BOND ETP. Settlement Model. Date: 25 April 2018 Version 2.0 Author: JSE Post Trade Services

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1 BOND ETP Settlement Model Date: 25 April 2018 Version 2.0 Author: JSE Post Trade Services

2 Table of Contents Version control Introduction The bond market ecosystem Settlement model of ETP trades Processes on settlement day (S) Start-of-day up to settlement exceptions handling process at 1pm Settlements exceptions handling process (from 13h00 to 15h15) Reconciliation of trade data for settlement Trade settlement in the event of operational failures Failed trades Rolling of settlement Trade cancellations Trade cancellation principles Trade cancellation process Penalties Default management Capital events on ETP traded bonds Annexure 1: Back-to-back links and settlement groups Annexure 2: Process flows Settlement Process Detailed Processes on morning of S (approximately 7h00 to 13h00) Cancellation process Annexure 3: Exceptions handling scenarios Scenario 1: Resolving an unstable settlement group (with linked ETP-IRC trades) due to an uncovered IRC trade Scenario 2: resolving an unstable settlement group (with linked ETP-IRC-OTC trades) due to an uncovered OTC trade Scenario 3: resolving an unstable settlement group (with linked ETP-ETP trades) due to an uncovered ETP trade Bond ETP Settlement Model (Version 2.0) Page 2 of 22

3 Version control Version Release Date Comments V1.0 February 2018 First draft Content updated in the following sections: Settlement of ETP Trades Trade Cancellations V April 2018 Annexure 2: Process Flows Additional information added High level reconciliation framework Bond ETP Settlement Model (Version 2.0) Page 3 of 22

4 1. Introduction In 2012 National Treasury (NT) formed an industry-wide committee called the Bond Market Development Committee (BMDC) whose mandate was to consider developmental issues facing the SA bond market. Representation included the JSE, Strate, the Association of Savings and Investments of South Africa (ASISA), the SA Reserve Bank (SARB) and the Financial Services Board (FSB). As a result of the work undertaken by the BMDC, National Treasury had decided to implement an electronic trading platform (ETP) for the Primary Dealers (PDs) appointed by NT. The JSE is responsible for managing the ETP Project delivery for government bonds that facilitates anonymous trading via a live central order book. The project implementation is overseen by a market-representative project steering committee, with a planned go-live in Q This document forms part of a set of post-trade related documents that include: Bond ETP Risk Policies and Processes; Bond ETP Initial Margin Methodology; and Bond ETP Default Management Policies and Processes. The purpose of this document is to provide a detailed description of the proposed settlement model and processes for trades executed on the Bond ETP. Where necessary, reference is made to the supplementary documents. NB. The Bond ETP settlement model has been aligned, as far as possible, to the current exchange reported bonds market (IRC) with regards to obligations, cut-off times and the settlement exceptions management process. Bond ETP Settlement Model (Version 2.0) Page 4 of 22

5 2. The bond market ecosystem Post the implementation of the ETP for bonds, three bond markets will exist in South Africa: Exchange Reported Market (IRC) JSE reported market where transactions are negotiated bilaterally between authorised market members and reported to the JSE OTC Market Bilateral over-the-counter trading of bonds amongst offshore (non-residents) counterparties which are reported directly to the CSD (Strate) Exchange Central Order Book Market (ETP) A JSE managed electronic trading platform (ETP) for government bonds that facilitates anonymous trading via a live central order book As part of the initial rollout of the Bonds ETP initiative, only PD to PD trading will be facilitated. As instituted by National Treasury (NT), all PDs will be obligated to place bid and offer quotes, within a set spread, for a period of five hours during the trading day. Buy-side and foreign clients may continue to trade with PDs however these trades will be executed in the current exchange reported (IRC) and OTC markets. Based on the back-to-back (BTB) linking functionality utilised by CSDPs, settlement dependencies across all three markets may be created i.e. ETP market trade legs linked to exchange reported market legs which in turn could be linked to OTC market trade legs. As agreed by the Bond ETP project steering committee, there should be no failed settlements of ETP trades since the following arrangements have been put in place for PD to PD trading: Securities shortage National Treasury s (NT) to act as lender of last resort to all PDs with no limit on the amount of securities provided. Cash shortage South African Reserve Bank (SARB) to provide cash loans to all PDs in the event of cash liquidity challenge The subsequent sections detail the overall settlement model and processes for ETP market trades, including the interdependencies that may arise across the exchange reported (IRC) and OTC markets. Bond ETP Settlement Model (Version 2.0) Page 5 of 22

