MINISTER OF FINANCE FINANCIAL MARKETS ACT 19 OF 2012 ...

1 1 FINANCIAL MARKETS Act Regulations, 2015 - 5 June 2015 MINISTER OF FINANCE FINANCIAL MARKETS ACT 19 OF 2012 FINANCIAL MARKETS ACT REGULATIONS I, Nhlanhla Musa Nene, MINISTER of FINANCE , in terms of sections 5(1), 8(1)(a), 28(1)(a), 48(1)(a), 54(1), 55(1)(a) and 107 of the FINANCIAL MARKETS Act, 2012 (Act of 2012), hereby publish for public comments draft Regulations as set out in the Schedule. N NENE, MP MINISTER OF FINANCE SCHEDULE ARRANGEMENT OF REGULATIONS Chapter I INTERPRETATION 1. Definitions Chapter II OTC DERIVATIVES 2. Requirement to be authorised 3. Reporting obligations 4. Clearing Chapter III CATEGORY OF REGULATED PERSONS 5. Category of regulated person Chapter IV SECURITIES SERVICES TO BE PROVIDED BY AN EXTERNAL CENTRAL SECURITIES DEPOSITORY AND THE FUNCTIONS AND DUTIES THAT MAY BE EXERCISED BY AN EXTERNAL CENTRAL COUNTERPARTY OR EXTERNAL TRADE REPOSITORY 2 FINANCIAL MARKETS Act Regulations, 2015 - 5 June 2015 6.

2 Securities services that may be provided by an external central securities depository 7. Functions and duties that may be exercised by a central counterparty 8. Functions and duties that may be exercised by a external trade repository 9. Recognition Chapter V ASSETS AND RESOURCES REQUIREMENTS APPLICABLE TO market INFRASTRUCTURES 10. Assets and resources Chapter VI ASSETS AND RESOURCES AND THE REQUIREMENTS AND FUNCTIONS OF A CLEARING HOUSE THAT IS A CENTRAL COUNTERPARTY 11. Functions of a central counterparty 12. Legal basis 13. Access and participation 14. Governance 15. Risk committee 16. Risk Management Framework 17. Shareholders and members with qualifying holdings 18. Outsourcing 19. Compliance function 20. Efficiency, disclosure and transparency 21. Auditing 22. Business continuity 23.

3 Custody, settlement and physical deliveries 24. Qualifying capital 25. General capital requirements 26. Specific capital requirements for credit risk, counterparty credit risk and market risk which are not already covered by specific FINANCIAL resources as referred to in paragraphs 37, 38 and 39 27. Specific capital requirements for business risk and for winding down or restructuring 3 FINANCIAL MARKETS Act Regulations, 2015 - 5 June 2015 28. Capital calculation requirements for operational risk Additional qualitative criteria for the advanced measurement approach Additional quantitative criteria for the advanced measurement approach Process Internal data External Data Scenario Analysis Impact of insurance and other risk transfer mechanisms 29. Capital calculation requirements for credit risk 30.

4 Capital calculation requirements for counterparty credit risk Governance Exposure to central counterparties and related matters Exposures to qualifying central counterparties Exposures to non-qualifying central counterparties 31. Calculation requirements of the minimum required capital for CVA risk 32. Calculation of a central counterparty s credit exposure in terms of the current exposure method Matters relating to the exposure amount or EAD Matters relating to bilateral netting Legal and operational criteria 33. Specific capital calculation requirements for market risk Aggregate required amount of capital and reserve funds relating to market risk The standardised approach Specific requirements for liquidity risk Liquidity risk controls Assessment of liquidity risk Access to liquidity Concentration risk 35 Consolidated supervision requirements 36 Segregation and portability 37 Margin requirements Exposure management Margin system Percentage Time horizon for the calculation of historical volatility Time horizons for the liquidation period 4 FINANCIAL MARKETS Act Regulations.

5 2015 - 5 June 2015 Portfolio margining Procyclicality 38 Default procedures 39 Default fund 40 Other FINANCIAL resources 41 Default waterfall 42 Collateral requirements Haircuts Concentration limits Re-use of collateral collected as initial margin Valuing collateral 43 Investment policy 44 Review of models, stress testing and back testing Model validation Testing programmes Back testing Sensitivity testing and analysis Stress testing Stress testing Risk factors to test Stress testing total FINANCIAL resources Stress testing liquid FINANCIAL resources Maintaining sufficient coverage Review of models using testing results Reverse stress test Testing default procedures Frequency Time horizons used when performing tests Information to be publicly disclosed 45 Interoperability arrangements Risk management for interoperability arrangements Provision of margins among central counterparties Approval of interoperability arrangements Consideration by the registrar 46 Record keeping General requirements Transaction records Position records 5 FINANCIAL MARKETS Act

