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In October last year the JSE announced that it would launch a new interest rate platform to trade a broad spectrum of interest rate products, with a focus on derivatives. The interest rate exchange will be the JSE’s fourth electronic clearing and settlement platform, alongside equities, financial futures and agricultural products. Yield-X aims to open up the interest rate market to new players and new products, encouraging liquidity and market diversification.
Allan Thomson, the JSE’s Director of Equities and Derivatives Trading, said Yield-X had received regulatory approval from the Financial Services Board (FSB) on January 17, paving the way for the new exchange to start trading. The past few weeks had been occupied with finalizing membership documentation, completing system tests and installing software on traders’ desks.
Development of the Yield-X system software was contracted out to a South African company, Securities and Trading Technology (STT). The integrated software platform enables complex instruments to be traded and managed simultaneously. “We are pleased to be launching with a world-class trading platform that was developed locally,” says Thomson.
Thomson said Yield-X had been well supported by the market and had attracted 24 trading and clearing members to date, with more applications being processed. Sanlam Bond Broking was the first trading member to come on board.
“We don’t expect massive volumes at the outset, but we expect Yield-X to emulate the success of the JSE equities and futures trading systems over time,” says Thomson. “We are excited to be bringing to the South African market the sophisticated interest rate derivatives market it deserves.”
The launch of Yield-X on February 28 will ensure proper price discovery for interest rate products in South Africa. At the heart of the new exchange is an anonymous central order book, allowing for trading via a single platform with automated trade matching and guaranteed settlement.
A major benefit of Yield-X will be the elimination of bi-lateral counter-party risk. The JSE, through clearing-house SAFCOM, will guarantee all trades and offers a cradle to grave audit trail. Yield-X will operate in a fully regulated environment overseen by both the JSE and the FSB.
Thomson said Yield-X was targeting a range of investors, from large institutional investors, banks, corporate treasuries and intermediaries, to smaller financial institutions and retail investors who may have been previously excluded from the interest rate market.
“We are encouraged by the support for Yield-X so far. Traders are excited at the prospect of opening up the interest rate derivative market, which attracts such huge volumes internationally,” said Thomson.
Thomson said that Yield-X would focus on derivative interest rate products, although a limited number of spot bonds would be secondary listed to support the derivative trade. It was hoped that Yield-X would be in a position to list corporate bonds later in 2005.
