Title: Information Seminar
1Information Seminar 20 January 2005 Allan
Thomson
2Introduction
- Yield-X is the new interest rate exchange of the
JSE - A totally separate exchange for the trading,
clearing settling of interest rate products - Will trade a wide spectrum of interest rate
products - Fulfills the need in the market for a
- one-stop-yield-shop
- Encourages liquidity in South African
instruments
3Background Motivation for the JSE
- Since the acquisition of SAFEX in August 2001,
JSE has looked to develop the derivatives market - Since 2001 single stock futures have grown from
4 - 68 of financial derivatives income - JSE
can grow a market where there is need - Internationally turnover in interest rate
products exceeds equity and derivative turnover,
but not so in South Africa - Lack of liquidity of interest rate products
listed on SAFEX was fully investigated (currently
less than 0.04 of derivative turnover)
- Key market players approached the JSE to
introduce new products and grow the market
4How?
Following the success of the JSE equities and
futures trading systems, it was decided to trade
both interest rate derivatives and spot bonds
- electronically, with automated trade matching of
firm orders, - through a central order book, with
- anonymous trading and settlement assurance, with
- easy access, resulting in
- clear transparency of price and depth of market,
leading to - efficient price discovery, thereby
- creating an honest market with a high level of
integrity, - a central counterparty to all trades,
- multilateral netting for all products
5Trading of Spot Bonds
- Initially, was not the Yield-Xs intention to
trade with Spot Bonds - Demand to value the Derivative against true
market price of underlying security - Initially, JSE will only trade Spot Bonds where
there is a Derivative that is traded on-exchange - The consequence of increased trade on derivatives
is increased liquidity in spot bonds - Need mechanism for UNCONDITIONAL price
discovery
The drive for trading of spot bonds, true price
discovery of underlying securities
6Products
The following products will be tradable on
Yield-X
- j-Carries Buy-sell back transactions
- j-Rods RODI swaps against 3-month JIBAR
- j-Swaps Bond look-alike swaps
- j-Notes futures on notional swaps
- j-FRAs Forward Rate Agreement
- j-Options Options on futures
- j-Futures Futures on bonds
- j-Bonds Spot and forward bonds
- (secondary listing of spot bonds on which the
JSE currently has futures)
7Systems design considerations
8(No Transcript)
9Membership requirements
- Yield-X calls for a separate membership category
requiring - One JSE right
- Connectivity
- A formal membership agreement to be submitted
(JSE Equity members cannont be a member
of Yield-X) - Compliance officer
- Settlement officer
- Registered trader (passed existing SAIFM exams)
- A sponsoring clearing member
- R200 000 capital for non-client broking members
- R400 000 capital for client-broking members
No costs to the clients for the first six months
in order to encourage market participation
10Target market
- Existing market participants on the buy and sell
side - fund managers, banks, corporate
treasuries, intermediaries - New participants smaller financial
institutions, BEE players, retail investors,
agricultural sector - Retail investor would look to j-Swaps and j-Notes
to swap variable rates for fixed rates - Local and global players encouraged
11Benefits
- Multi-lateral netting across all yield traded
products - Achieves one risk position for spot and
derivatives - No need for ISDA agreements
- One central counter-party (i.e. SAFCOM is buyer
and seller to all trades) - New and improved risk management model Calm
Methodology - Applies spot margining only when risk exists
- Margin ensures guaranteed settlement and
minimizes risk - Amount of margin required is not that inhibitive
- Utilises securities lending, buy/sell backs to
prevent failed trades - Achieves T3 settlement of spot trades
12Timelines
November 2004
Early 2005 Market Go-Live
Software rollout
Testing
Training
Regulatory Approval
13Questions