6 3. Settlement model of ETP trades The settlement model outlined below is based on the following key principles: T+3 trading only Alignment of the settlement model as far as possible across ETP, exchange reported and OTC markets Allowance of back-to-back links across ETP, exchange reported (IRC) and OTC markets No settlement failures of ETP trades will occur settlement of ETP trades will be prioritised by posttrade market participants National Treasury/SARB to act as lender of last resort Cancelling of ETP trades may only be done on the same day i.e. T+0, after approval from the JSE Market Regulation division The daily settlement obligations, cut-off times and exceptions handling processes are summarised graphically below 1 : T+1 (S-2) T+2 (S-1) T+3 (S) 8h00 10h00 12h00 14h00 16h00 18h00 /8h00 10h00 12h00 14h00 16h00 18h00 /8h00 10h00 12h00 14h00 16h00 18h00 /8h00 Ensure CSDP is in position to commit 17h30 CSDP commit 18h00 CSDP commit becomes unconditional 08h30 Members CSDPs 13h00 15h15 Exceptions handling processes underway Trades are executed on T and settled on T+3. PDs have up until 17h30 on T+2 (S-1) to ensure that their CSDP is in a position to commit to their trade. As activity will be PD to PD trading only, client allocations are not applicable and CSDPs will not require an instruction in order to commit. Thus PDs need to ensure stock or cash is available in their custody or cash accounts respectively, at the CSDP, in order to ensure CSDPs are able to commit. CSDPs may use back-to-back links to create groups of associated trades across the ETP, exchange reported and OTC bond markets. CSDPs must commit to all Bond ETP trades by 18h00 on T+2 (S-1). 1 Refer to Annexure 2 for process flows Bond ETP Settlement Model (Version 2.0) Page 6 of 22

7 At 08h30 on T+3 (S) the CSDP commits become unconditional. Strate will begin settlement runs from 09h00 on T+3 (S) and these will occur intermittently throughout the day until 15h15. In parallel, from 09h00 to 13h00, Strate and the JSE will monitor all uncommitted trades preventing settlement of settlement groups (i.e. unstable settlement groups ) and will follow up with relevant CSDPs and members to resolve the problematic trades. Where there are ETP trades present in an unstable settlement group 2, and the ETP trades themselves are not the problematic trades holding up settlement (i.e. the first failing trade ), CSDPs will notify the relevant PD(s) that their ETP trade(s) are in an unstable group and that there may be a need for cover to be sourced if BTB links are broken at 13h00. This communication should start after the first settlement run and continue intermittently on S, until 13h00. At 13h00 all remaining uncommitted trade legs (ETP, exchange reported and OTC) will be subject to the settlement exceptions handling process Processes on settlement day (S) 4.1 Start-of-day up to settlement exceptions handling process at 1pm On S, every hour from 09h00 to 13h00, Strate provides JSE Settlement Authority (SA) and the CSDPs with a report containing all uncommitted trades in the ETP, exchange reported (IRC) and OTC markets. Based on the uncommitted trades report, JSE and Strate will liaise with affected members and CSDPs from 09h00, to drive resolution of all uncommitted trades by 13h00. As a result of ETP trades being eligible for back-to-back linking across exchange reported (IRC) and OTC trades and being part of settlement groups, a scenario exists where even if an ETP trade is in a committed status, the group in which it finds itself may be unstable due to another trade in the group (ETP, IRC or OTC) not being committed to. In addition to the uncommitted trades report, Strate will also provide the JSE SA and the CSDPs with an Unstable Settlement Groups report per PD detailing all of their trades that are part of unstable groups. Similar to the uncommitted trades report, the unstable settlement groups report will be published from 9am on S and every hour thereafter up to the final settlement run at Strate. CSDPs are to inform/pass on the report to their PDs who may utilise this information to get the necessary arrangements in place to potentially source cover for their ETP position after 13h00 should the group not yet be resolved. An updated unstable groups report will be distributed by Strate hourly which will enable CSDPs to confirm with PDs whether their trades are still in unstable groups or not leading up to the 1pm cut-off. Treatment of any groups not resolved by 13h00 will follow the principles and processes during the exceptions handling period as detailed in the following section. 2 Annexure 1 illustrates the concept of back-to-back linking and settlement groups 3 Annexure 3 illustrates a number of scenarios that may occur due to BTB linking and steps of how these will be resolved Bond ETP Settlement Model (Version 2.0) Page 7 of 22

