Abstract
The success of the financial market in South Africa is dependent on investor confidence and such confidence is dependent on market stability and certainty with regard to the financial risks to which market participants are exposed when trading on the financial markets. Even before the global meltdown impacted on South Africa, some concerns were raised that the South African legal framework pertaining to the financial market does not contain comprehensive principles regulating the procedures and legal position after the event of insolvency of a market participant. In response, Strate Limited, with the assistance of other market players, has drafted a proposed manual, the Participant Failure Manual, regulating the event of insolvency of market participants, referred to as “Participant Failure”. This note aims to discuss the meaning of Participant Failure, provide an overview of the Participant Failure Manual and more importantly, discuss the impact of Participant Failure on settlement, and recommendations as proposed in the Manual.
Highlights
The success of the financial market in South Africa is dependent on investor confidence and such confidence is dependent on market stability and certainty with regard to the financial risks to which market participants are exposed when trading on the financial markets. (Ministry of Justice “Press Statement by Mr HJ Coetsee MP, Minister of Justice” http://www.search. gov.za/info accessed 2009-09-29.) Even before the global meltdown impacted on South Africa, some concerns were raised that the South African legal framework pertaining to the financial market does not contain comprehensive principles regulating the procedures and legal position after the event of insolvency of a market participant
The paragraphs below discuss the following questions raised regarding Participant Failure: Firstly, what is the impact of Participant Failure on settlement and what is the impact on the securities account held by the Failed Participant? does settlement take place and do the securities held by the Failed Participant in its securities accounts fall within the scope of the Failed Participant’s assets or is it excluded? These questions are examined with reference to the time line of the date of failure
Issues of uncertainty are highlighted, as well as an overview given of the necessary amendments to existing legislation proposed in the Manual, in order to provide for the effective implementation of the Manual within the legal framework pertaining to the financial market
Summary
The success of the financial market in South Africa is dependent on investor confidence and such confidence is dependent on market stability and certainty with regard to the financial risks to which market participants are exposed when trading on the financial markets. (Ministry of Justice “Press Statement by Mr HJ Coetsee MP, Minister of Justice” http://www.search. gov.za/info accessed 2009-09-29.) Even before the global meltdown impacted on South Africa, some concerns were raised that the South African legal framework pertaining to the financial market does not contain comprehensive principles regulating the procedures and legal position after the event of insolvency of a market participant. (Ministry of Justice “Press Statement by Mr HJ Coetsee MP, Minister of Justice” http://www.search. Gov.za/info accessed 2009-09-29.) Even before the global meltdown impacted on South Africa, some concerns were raised that the South African legal framework pertaining to the financial market does not contain comprehensive principles regulating the procedures and legal position after the event of insolvency of a market participant. Strate Limited, with the assistance of other market players, has drafted a proposed manual, the Participant Failure Manual, (Strate Limited Participant Failure Manual Version 3.0 30 October 2009 (hereinafter “the Manual”)) regulating the event of insolvency of market participants, referred to as “Participant Failure” (the Manual is available on Strate’s website http://www.strate.co.za accessed 2011-08-16). This note aims to discuss the meaning of Participant Failure, provide an overview of the Participant Failure Manual and more importantly, discuss the impact of Participant Failure on settlement, and recommendations as proposed in the Manual
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