Leila Fourie, Executive Director of the JSE.
In a significant milestone for South Africa’s financial markets, ESMA, the European Union’s Securities and Markets Authority has announced that JSE Clear, the JSE-owned derivative central counterparty (CCP), has been recognised as “equivalent” to CCPs in the EU.
“This achievement is hugely important for the JSE, our regulator the FSB and participants in South Africa’s financial markets,” says Leila Fourie, Executive Director of the JSE. “Today’s announcement means that EU-based market participants that clear trades through JSE Clear will be permitted to continue clearing for investors trading on the JSE. ESMA recognition strengthens our global credibility and fulfils a key requirement for multinational clearing members operating in the local market. Participation from these multinationals helps to distribute the credit, liquidity, operational and legal risk on our market – instead of concentrating this risk in a smaller number of clearing members.”
“It is vital for South Africa that its rules are globally relevant and consistent with financial centers such as the EU. This milestone demonstrates that our CCP is robust and meets global standards in promoting financial stability and reducing systemic risk,” says Fourie. “The recognition of equivalence is a significant indicator of the rigidity of SA’s market infrastructures, and will aid in attracting international flows to our emerging market.”
The JSE and the Financial Services Board (FSB) together worked closely to obtain EU recognition, says Fourie. "The JSE and FSB partnered to fulfil the ESMA recognition requirements. The JSE is grateful to the FSB for their contribution in obtaining this major milestone for JSE Clear and the South African markets."
In a letter to the JSE, ESMA Chairman Stephen Maijoor, Chairman of ESMA’s Board of Supervisors, said: "JSE Clear is recognized as a third country CCP under Title III of Chapter 4 of EMIR.”
“Clearing” denotes all activities from the time a transaction is executed until it is settled. A CCP is an organization that helps to reduce risk and safeguard against losses that could be incurred by a default of a trading participant when trading on the JSE’s markets.
JSE Clear’s process to securing ESMA recognition was undertaken in conjunction with the FSB, and was achieved by successfully concluding two pieces of work:
• obtaining a decision from the EU recognising that South Africa’s legal framework and supervisory practices are equivalent to those contemplated within the EU regulations; and
• obtaining EU acknowledgement of the appropriateness of our CCP design and risk management processes in terms of the functioning of the market it is meant to serve.
The decision from ESMA follows earlier equivalence determinations for CCPs in Australia, Singapore, Japan and Hong Kong.
This recognition of JSE Clear is not the first accolade received by South Africa’s CCP. JSE Clear was amongst the first in the world to be granted QCCP IOSCO status. CPSS-IOSCO is a global standard for risk management aimed at any organisation enabling the clearing, settlement and recording of a transaction.
Get the latest issue of FAnews