8 4.2 Settlements exceptions handling process (from 13h00 to 15h15) The daily settlement exceptions handling process and cut-off times are summarised graphically below: A. 13h00 13h15: At 13h00, Strate, knowing which uncommitted trade(s) are holding up settlement of an unstable settlement group, will apply the below exception management principles: If an OTC trade is the trade causing a group containing on market trades (ETP and IRC) not to settle, all links of that group will be broken by CSDPs, on instruction from Strate If an IRC trade is the trade causing a group containing an ETP trade not to settle, all links will be broken by CSDPs, on instruction from Strate If an ETP trade is the trade causing a group, containing other on market trades (ETP or IRC) not to settle, then no links will be broken as the ETP trade will be covered before the final settlement run occurs at 15h15 on S. The breaking of BTB links and removal of uncommitted trades from BTB linked groups may result if ETP trades becoming uncovered/uncommitted. CSDPs will need to inform their PDs of the change in commit status in order for them to initiate the next steps of the process. NB. If the uncommitted ETP trade legs are not part of a linked settlement group, no breaking of links will be required and will proceed to the following step. Bond ETP Settlement Model (Version 2.0) Page 8 of 22

9 B. 13h15 14h00 PDs that are uncovered/short of securities for their ETP trade legs will have 45 minutes to source cover in the market. C. 14h00 14h30 If the PD does not manage to cover their positions by 14h00, they will be forced to obtain cover from NT using the facility that has been made available to them. D. 14h30 15h15 All resulting settlement administration for the capturing and linking of cover trades, to be performed during this period, i.e. booking of cover trades in the exchange reported market (IRC) and CSDP performing BTB links to commit trade legs E. 15h15 Strate initiates the final settlement run for the day. NB. Should the above timelines be insufficient (in exceptional circumstances only) extension of timelines may be necessary. Bond ETP Settlement Model (Version 2.0) Page 9 of 22

10 5. Reconciliation of trade data for settlement As a pre-emptive measure to ensure the integrity of data at different touchpoints in the ETP value chain and to ensure alignment across trading and settlement participants, a reconciliation of all trades due for settlement is performed. This reconciliation will also allow early identification of potential issues and enable any such issues to be resolved before settlement date. The diagram below depicts the various reconciliation processes that have been put in place: MTS Trading Engine Trade info Trading Front End Trade Recon 2 Trade Recon 1 JSE Trade Recon 3 Trade Vault Strate Settlement System (BaNCS) Trade info CSDP Settlement Systems Trade Recon 1 facilitates reconciliation of trades between the Strate system and the MTS trading engine. This reconciliation is done daily at end-of day by MTS providing a trade file to State to reconcile. The same file from MTS will be used by the JSE for Trade Recon 2 which will facilitate reconciliation of trades between MTS trading engine and JSE systems i.e. billing, margining and surveillance systems. The third trade reconciliation Trade Recon 3 will be between the PDs and their appointed CSDPs to ensure balancing across the value chain. Bond ETP Settlement Model (Version 2.0) Page 10 of 22

11 6. Trade settlement in the event of operational failures Notwithstanding the guaranteed cash and securities facilities provided by NT and SARB, there may be occasions where settlement may not be possible as a result of operational failures that may include: Strate systems are down A Strate system failure will have the highest settlement impact as no settlements will be able to be processed. In this case, Strate s defined disaster recovery processes will apply. One or more CSDP systems are down Where CSDP systems down are down, high settlement impact can be expected and the CSDPs disaster recovery processes will apply. In the worst case, CSDPs could request Strate to commit to trades on their behalf. JSE systems are down The JSE will be utilising a Strate provided system to perform its Settlement Authority functions for the settlement of ETP trades. Cover trades required for any ETP trades will be booked via the current JSE Nutron\Nuclears system as an exchange reported trade. A JSE system outage (i.e. Nutron\Nucelars is down) will result in cover trades not being able to be booked. The potential use of the OTC trade capture mechanism may be considered in this event however will need to be tested and validated. One or more PD trading systems are down A PD outage is expected to have no impact on settlement, however it may have an impact from a trading perspective, i.e. the PD may not be able trade for the duration of the outage. NB. Please refer to the detailed Business Continuity Plan (BCP) for Bond ETP for further information on the various failure points and recovery processes. Bond ETP Settlement Model (Version 2.0) Page 11 of 22

