MATERIAL OBLIGATIONS OF BUYERS AND SELLERS OF
UNCERTIFICATED SECURITIES FOR CONTROLLED ACCOUNTS
In terms of the Stock Exchanges Control Act, 1985 (“SECA”) and the rules of the JSE Securities Exchange South Africa
(“the rules”), members are required to ensure that buyers and sellers of listed securities are aware of their material
obligations in terms of the provisions of SECA and the rules which relate to the trading and settlement of uncertificated
securities.
In terms of SECA and the rules, the material obligations of clients include the obligations set out below.
For ease of reference the relevant rules, which create the material obligations, are reflected in the text and the relevant
definitions are set out in the schedule attached hereto.
A controlled client is a client who does not appoint a CSD participant of his own, and the settlement of the transactions
entered into by the client is conducted by the member of the client via accounts belonging to the member in the records of
the CSD participant. (See definition attached).
Material Obligation 1
1. Settlement will take place in accordance with the following principles:
Each transaction represented by a single contract note between the ultimate seller and ultimate buyer;
Applying the market convention that parties to a transaction have a contractual obligation to cause such
transaction to settle on a specific day,
settlement day (which is five business days after the trade was done); and
On a net basis per member, per listed security.
Applicable Rule
Rule 14.25 Settlement Principles for Uncertificated Securities Tansactions
14.25.1 Settlement of uncertificated securities shall be effected in accordance with
the following principles -
14.25.1.1 contract note by contract note;
14.25.1.2 between the scrip root and the cash root;
14.25.1.3 rolling and contractual; and
14.25.1.4 on a net basis per member, per listed security whereby individual contract notes are consolidated and
offset into net amounts of uncertificated securities and funds for settlement.
Material Obligation 2
2.1 A controlled client must sign a mandate in favour of a member before any cash or securities are received by the
member.
2.2 A controlled client must obtain a receipt from the member when the securities are placed under the control of the
member.
2.3 A controlled client must receive a monthly statement and reconcile the STRATE approved securities reflected on the
statement with his records.
2.4 A controlled client must advise a member of its choice for an elective corporate action by no later than 16h00 3 days
prior to the record date for that corporate action
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2.5 A controlled client must advise a member if it wishes to receive information from any issuer regarding securities that
the client owns.
Applicable Rule
Rule 14.60 Operation of Controlled Accounts
14.60.1 The arrangements made by a controlled client with a broking member (equities) shall be recorded in a form of
mandate which shall contain the minimum requirements as prescribed by the JSE from time to time. The
mandate shall be signed by the controlled client before any cash and/or uncertificated securities as defined in
14.60.2 are accepted from the controlled client.
14.60.11 Every CSM and CSA shall send monthly statements of account to controlled clients and shall include approved
wording to the effect that the cash credit balance reflected on the statement is held by JSE Trustees (Pty)
Limited.
14.60.12 Where a STRATE approved security is received from a controlled client for retention in custody a dated and
signed receipt recording the name, quantity, certificate number (where applicable) and registered holder of the
security shall be issued forthwith.
Material Obligation 3
3. A controlled client may not place an order to sell a STRATE approved security unless:
The securities to be sold are in the custody of the member and have been dematerialized; or
Another transaction has been entered into by the client for the equivalent number of uncertificated
securities to be available for settlement on T + 5; or
The client has made arrangements to borrow the equivalent number of uncertificated securities and the
equivalent securities will be available for settlement to take place on T + 5.
Applicable Rule
Rule 14.40 Trading in STRATE Approved Securities
14.40.1 A client shall only place an order in respect of a STRATE approved security with a broking member (equities) if –
14.40.1.2 in respect of a sell order –
14.40.1.2.1 the securities to be sold are in uncertificated form; or
14.40.1.2.2 another transaction has been concluded which provides for an equivalent amount of uncertificated securities
being available for settlement on settlement date; or
14.40.1.2.3 a satisfactory borrowing arrangement is in place which provided for an equivalent amount of
uncertificated securities being available for settlement on settlement date.
Applicable Penalty
R1000-00 per contract note
Material Obligation 4
By no later than 16h00 on T + 2, a controlled client which is not a carry account client, must ensure that the member is in
a position to settle the transaction on T + 5.
