Johannesburg Stock Exchange - Serengeti Conference Room. Greg Kennelly (Rand Merchant Bank) Dianne Bates (Rand Merchant Bank Clearing)

Transcription

1 MINUTES Heading: Currency Derivatives Advisory Committee Meeting Date: Thursday, 24 July 2014 Time: 12h30 Venue: Johannesburg Stock Exchange - Serengeti Conference Room Present Warren Geers (Chairman) Gavin Betty (Peregrine Derivatives Conf. Call) Tom Anderson (Standard Bank) Eben Karsten (Brait) Lourens Harmse (ABSA Bank) Kobus Venter (ABSA Bank) Andrew Gillespie (Tradition) Justin Kightley (Nedbank) Woerie de Villiers (Farmwise) Philip Blom (RMB) Greg Kennelly (Rand Merchant Bank) Dianne Bates (Rand Merchant Bank Clearing) Andre Koen (JSE) Jacob Shayi (JSE) Warren Geers (JSE) Apologies Andre van der Merwe, Nicky Newton-King, Raymond Pretorius, Ross Hooper, Steve Greenstein and Cindy Pillay Secretary Brigid Gilbee Minutes: 1. WELCOME: Mr. Geers welcomed the Committee members to the meeting and thanked them for their attendance at this meeting. 2. CONFIRMATION OF MINUTES: The minutes of the meeting of the Currency Advisory Committee held on 19 March 2014 were approved. Page 1 of 8

2 3. ACTION ITEMS FROM PREVIOUS MEETING MINUTES: It was NOTED that all action items from the previous meeting have been addressed by the JSE and are therefore closed. 4. UPDATE BLOCK TRADE RULE AMENDMENTS 201 DOLLAR/RAND RULE: Mr. Geers reminded members of the Committee that at the previous meeting of the Committee held on 19 March 2014 the 201 Dollar/Rand rule had been discussed in detail. Formal consultation in regard to this rule is currently underway with representatives of the Financial Services Board. Once feedback has been received from the FSB, the proposal relating to the 201 Dollar/Rand rule will be tabled for consideration and approval by the JSE s Executive Committee. Mr. Kennelly expressed concern relating to the length of time this proposed amendment Warren Geers is taking to finalise, and requested the date that the submission was made to the FSB? Mr. Geers undertook to liaise with the JSE s Regulation team to determine how long the proposed rule amendment has been with the FSB for consideration, and will include the date in the minutes of the meeting. Feedback from Warren Geers: The draft rule was provided to the FSB on the 15 th July Feedback from JSE Regulation: The JSE Regulation team is in consultation / communication with the FSB on this. They have provided comments and questions and the JSE have responded. The FSB have requested a meeting which should be setup in the week of the 25th August The JSE Team is optimistic that post this meeting the rule can move ahead for Exco Approval. 5. UPDATE TO TRADE CANCELLATION RULE: Mr. Geers advised the Committee that the Regulation team has thanked members of the Advisory Committee for their comments on the proposed trade cancellation rule. Based on the feedback received in relation to this rule, it has been determined that the proposed trade cancellation rule will not be suited to the Currency market as is the case in the Equity market. As a result, consideration to the introduction of this rule has been placed on hold whilst the team re-evaluates how best to incorporate such a rule in the IRC market. Page 2 of 8