12 7. Failed trades Due to the facilities which will be made available to PDs by NT and SARB, it is expected that failed trades may only occur in the case of a default. The default management processes as outlined in the Bond ETP - Default Policies and Processes will apply. 8. Rolling of settlement As mentioned above, there should be no failed settlements of ETP trades due to inability of PDs to cover their trades. Only in the case of extreme operational failures, where disaster recovery processes are ineffective, will rolling of settlement be considered by JSE Settlement Authority. It is important to note that rolling of Bond settlements is procedurally different to rolling of Equity settlements however the process name remains the same. According to the draft ETP rules (Section 8.60), if the Settlement Authority receives notification from a PD that they are unable to settle a transaction in Bond ETP securities on the settlement date, the Settlement Authority will assess whether exceptional circumstances exist that warrant settlement of the transaction being rolled to a later date. If circumstances warrant, settlement will be rolled in the following manner: The Settlement Authority will obtain a list of ETP Bond settlements from the CSD which are not going to be effected on the due settlement date. This list will include the failing trade leg as well as the opposite trade leg. The Settlement Authority will advise the affected PDs that settlement of the transaction will be rolled to a revised settlement date determined by the SA. The affected PDs will be instructed to re-book the original transaction (to be booked as a structured deal via the exchange reported market) at the original trade date and yield and a revised settlement date as determined by the JSE SA. NB. In this event counterparty names to the rolled trades will need to be disclosed and anonymity will be lost. Bond ETP Settlement Model (Version 2.0) Page 12 of 22

13 9. Trade cancellations As per ETP trading rule (5.50.1) a key component of market integrity is the assurance that once executed, a trade will stand and will not be subject to cancellation. However, if a trade is executed as a result of an error by a member, there may be significant adverse consequences for the affected member and therefore it is appropriate in certain circumstances to cancel such trades The principles and processes relating to trade cancellations are detailed in the sections below Trade cancellation principles Only cancellations on T will be allowed Trade cancellation requests must be sent to the JSE Market Regulation division for approval by no later than 20 minutes after trade execution. Only the JSE will be able to action cancellation requests via the MTS trading system, and only after JSE Market Regulation approves the cancellation Trade cancellation process 4 A member may request a cancellation of an error trade within a predefined period after the execution of the error trade. Actions as outlined in ETP Trading Rule 5.50 (Trade Cancellation) will apply to determine whether or not the trade cancellation will be approved. Once the cancellation is approved, it is actioned according to the following process: A. JSE Market Regulation will inform the affected PDs and other JSE stakeholders that a cancellation is about to be triggered by MTS. PDs should make their CSDPs aware of the cancellation at this point. B. JSE Market Regulation will send a formal request to MTS to cancel the specific trade. C. MTS will trigger a cancellation. Once this cancellation has been triggered, the trade is deemed cancelled from a trading perspective. D. Strate will receive the cancellation message and if both trade legs are in an uncommited status the trade cancellation will be complete E. If either trade leg is in a committed status the cancellation will be rejected by Strate s systems and Strate in turn will contact the relevant CSDP and request that the trade leg be uncommitted. Once both trade legs are uncommitted Strate s systems resubmit the cancellation request using its automated resubmission tool and the trade cancellation will be complete. 4 Refer to Annexure 2 for process flows Bond ETP Settlement Model (Version 2.0) Page 13 of 22

14 F. Once the trade cancellation has been successfully completed from a post trade perspective, Strate will inform the JSE and CSPDs, who will in turn confirm with the PD that the cancellation is now complete. Given that primary dealers (PDs) are active on ETP as well as in the reported bonds (IRC) and OTC markets, it is possible that an involuntary trade cancellation on the ETP may impact trades executed by that PD in another market. If necessary, cancellation of such trades in other markets are the responsibility of the PD as the exchange reported and OTC markets are bilaterally agreed markets. Error trades that are not cancelled will be subjected to the normal settlement and margin obligations. Fees will be applicable for all requests to cancel error trades, whether or not the cancellation is successful. 10. Penalties No settlement penalties will be levied by the JSE on ETP trades at go-live. Market behavior will be tracked and a penalty framework will be considered should there be increasing instances of rule transgression. 11. Default management A credit default is seen as an exceptional circumstance. The processes and procedures to be followed during a credit default of a member of the ETP market is detailed in the Bond ETP - Default Policies and Procedures document published by the JSE. 12. Capital events on ETP traded bonds Capital events on bonds traded via the ETP will follow the same process as the current exchange reported (IRC) and OTC trades. All capital events will be managed and settled by Strate. Bond ETP Settlement Model (Version 2.0) Page 14 of 22