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Applicable Rule
Rule 14.130 Controlled Client Settlement Obligation
14.130.1 Save for where the controlled client is a carry account client, a controlled client shall, by no later than
16h00 on the second business day after the trade date, ensure that the member which effected the
transaction on behalf of such client will be in a position to settle the transaction on settlement day,
Material Obligation 5
5.1 Where the controlled client fails to put the member in a position before 16h00 on T + 2 to settle the transaction on
settlement day, the controlled client will forfeit any rights that the client may have had in respect of the said
transaction, including the right to enforce performance of the transaction. Notwithstanding such forfeiture, the client
shall remain liable for any losses, costs and charges incurred, or charge imposed by the member, which effected the
said transaction.
5.2 A member shall have the right but not the obligation to allow a controlled client to honor his obligation until 10h00
on T + 4 after which the obligation to settle reverts to the member.
5.3 Where the controlled client has not complied with its obligation to put the member in a position to effect settlement
and neither the member nor the settlement authority is able to effect settlement, the settlement authority shall as at
16h00 pm T + 4 declare the transaction to be a failed trade.
5.4 Notwithstanding 5.2 and 5.3 above, the notification at any stage prior to 16h00 on T + 3 by a controlled client to a
member of its inability to put the member in a position to settle, may result in the declaration of a failed trade by 9h00
on the following business day.
Applicable Rule
14.110 Settlement of STRATE Approved Securities
14.110.4 In the event that a CSD participant (including the CSD participant of the settlement authority) has not
committed to settle the transaction by 16h00 on the fourth business day after the trade date, the
transaction shall be a failed trade and shall be dealt with in terms of the failed trade procedures set out in
14.150.
14.110.5 Notwithstanding the provision of 14.110.4 in the event that –
14.110.5.1 a member advises the settlement authority at any stage that the CSD participant of the member will not
be in a position to settle a transaction on settlement day; and
14.110.5.2 the settlement authority is not able to procure that the settlement of the transaction will take place on
settlement day or to close the transaction in terms of 14.30.2.9, the transaction shall be declared a failed
trade by no later than 019h00 on the next business day and shall be dealt with in terms of the failed trade
procedure as set out in 14.150.
Rule 14.130 Controlled Client Settlement Obligations
14.130.2 In the event that a controlled client fails to comply with the provisions of 14.1301, the member which
effected the transaction shall be entitled to proceed in the manner set our in 14.130.4.
14.130.3 Notwithstanding 14.130.2, in the event that the client continues to fail to place the member in a position
where the member is able to settle the transaction on the clients behalf, the member which effected the
transaction shall by no later than 10h00 on the fourth business day after the trade date proceed in the
manner set out in 14.130.4.
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14.130.4 Subject to the provisions of 14.130.2 and 14.130.3, in the event of a failure by the controlled client to
comply with the provisions of 14.130.1
14.130.4.1 the member which effected the transaction on behalf of the controlled client shall, as at 10h00 on the
fourth business day after the trade date, assume, as principal, the rights and obligations of the controlled
client in respect of the said transaction, including the obligation to settle the transaction;
14.130.4.2 the member which effected the transaction shall proceed in the manner set out in 14.140.9 unless the
settlement authority is able to close the transaction in terms of 14.30.2.9 or declares the transaction a
failed trade in terms of 14.150;
14.130.4.3 the controlled client shall forfeit any rights that such client may have had in respect of the said
transaction, including the right to enforce performance of the transaction; and
14.130.4.4 notwithstanding 14.130.4.1 to 14.130.4.3, the controlled client shall remain liable for any losses, costs
and charges incurred, or charges imposed, by the member which effected the transaction, as a result of
the member acting in accordance with 14.130.2 or 14.130.3.
Rule 14.140 Member settlement obligations
14.140.11 Notwithstanding 14.140.8, in the event that –
14.140.11.1 a controlled client fails to ensure that a member is in a position to settle a transaction by 10h00 on the
fourth business day after the trade date.
The member shall, subject to the action taken by the settlement authority in terms of 14.140.9. and
14.140.10, as the case may be, proceed in terms of the procedures set out in 14.140.9 or 14.140.10,
whichever is applicable.
Applicable Fees and Penalty
R500-00 per occurrence when the client does perform by 10h00 on T + 4; and
R500-00 per occurrence where the member of the client cannot procure settlement by 12h00 on T + 4.
