Yielding the X

The JSE Securities Exchange says that its interest rate exchange, Yield-X, starts trading on Monday, February 28.

In October last year the JSE announced that it would launch a new interest rate platform to trade a broad spectrum of interest rate products, with a focus on derivatives.

Yield-X aims to open up the interest rate market to new players and new products, encouraging liquidity and market diversification.

Allan Thomson, the JSE’s director of equities and derivatives trading, said Yield-X had received regulatory approval from the FSB on January 17, paving the way for the new exchange to start trading.

Yield-X had been well supported by the market and had attracted 24 trading and clearing members to date, with more applications being processed.

“We don’t expect massive volumes at the outset, but we expect Yield-X to emulate the success of the JSE equities and futures trading systems over time,” says Thomson.

The launch of Yield-X will ensure proper price discovery for interest rate products in South Africa. At the heart of the new exchange is an anonymous central order book, allowing for trading via a single platform with automated trade matching and guaranteed settlement.

A major benefit of Yield-X will be the elimination of bi-lateral counter-party risk. The JSE, through clearing-house SAFCOM, will guarantee all trades and offers a cradle to grave audit trail. Yield-X will operate in a fully regulated environment overseen by both the JSE and the FSB.

Yield-X is to target a range of investors, from large institutional investors, banks, corporate treasuries and intermediaries, to smaller financial institutions and retail investors who may have been previously excluded from the interest rate market.

Thomson said that Yield-X would focus on derivative interest rate products, although a limited number of spot bonds would be secondary listed to support the derivative trade. It was hoped that Yield-X would be in a position to list corporate bonds later in 2005.