3 5. UPDATE TO TRADE CANCELLATION RULE: (Contd.) Mr. Kennelly suggested that it would be more prudent to give consideration to such rule Warren Geers changes by creating a focus group or sub-committee. Mr. Geers undertook to discuss this with the team. Feedback: Mr. Geers has addressed this with the JSE Regulation Team and a meeting has been setup internally at the JSE to discuss the possibility of establishing a focus group where rule changes can be discussed. The JSE regulation Team would like to wrap up the trade cancellation rule for Equity Derivatives Market and Commodity Derivative Market as that process is quite advanced before they address this rule for the Currency Derivatives Market. There were fundamental issues that have been raised with regards to the rule for Currencies and it is only fair to go into the sessions having thoroughly prepared and researched how other markets have dealt with the issues that were raised. The team believe that the idea of a focus group is the best mechanism to deal with the issues that were raised but have requested to initially see the trade busting rule for the Equity Derivatives and Commodity Derivatives market up to a point where it is submitted to the FSB and thereafter engage with the Currency Derivatives market regarding these issues. Therefore this is on hold until further notice. 6. MARK TO MARKET METHODOLOGY: Mr. Geers advised the Committee that the JSE has been requested by Reuters to begin paying a fee for using the D3 process. In 2007, the banks gave permission to the JSE to see the banks D3 pricing. The JSE only uses this pricing for mark to market purposes. This pricing is used for three five minute periods per day and four times a day during daylight savings time. The levy proposed by Reuters is unpalatable to the JSE, and is looking at alternatives to the proposal. A meeting was held with market makers approximately two weeks ago to discuss this issue. There are various ways in which this pricing can be obtained but based on analysis done by the JSE; the banks believe that the D3 pricing would still be the best source for MTM purposes. A letter was addressed to SARB in this regard by the Chairman of the FMLG but no further feedback has been received to date. Mr. Geers advised the Committee that a meeting has been scheduled to take place on 28 July 2014 between representatives of Reuters as well as certain JSE Executives and Mr. Geers to discuss a proposed different model which may be used by the JSE. Page 3 of 8

4 6. MARK TO MARKET METHODOLOGY: (Contd.) Mr. Geers undertook to provide members of the Committee with feedback on the Warren Geers outcome of the meeting of 28 July 2014 following the meeting. 7. LISTING AND TRADING OF AFRICAN CURRENCY PAIRS: It was NOTED that after the Advisory Committee meeting held in March 2014, the JSE continued to receive requests to list the following African Currency pairs - - Kenyan Shilling / South African Rand; - Zambian Kwacha / South African Rand; and - Nigerian Naira / South African Rand. One of the main concerns raised related to the initial margin requirements in respect of these currency pairs. The margin requirements calculated have been relatively high and therefore the value of listing these currency pairs has been questioned. The JSE reevaluated the initial margin requirements and provided the following indicative figures - - Nigerian Naira / South African Rand (FX Exposure ) (ZAR Exposure R9 750) (IMR Percentage of Notional (10.49%) (IMR Rand amount R1 023); - Kenyan Shilling / South African Rand (FX Exposure ) (ZAR Exposure R12 000) (IMR Percentage of Notional 8.65%) IMR Rand amount R1 038); and - Zambian Kwacha / South African Rand (FX Exposure ) (ZAR Exposure R8 500) (IMR Percentage of Notional 14.22%) IMR Rand amount R1 209). It was AGREED that the forward points should be taken at 17h00 each day, and added to the spot fixings as determined off the appropriate vendor site. Mr. Geers queried whether any of the banks intended making live prices in respect of these currency pairs. Mr. Harmse indicated that this would be the case from ABSA s perspective. Standard Bank, Nedbank and Rand Merchant Bank would not provide live prices initially. Mr. Geers undertook to liaise with Mr. Harmse following this meeting as it appears as if Warren Geers the figures tabled at the meeting are incorrect. Page 4 of 8

5 7. LISTING AND TRADING OF AFRICAN CURRENCY PAIRS: (Contd.) Mr. Geers noted that the initial margin for these currency pairs is high relative to the USD/ZAR at R This is based on the evaluation conducted by the Risk team in relation to these currency pairs. Mr. Geers advised the Committee that following this meeting, he would prepare the contract specifications relating to these currency pairs. These contract specifications will then be sent to members of the Advisory Committee for final approval. Mr. Geers undertook to liaise with Mr. Harmse outside of this meeting to discuss how best to facilitate the provision of live prices on screen in relation to these pairs. Warren Geers Feedback: Please find attached the contract specifications for the African Currency Future contracts. Feedback: Please see below updated intial margin requirements: In terms of the Nigerian Naira / South African Rand currency pair, there is a central bank fix which is published on the vendor sites. 8. BILLING MODEL REVIEW 2014 AND STRATEGIC VIEW FOR 2015: It was NOTED that the focus during the billing model this year was around the following key points - - Correcting a fundamentally flawed rebate model based on the fact that the JSE rebates according to value, however revenue is according to number of contracts traded; - Offsetting the negative impact of correcting the rebate model with a reduction in the base fee per contract; and - The JSE s commitment to remain competitive as long as liquidity (volume) is increasing. There has been an increase in the number of contracts traded every year since the inception of the market with an average year on year increase of 48%. Page 5 of 8