R5000-00 administration fee in respect of each failed trade.
R1000-00 per failed trade plus double the brokerage with a minimum fine of 0.3% of the value of the trade, not
exceeding R100 000-00.
Any compensation payable to the non-failing party in respect of the trade being failed, shall be for the account of
the failing client.
Material Obligation 6
Where a transaction of a controlled client fails, such client may be responsible for any balance of the non-failing party’s
transaction which was closed.
The settlement authority will close a failed trade against another transaction. When such closing constitutes a part of a
larger transaction, the non-failing party may apply to the settlement authority to have the balance of the transaction
cancelled. If successful, the failing controlled client will take the place of the non-failing party for the balance of such
transaction.
Applicable Directive
Directive EI
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6. In the event that any part of the transaction of the non-failing party is closed, and notwithstanding EI 2 to EI
5, the settlement authority may, upon the request of the non-failing party, elect to nullify the contract note
which pertains to the said transaction. If the settlement authority elects to nullify the contract note –
6.1 the settlement batch which contains the failed trade shall be amended accordingly with the party responsible
for the failed trade becoming responsible for any resultant obligations.
Applicable penalty
Where a non-failing party’s application to give up the balance of a transaction is successful, the failing party will be
responsible for such entire transaction of the non-failing party which, when closed off against the failing transaction, will
result in the failing client changing from a seller to a buyer or vice versa.
Material Obligation 7
7. As a consequence of the controlled client not meeting material obligation 4 and where the member or the
settlement authority is able to effect settlement by borrowing funds or securities the member shall be entitled
to:
7.1 In respect of a sale transaction-
7.1.1 immediately buy the required securities for the account of the client; and
7.1.2 the client must pay to the member the difference between the sale consideration of the securities the client
requested to be sold and purchase consideration of the securities which were bought-in by the member,
including any interest;
7.2 In respect of a purchase transaction-
7.2.1 immediately sell the securities purchased for the account of the client;
7.2.2 the client must pay the member the difference between the purchase consideration of the securities which
were purchased at the clients request and the sale consideration of the securities sold by the member,
including interest.
7.3 If there is any amount still owing by the client after the member has taken the steps set out in 7.1 and 7.2, the
member may also sell any other securities of the client which the member holds for the client or which the
member may receive on behalf of the client in order to realize the difference.
Applicable Rule
Rule 14.140 Member Settlement Obligations
14.140.9 In the event that the settlement authority receives notification in terms of 14.140.8 and is able to procure
the settlement of the transaction by means of the borrowing of securities or funds, as the case may be,
then the member shall by no later than the close of business on the next business day –
14.140.9.1 in respect of a sale transaction, buy such securities for the account of the client and claim the difference
between the selling consideration of such securities and the purchase consideration for such securities,
including interest as provided for in the rules;
14.140.9.2 in respect of a purchase transaction, sell such securities for the account of the client and claim the
difference between the purchase consideration of such securities and the selling consideration for such
securities, including interest as provided for in the rules; and
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14.140.9.3 sell for the account of such client –
(i) so many of any other listed securities belonging to such client and held by or in the custody
of such member; or
(ii) so many of any other listed securities to be delivered to the client in respect of any
transaction relating to securities previously entered into by such buyer with or through the
member,
as is necessary to realize an amount equal to the amount still owing by the client in respect of such
securities, after the sale or purchase of the securities in terms of 14.140.9.1 and 14.140.9.2, as the case
may be.
Material Obligation 8
Where a controlled client has not made available securities timeously and a member borrows securities to effect
settlement for the controlled client, the controlled client is responsible for any costs that may be incurred by the member
in this regard and any penalties imposed on the member. These costs include the costs related to manufactured dividends.
Applicable Rule
14.170 Borrowing of Uncertificated Securities to Prevent a Trade from failing
14.170.3 A client shall be responsible for the payment of any costs that may be incurred by the member as a result
of the member having borrowed the securities to effect settlement (including costs related to
manufactured dividends and other similar costs), and any penalty imposed on the member by the
settlement authority, where the client failed to deliver the uncertificated securities required to settle the
transaction.