15 SCENARIO 2 SCENARIO 1 Annexure 1: Back-to-back links and settlement groups ETP IRC OTC 1 Buy 1 PD Sale 1 PD2 BTB 1 CSDP1 Buy 2 PD Sale 2 CL1 2 Buy 3 PD Sale 3 PD3 BTB 2 CSDP2 Buy 4 PD Sale 4 CL2 3 Buy 5 PD Sale 5 PD5 ETP IRC OTC Buy 1 PD Sale 1 PD2 Buy 2 PD Sale 2 CL1 1 BTB 1 CSDP1 Buy 3 PD Sale 3 PD3 BTB 2 CSDP2 Buy 4 PD Sale 4 CL2 2 Buy 5 PD Sale 5 PD5 Bond ETP Settlement Model (Version 2.0) Page 15 of 22

16 Monitors commit status throughout and follow up with members where necessary Annexure 2: Process flows Settlement Process PD JSE CSDP STRATE T Start T+2 (17:30) Trade executed Member deadline to put CSDP in a position to commit T+2 (18:00) T+3 (08:30) T+3 (09:00) T+3 (13:00) T+3 (15:15) Exceptions Handling Deadline for CSDP to commit Commit becomes unconditional First settlement run Final settlement run End SAMOS payment run at 4:30pm Bond ETP Settlement Model (Version 2.0) Page 16 of 22

17 Detailed Processes on morning of S (approximately 7h00 to 13h00) PD/Member JSE CSDP STRATE S (Start of day) Start Assesses impact of uncommitted trades in settlement Generates and sends report on uncommited trades S (11h00 TBC) Source stock as required to commit Confirms with member that stock is still outstanding Assesses potential impact of unstable groups on settlement Generates and sends 1. Uncommited report; 2. Report unstable group report highlighting all affected ETP trades T (12h30 TBC) Plan for cover Notify PD of ETP trade in an unstable group and that PD may need to source cover Assesses potential impact of unstable groups on settlement Generates and sends 1. Uncommited report; 2. Report unstable group report highlighting all affected ETP trades Plan for cover End Confirm whether or not PD in an unstable group Bond ETP Settlement Model (Version 2.0) Page 17 of 22

18 Settlement exceptions handling process T+3/S (01:00pm) PD JSE CSDP STRATE Start Aware that trade needs to be covered Receives NAFI messages for newly uncommitted trades Breaks links related to ETP trades Identifies trade (OTC or IRC) holding up ETP trade settlement T+3/S (01:15pm) Sources cover If cover sourced before 02:00pm Requests window to book cover trade Books cover trade Opens window for cover trade to be booked Links cover trade to ETP trade and commits If cover not sourced before 02:00pm T+3/S (02:00pm) Required to obtain cover from NT using facility in place. Requests window to book cover trade Books cover trade with SARB on behalf of NT Opens window for cover trade to be booked Links SARB cover trade to ETP trade and commits T+3/S (03:30pm) Final settlement run occurs End SAMOS payment run at 4:30pm Bond ETP Settlement Model (Version 2.0) Page 18 of 22

19 Cancellation process PD JSE CSDP STRATE T (Market Open) Start Informs JSE Market Surveillance of error trade and gives necessary permissions Contacts counterparty and does all necessary investigation to determine whether or not trade will be cancelled If cancellation approved Informs CSDP that trade cancellation is approved and going to be processed Inform PD that trade cancellation is approved Instructs MTS to cancel trade MTS cancels Received cancellation from MTS CSDP uncommits No Requests CSDP uncommit Check that trade is in an uncommited status Yes Trade cancellation completed T (20h00) End Bond ETP Settlement Model (Version 2.0) Page 19 of 22

