The Financial Markets Bill, which was tabled by the National Treasury to Parliament last month will have significant effects on South Africa’s financial markets.
This is according to Kelle Gagné, Executive at Edward Nathan Sonnenbergs (ENS) who said among the Bill’s purposes are to conform the legislation to the Companies Act, 2008; lay the groundwork for over the counter (OTC) derivative regulation as contemplated by the G20 countries’ recommendations; and align South Africa’s financial markets regulation with international norms.
“These international norms include the International Organisation of Securities Commissions’ (IOSCO) policies and the International Institute for the Unification of Private Law (UNIDROIT) Convention on Substantive Rules for Intermediated Securities,” said Gagné.
Gagné explained that the bill, which was developed by the National Treasury and the Financial Services Board in consultation with the JSE and Strate, will replace the existing Securities Services Act, 2004.
According to Gagné one of the major effects of the bill is that, in accordance with the recommendations agreed among the G20 leaders and their Financial Stability Board, trade repositories have been established in a number of overseas jurisdictions.
“This is in an effort to provide greater transparency in respect of prices, information and other elements of the OTC derivatives markets. As a member of the G20, South Africa is also committed to the recommendations,” she says.
Gagné said the Financial Markets Bill provides for the establishment and licensing of trade repositories in South Africa. “This is likely to have the result that many of South Africa’s OTC derivatives market participants will be required to report their trades to a trade repository”.
Gagné said the bill provides, for the first time in South Africa, for the establishment of “independent clearing houses” that are not directly appointed by an exchange. “The purpose of independent clearing houses will be to eventually facilitate central clearing of OTC derivatives”.
According to Gagne, the bill in its current form does not regulate the OTC derivatives market by, for example, setting out which types of OTC derivatives must be reported to a trade repository or stipulating which market participants are obliged to report OTC derivatives.
“Rather, the bill expands the definition of “securities services” to extend regulation to OTC derivatives so as to enable the Registrar of Securities Services to set standards and conditions for the OTC derivatives market in accordance with the regulations to be promulgated by the Minister of Finance,” she says.
Meanwhile, in terms of foreign direct investment, Gagné said the bill provides definitions for external authorised users, external central securities depositories, external clearing houses, external clearing members, external exchanges and external participants.
“These foreign entities’ ability to participate in South African financial markets will be phased in subject to regulation prescribed by the Minister in terms of section 5(6) of the bill and to the discretion of the Registrar to determine requirements for the various categories’ participation in South African financial markets,” she said.