Applicable fee
R1000-00 administration fee plus the greater of R1000-00 or 5% per annum of the initial value of the loaned
uncertificated securities over the loan period. In addition no interest will be payable on any collateral lodged.
Material Obligation 9
Where a member borrows funds either directly or via the settlement authority to effect settlement for a controlled client
who has not made payment of the required funds to the member timeously, the controlled client is responsible for any
costs incurred by the member or penalties imposed on the member in this regard.
Applicable Rule
14.180 Lending of Funds to Prevent a Trade from failing
14.180.2 A client shall be responsible for the payment of any costs that may be incurred by the member as a result
of the member having borrowed the funds to effect settlement, and any penalty imposed on the member by
the settlement authority, where the client failed to pay the funds required to settle the transaction.
Applicable Fees an Interest
R1000-00 administration fee plus an interest charge of 5% per annum above the prime overdraft rate at
FirstRand Bank Ltd.
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Material Obligation 10
10.1 Where a controlled client does not meet his obligations timeously and neither the member not the settlement
authority is able to borrow funds or uncertificated securities to ensure that settlement of the transaction takes
place, then the transaction of the failing controlled client shall be closed by the member in accordance with
instructions provided by the settlement authority.
10.2 A failing controlled client will in addition to any fees and penalties, be responsible for any compensation that is
paid to the non-failing party.
Applicable Rule
14.140 Member Settlement Obligations
14.140.10 In the event that the settlement authority receives notification in terms of 14.140.8, and the settlement
authority is either able to close the transaction in terms of 14.30.2.9 or declares the transaction to be a
failed trade in terms of 14.110.4, the member shall act in accordance with the instructions received from
the settlement authority in terms of 14.150.
Applicable Fees and Compensation
Where the transaction is closed by the settlement authority in terms of rule 14.30.2.9:
A R1000-00 administration fee will be payable; and
Any compensation paid to the non-failing party in terms of the voluntary close out shall be for the account of the
failing client.
Material Obligation 11
11.1 A client may be invited by the JSE to voluntarily give up a transaction, or a part of a transaction, where the JSE
believes that it is likely that the transaction will not settle because of a potential failed trade.
11.2 If the client gives up a transaction or a part of the transaction in accordance with 11.1, then the client will be
entitled to receive compensation.
Applicable Rule
Rule 14.30 Settlement Authority
14.30.2 The Settlement authority shall have the power to-
14.30.2.9 invite a member or a client (via the member) to close a purchase or sale transaction at a price and on the
basis set out in rule 14.150
Compensation
Compensation is payable to the non-failing party.
Material Obligation 12
12.1 If there is a failed trade which will result in a transaction or part of a transaction not settling, a client must, if
instructed by the JSE, give up the transaction or a part of the transaction.
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12.2 If the client gives up a transaction or a part of the transaction in the manner set out in 12.1, then the client will be
entitled to receive compensation.
12.3 If a client is instructed by the settlement authority to give up a part of a transaction, the client may apply to give
up the entire transaction. If the settlement authority allows the giving up of the entire transaction, the client
waives any right to receive compensation.
Applicable Rule
Rule 14.150 Failed Trades
14.150.1 A failed trade shall be dealt with in the following manner –
14.150.1.1 the settlement authority shall match a failed trade against an equal but opposite transaction represented
by a single contract note which is a terminating transaction;
14.150.1.2 in the event that there is no transaction, or more than one transaction of the type set out in 14.150.1.1, the
settlement authority shall, in terms of the failed trade procedures laid down from time to time, select such
transaction or transactions represented by one or more contract notes the failing of which will be least
disruptive to members, clients, and counterparties;
14.150.1.3 the transaction selected in terms of 14.150.1.1 or 14.150.1.2 shall be closed at a price to be determined
by the settlement authority, in consultation with the market controller. This price may differ from the
original trade price and will include compensation for the party whose transaction is being closed. The
compensation shall be determined in accordance with principles set out in the directives from time to
time. The difference shall be due from the member who effected the failed trade to the CSD participant of
the parties whose trades have been closed by the settlement authority. The settlement of such amount will
form part of the settlement batch, which contains the failed trade.
Applicable Compensation
In the event that material obligations 12.1 is applicable, compensation will be paid to the non-failing party.
In the event that material obligation 12.2 and 12.3 are applicable, the non-failing party waives any right to
compensation.
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