JSE SECURITIES EXCHANGE SOUTH AFRICA

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JSE SECURITIES EXCHANGE SOUTH AFRICA
Margining Methodology
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Margining Methodology

• Objectives
• Process Overview
• Methodology
• Results Examples
• Implementation
• Conclusion

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JSE SE SA Objectives

• Accurate transparent methodology
• Compensate for volatility, liquidity deal size
  risk
• Enable pre-trade risk management
• Consistency with SAFEX margining
• Secure daily data transfer
• Rapid implementation

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Specific Margin Objectives

• The margin should take into account the specific
  risk of the position, including the price
  volatility, liquidity and specific size (nominal
  shares) involved from EOD on T3.

MARGIN
Volume
Relative Spread
Size
Price Volatility
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Process Overview
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Methodology

• MtM uncommitted trades on EOD on T3
• Compute 2-day VaR margin
• Scale VaR for liquidity horizon
• Adjust margin for position size
• Compile margin matrix
• Provide information to JSE
• JSE margins trades

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The Margining Matrix
Deal Size
39,500
Sec. Codes
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NPK
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Visual Matrix Graph
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200 Securities Example
High Risk
Medium Risk
Low Risk
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Margin Requirements AGL v NPK

• AGL Ave Volume 2.7m, Volatility 43.49
• NPK Ave Volume 1.7m, Volatility 28.63

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Median Margin Examples
11,000
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Spread Risk

• Relative Spread (Offer - Bid)/Mid
• Quantifies spread as of asset price
• Allows objective spread comparison
• Enables spread risk comparison
• Implicit risk (cost) of trading

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RCH Relative Spread
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PET Relative Spread
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ESS Relative Spread
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Implementation
Brokers
RisCura
A
Daily Download
Risk Engine
B
Pre-Trade Risk Analytics
C
FTP
D
Email
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JSE SE SA
Failed Trades
Margin Matrix
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Pre-Trade Risk Analytics
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Conclusion

• Fully covers volatility, liquidity and position
  size risk
• Consistent with SAFEX margining
• Tested ready to implement
• Fully automated
• Data transfer redundancy
• Broker pre-trade risk analysis
• Compensates JSE for risk