6 Regulations, 2015 - 5 June 2015 Business records Records of data reported to a trade repository Chapter VII REQUIREMENTS WITH WHICH A CENTRAL SECURITIES DEPOSITORY MUST COMPLY FOR APPROVAL OF AN EXTERNAL CENTRAL SECURITIES DEPOSITORY AS A SPECIAL CATERGORY OF PARTICIPANT 47 Requirements with which a central securities depository must comply for approval of an external securities depository as a participant Chapter VIII TRANSITIONAL ARRANGEMENTS AND COMMENCEMENT 48 Transitional arrangements 49 Commencement and short title 6 FINANCIAL MARKETS Act Regulations, 2015 - 5 June 2015 SCHEDULE CHAPTER I INTERPRETATION 1. Definitions In this Regulation, the Act means the FINANCIAL MARKETS Act, 2012 ( act no . 19 of 2012), and any word or expression to which a meaning has been assigned in the Act, bears the meaning so assigned to it and, unless the context indicates otherwise- asset class means the underlying asset, security or event from which an OTC derivative derives its value, such as an interest rate, foreign exchange, credit, equity or a commodity; authorised OTC derivative provider means an OTC derivative provider authorised by the registrar under Regulation 2 and section 6(8) of the Act; central counterparty means an independent clearing house, that- (a) interposes itself between parties to transactions traded in one or more FINANCIAL MARKETS , becoming the buyer to every seller and the seller to every buyer and thereby ensuring the performance of open contracts.

7 And (b) becomes a counterparty to trades with market participant parties through novation, an open offer system or through a legally binding agreement; client in relation to an OTC derivative provider, means any person, other than a counterparty, with whom an OTC derivative provider- (a) executes an OTC derivative transaction; or (b) enters into a relationship with the intention of executing OTC derivative transactions; close link means a situation in which two or more natural or legal persons are linked by- (a) participation, by way of direct ownership or control, of 15 per cent or more of the voting rights or capital of a company ; or (b) control or a similar relationship between any natural or legal person and a company or a subsidiary of a subsidiary also being considered a subsidiary of the parent undertaking which is at the head of those undertakings.

8 Complex product means a bespoke OTC derivative which combines two or more product types or embeds one or more derivative into another; 7 FINANCIAL MARKETS Act Regulations, 2015 - 5 June 2015 counterparty in relation to an OTC derivative provider, means- (a) another authorised OTC derivative provider; (b) an authorised user; (c) a bank; (d) a person who is registered or authorised by- (i) the Registrar of Long-term Insurance to conduct long-term insurance business; (ii) the Registrar of Short-term Insurance to conduct short-term insurance business; (iii) the Registrar of FINANCIAL Services Providers to provide FINANCIAL services in derivative instruments; (iv) the Registrar of Collective Investment Schemes to administer a collective investment scheme; (e) a person outside the Republic who- (i) is authorised by a supervisory authority to perform a service or services similar to one or more of the services referred to in the definition of an OTC derivative provider or the services performed by an authorised user; or (ii) is registered, licensed, recognised, approved or otherwise authorised to conduct the business of a bank or to render services of a business referred to in sub-regulation (d) by a supervisory authority with functions similar to those of the registrar, the Registrar of Banks, the Registrar of FINANCIAL Services Providers, the Registrar of Collective Investment Schemes, the Registrar of Long-term Insurance or the Registrar of Short-term Insurance.

9 (f) a central bank or other national monetary authority of any country, state or territory; (g) a private equity fund; (h) any other person who elects, in writing, to be categorised as a counterparty and who is not- (i) a natural person; (ii) a pension fund organisation as defined in section 1(1) of the Pension Funds Act, 1956 ( act no . 24 of 1956); (iii) a friendly society referred to in the Friendly Societies Act, 1956 ( act no . 25 of 1956); (iv) a medical scheme or the board of trustees of such scheme as defined in section 1(1) of the Medical Schemes Act, 1998 (Act of 1998); and (i) any other person declared by the Registrar to be a counterparty; with whom an OTC derivative provider executes an OTC derivative transaction or enters into a relationship with the intention of executing OTC derivative transactions; CVA means credit value adjustment; EAD means exposure at default; 8 FINANCIAL MARKETS Act Regulations, 2015 - 5 June 2015 eligible credit rating agency means a registered credit rating agency in terms of the Credit Rating Agency Act, 2012 ( act no .)

10 24 of 2012) and approved in terms of section 85A of the Banks Act 1990 ( act no . 94 of 1990); external central counterparty means a foreign person who is authorised by a supervisory authority to perform a function or functions similar to one or more of the functions of a central counterparty as set out in the Act and who is subject to the laws of a country other than the Republic, which laws- (a) establish a regulatory framework equivalent to that established by the Act; and (b) are supervised by a supervisory authority; FINANCIAL instrument means securities and cash; indirect clearing means clearing services provided by a clearing member to an indirect clearing client, through a set of contractual arrangements between the central counterparty, the clearing member and the indirect clearing client.