The JSE’s implementation of a single trading rule book for its interest rate market is a major step forward in the development of South Africa’s interest rate market encompassing cash bonds, bond repos and interest rate derivatives. This rule book, combined with the new Debt Listings Requirements that went live on 31st March greatly simplifies the listing and trading of bonds and bond derivatives. The integration makes it possible to trade all listed interest rate instruments on a single trading platform. This achievement, within a regulated exchange environment, places the exchange in a leadership position among global interest rate markets.
Worldwide, the global financial crisis has focused regulators and exchanges on creating more transparent, better regulated exchanges. Of particular importance is the moving of over-the-counter products into a regulated exchange environment.
The integration of the rule books of former competing markets, Yield-X (operated by the JSE) and the previously independent Bond Exchange South Africa (BESA), now owned by the JSE, moves the exchange closer to fulfilling this aim for the local interest rate market.
The trading system and rules provide for both a central order book and the ability to report transactions negotiated off the central order book to the trading system.
“The intention is to bring execution of the most liquid part of the South African Government bond market on-exchange. The benefits of the changes include transparent pre-and post trade prices and fair anonymous execution, allowing the JSE to extend the reach of the market to increase the number and types of market participants and to improve access for participants located outside South Africa. Ultimately, this is aimed at attracting a greater number of members and creating conditions for growth,” says Graham Smale, Director of Interest Rate Products at the JSE.
The rules covering the integrated markets will be known as the JSE Interest Rate and Currency (IRC) rules and directives. Though the aim is not to fundamentally change the way in which interest rate products are traded on the JSE, there will be certain changes to elements of the market structure and the regulatory requirements. The combined rulebook now provides for the JSE’s structure and discipline, whilst still incorporating the key elements of the BESA bond market’s trading practices. All members now have access to a Central Order Book and anonymous counterparties, with transactions executed through the Central Order Book being cleared through the JSE-owned SAFCOM clearing house.
The integration of the rules was part of the merged business’ original consolidation plans, which have been discussed with participants since the 2009 acquisition of BESA.
The main objectives of the integration of the markets are to consolidate trading in JSE listed interest rate products on a single trading platform, and to align the regulatory requirements and the process applied by the JSE in managing trading and settlement of interest rate products under a common set of rules. “The JSE believes that the reforms will ultimately develop the market by growing liquidity, improving market efficiency and achieving increased transparency,” says Smale.