20 Annexure 3: Exceptions handling scenarios Scenario 1: Resolving an unstable settlement group (with linked ETP-IRC trades) due to an uncovered IRC trade At start of day on S: ETP IRC Buy 1 PD Sale 1 PD2 BTB 1 Buy 4 PD Sale 4 CL2 Buy 5 PD Sale 5 PD8 BTB2 Sale 6 CL Buy 6 CL2 Strate, CSDPs and the JSE are aware of an unstable group due to potentially failing IRC trade (Sale 6) from the morning of S and liaise with the member to resolve any issues during the day before 13h00 At a predetermined point in the day before exceptions handling commences at 13h00 (this time needs to be confirmed), Strate will notify the CSDPs and JSE of any ETP trade(s) that are in an unstable group (Sale 1 in the above scenario) In order to manage exceptions pro-actively, CSDPs should inform impacted PDs of the need to potentially cover trades once they become aware of the same at the predetermined time on the morning of S. At 13h00 on S: ETP PD needs to source cover IRC Buy 1 PD Sale 1 PD2 BTB 1 broken Buy 4 PD Sale 4 CL2 Buy 5 PD Sale 5 PD8 BTB 2 may or may not be broken Sale 6 CL Buy 6 CL2 At 13h00 should Sale 6 still not be committed to, BTB1 will be broken and PD2 will need to source cover for their respective trade legs between 13:15 and 14h00 At 14h00, if cover has not been sourced for Sale 1, PD2 will be instructed to obtain scrip from NT using the facility available ETP trades should then settle in Strate s last settlement run at 15:15 The JSE SA will manage the uncommitted trades in the IRC market and these trades will either settle or fail by 15:15 Bond ETP Settlement Model (Version 2.0) Page 20 of 22

21 Scenario 2: resolving an unstable settlement group (with linked ETP-IRC-OTC trades) due to an uncovered OTC trade At start of day on S: ETP IRC OTC Buy 1 PD Sale 1 PD2 Buy 4 PD Sale 4 CL1 Buy 6 CL Sale 6 PD8 BTB 1 BTB2 Buy 5 PD Sale 5 PD8 Strate and CSDPs are aware of an unstable group due to potentially failing OTC trade (Sale 6) and informs JSE at a predetermined time that links with an OTC trade may need to be broken 13h00 Strate will at the same time notify the JSE and the CSDPs of any ETP trade(s) (Sale 1) and reported trade(s) (Sale 4) that will be affected should the BTBs need to be broken at 13h00 In order to manage exceptions pro-actively, CSDPs will inform PDs and other reported market members of the need to potentially cover trades once they become aware of the same on the morning of S At 13h00 on S: ETP PD needs to source cover IRC Client needs to source cover OTC Buy 1 PD Sale 1 PD2 BTB 1 broken Buy 4 PD Sale 4 CL1 BTB2 broken Buy 6 CL Sale 6 PD8 Buy 5 PD Sale 5 PD8 At 13h00 should Sale 6 still not be committed to, BTB1 will be broken and PD2 will need to source cover for Sale 1 between 13:15 and 14h00 Since the failing trade is an OTC trade, which the JSE SA has no jurisdiction over, BTB2 will need to be broken as well and CL1 will need to source cover for Sale 4 as well At 14h00, if cover has not been sourced for Sale 1, PD2 will be instructed to obtain scrip from NT using the facility available. CL1 will also be instructed to borrow from NT if they have not sourced cover by 14h00 however NT may choose not to lend to CL1 ETP trades should then settle in Strate s last settlement run at 15:15 The JSE SA will manage the uncommitted trades in the IRC market and these trades will either settle or fail by 15:15 Bond ETP Settlement Model (Version 2.0) Page 21 of 22

22 Scenario 3: resolving an unstable settlement group (with linked ETP-ETP trades) due to an uncovered ETP trade At start of day on S: ETP Sale 1 PD Buy 1 PD1 BTB 1 Buy 4 PD Sale 4 PD5 Buy 5 PD Sale 5 PD7 BTB2 Sale 6 PD Buy 6 PD5 Strate, CSDPs and the JSE are aware of an unstable group due to potentially failing ETP trade (Sale 6) from the morning of S and liaise with the member to resolve any issues during the day before 13h00 At a predetermined point in the day before exceptions handling commences at 13h00 (this time needs to be confirmed), Strate will notify the CSDPs and JSE of any ETP trade(s) that are in an unstable group (Sale 1 in the above scenario) In order to manage exceptions pro-actively, CSDPs should inform impacted PDs of the need to potentially cover trades once they become aware of the same at the predetermined time on the morning of S. ETP Sale 1 PD Buy 1 PD1 Both BTB links 1 and 2 maintained BTB 1 Buy 4 PD Sale 4 PD5 Buy 5 PD Sale 5 PD7 BTB2 Sale 6 PD Buy 6 PD5 At 13h00, no links are broken within the settlement group At 14h00, if cover has not been sourced for Sale 6, PD6 will be instructed to obtain scrip from NT using the facility available by no later THAN 14:30 ETP trades should then settle in Strate s last settlement run at 15:15 Bond ETP Settlement Model (Version 2.0) Page 22 of 22