6 8. BILLING MODEL REVIEW 2014 AND STRATEGIC VIEW FOR 2015: (Contd.) The following changes have been implemented in respect of the billing model - - the Currency Futures sliding scale fee has been reduced by R0.01 per contract; - the Currency Maxi Futures sliding scale fee has been reduced by R1.00 per contract; - the Currency Options and Can Do sliding scale fee reduced by R0.01 per contract; - the Currency Maxi Options sliding scale fee reduced by R1.00 per contract; - the cap on trading fees per transaction increased from R to R45 000; - the rebate model changed from Nominal Value based to Contracts based. Based on the past 12 months trading analysis (June 2013 May 2014), this new fee structure would have further benefited the market from a reduction of fees to the extent of R 530,119. In terms of the billing model strategic view for 2015, the JSE is currently investigating and researching the following billing model strategies - - introducing a flat fee per contract; - continuing analysis into the current structure of the rebate model (market maker obligations and applicable fees); and - Analysis of the merits and success of each individual rebate model Mr. Kennelly indicated that in his view, it is not feasible to introduce a flat fee per contract. Page 6 of 8

7 8. BILLING MODEL REVIEW 2014 AND STRATEGIC VIEW FOR 2015: (Contd.) Mr. Geers indicated that any suggested changes to the billing model for 2015 will be discussed with market participants before such changes are implemented. Mr. Kennelly indicated that in his view, the margin made by banks per deal is minimal and as a result it is often not worth the risk market making. Extensive discussion ensued and Mr. Geers indicated that he would convene a pricing sub-committee closer to the time to give consideration to proposed billing model changes for CURRENCY FUTURES STATISTICS JANUARY JUNE 2013 COMPARED TO JANUARY TO JUNE 2014: The Committee NOTED that statistics relating to the Currency Futures market for the period January to June 2013 compared with January to June 2014 as follows - January to June 2013: Value Traded R Volume Traded January to June 2014: Value Traded R (77% increase compared to YTD 2013) Volume Traded (52% increase compared to YTD 2013) 10. CURRENCY OPTIONS STATISTICS JANUARY JUNE 2013 COMPARED TO JANUARY TO JUNE 2014: January to June 2013: Value Traded R Volume Traded Page 7 of 8

8 CURRENCY OPTIONS STATISTICS JANUARY JUNE 2013 COMPARED TO JANUARY TO JUNE 2014: (Contd.) January to June 2014: Value Traded R (17% increase compared to YTD 2013) Volume Traded (25% decrease compared to YTD 2013) 11. GENERAL 11.1 Prevention of hitting own orders: Mr. Anderson queried whether a mechanism could be put in place to prevent a member Warren Geers from hitting its own orders. Mr. Geers indicated that he would investigate this in more detail and provide feedback to the Committee in due course Transparency Closing out Positions throughout the Day: Mr. Anderson suggested that a concrete procedure be put in place relating to transparency in terms of closing out positions throughout the day. It was noted that members are able to contact the exchange to address closing out of positions if they are required during the day. Mr. Kightly indicated that in his view, members should not be charged fees on expiry. Mr. Geers advised that all contracts closed-out (auto close, manual close or done via the JSE) are charged for. Mr. Geers undertook to document the procedure used by market makers in this regard for Warren Geers noting purposes by the Committee. Feedback: The proposed guidelines and procedures have been sent to the Market makers for consideration. Page 8 of 8