By Adelaide Changole, Bloomberg.
South Africa’s financial regulator is planning to set maximum limits on the assets used for securities trading as it seeks a unified approach to oversight of a multi-billion dollar market.
Financial Sector Conduct Authority (FSCA) Commissioner Unathi Kamlana told Bloomberg the new draft standard “is pitched at a sufficiently high level to deal with all of the main risks around governance, risk management, reporting,” in line with international best practice.
The proposal, which is open for comment until October 17, will require advisors to provide more detailed disclosures on a market with an average daily lendable value of R1.5 trillion ($86 billion). The move mirrors a push by regulators worldwide to tighten rules on securities trading to increase transparency, enhance risk monitoring and strengthen investor protection.
The FSCA’s draft applies to repurchase and reverse-repurchase agreements, securities lending and borrowing, as well as margin trading — all critical areas for pension funds that earn income by lending out their holdings of equities and debt.
“Pension-fund assets make up the bulk of investable assets in securities trading financing transactions, “Kamlana said. “We want to make sure that we are comfortable with the responsibilities that are around how pension fund assets are taken into account.”
The proposals also place a ceiling on how much of an institution’s holding of a particular asset can be loaned out or borrowed, with a cap set at 75% of fair value for top-tier equities, money-market instruments, and government bonds. It’s 50% for other instruments.
| Description | Maximum % of Fair Value of Portfolio |
|---|---|
| Top 25% of listed companies | 75% |
| Other listed equities | 50% |
| Government bonds | 75% |
| Other listed debt instruments | 50% |
| Money-market instruments | 75% |
Traders entering repurchase and securities-lending transactions will also have to do so under standardised terms – called global master agreements – from the International Capital Market Association and the Securities Industry and Financial Markets Association.
All such transactions must be reported by no later than the next day. Kamlana said he expects the rules to be in place “no earlier than next year.”