principles relating to pledges.

In light of the JSE accepting pledges of securities, the proposed amendments also aim to enable the JSE to draw on its liquidity facility to settle a defaulted position, where the JSE has sold the pledged securities of defaulting clients, trading members and/or clearing members pursuant to a default, and the JSE is awaiting the proceeds of the sale. It is envisaged that the amount to be paid by the JSE on behalf of defaulting market participants would be limited to the price at which the securities are sold, less any costs and fees incurred as a result.

The proposed amendments provide that parate executie (the right of a creditor to immediate execution without court sanction) will be expressly permitted in order to settle trade or position-relation obligations. This means that any securities pledged by a defaulting party would be sold at a market-related price (at the time of such sale) within three business days from the date of default, without the intervention of a court.

Should you have any objections to the proposed amendments, you may submit comments to the Registrar of Securities Services, at Michael.Kabai@FSB.co.za, before 6 May 2016.