integrated trading & clearing (itac) business working …. same day deal management: currency...

1 1

Integrated Trading & Clearing (ITaC) Business Working Group

2 February 2018

2 2

Agenda

1. Fees

a. Booking Fees

b. Risk Management Fees

2. Trade Reporting

3. Deal Management

4. Commissions

5. Securities Collateral Process Timings

3 3

Fees

1. Transaction (Booking) Fees: Currency and Equity Derivatives Markets

• No changes as a result of ITaC.

2. JSE Cost Assistance to all Trading members: Effective 1 January 2018

• Financial support to meet costs towards Front End replacement of Nutron

• Monthly credit to members for 18 months

• Based on the percentage of 2017 Transaction Fees:

• IRC: JSE > R 500k approx 5%; JSE ≤ R 500k approx 8% with a Minimum of R 5000 pa

• EDM: JSE > R 1m approx 3%; JSE ≤ R 1m approx 5% with a Minimum of R 5000 pa

3. Waiving Connectivity Fees: Currency and Equity Derivatives Markets

• One year period post ITaC go-live

• Savings of approx R 1000 per month, per market for Base set of CompIDs

4. Waiving Customer Test Service (CTS): Currency and Equity Derivatives Markets

• For the duration of ITaC implementation period up to go-live.

• Post ITaC go-live, CTS fees will be included in JSE transaction fees*

4 4

Fees (cont.)

5. JSE Risk Management Fee: Currency and Equity Derivatives Markets

• Currently charged as a haircut on margin

• JSE will not be charging differently for cash or securities collateral

• Risk management fee will be a basis point charge on the IM obligation

• Single rate for the ITaC markets - currently being communicated in one-on-one

discussions

6. Same Day Deal Management: Currency and Equity Derivatives Markets

• Same Day cancellation functionality with ITaC

• Zero Fee Requests – Service Hotline with Ref Number: 07/2017, 24 January 2017

7. Daily Account Summary Reports:

• Equity Derivatives and Currency Derivatives (combined i.e. single report) – RTC

• Interest rate Derivatives – Nuclears

• Commodity Derivatives - Nuclears

5 5

Agenda

1. Fees

a. Booking Fees


2. Trade Reporting

3. Deal Management

4. Commissions


6 6

Booking Fees

Market Type Discount

Equity Derivative Cancelled Trades (Error Trades) 100%

Currency Derivative Cancelled Trades (Error Trades) 100%

Equity Derivative Allocation 100%

Equity Derivative Allocation (Exotic Instrument) 50%

Currency Derivative Allocation 100%

Equity Derivative Allocation Correction 100%

Currency Derivative Allocation Correction 100%

Equity Derivative Assign (Exotic Instruments) 50%

Currency Derivative Assign 50%

Equity Derivative Tripartite (Exotic Instruments) 50%

Currency Derivative Tripartite 50%

Equity Derivative Roll Trades 50% on Near and Far leg

Currency Derivative Roll Trades 50% on Near and Far leg

Equity Derivative Calendar Spread 50% on Near and Far leg

Currency Derivative Calendar Spread 50% on Near and Far leg

Equity Derivative Position Transfer 100%

Currency Derivative Position Transfer 100%

7 7

Agenda

1. Fees

a. Booking Fees


2. Trade Reporting

3. Deal Management

4. Commissions


8 8

Initial Margin, Interest & Risk Mgt Fee Flows Post ITaC Project 1b/c Go-Live

CM

s JS

E C

lear

Daily Monthly

ITaC markets – EDM & FXD

Daily Monthly

Nutron markets - IRD & CDM

IM cash

IM Securities collateral

IM Call

Interest on IRD cash collateral less ‘haircut’

Interest on CDM cash collateral

less ‘haircut’

IM Call IRD

IM Call

CDM

IM Cash IRD

Interest on cash

collateral

Risk mgt fee

Daily Pay’ts

Monthly interest on margin less ‘haircut’ payment per CM – IRD

• Single daily settlement per CM across all markets encompassing => IM, Settlement margin, VM, Booking fees, Commissions, Dividends and CFD funding interest

Monthly interest on margin less ‘haircut‘ payment per CM – CDM

IM Cash CDM

Co

nce

ptu

al f

low

s C

ash

mo

ves

Monthly interest payment & risk mgt fee incorporated into the single daily CM payment on 1st day of month - EDM & FXD

Mthly Pay’ts

9 9

Cash collateral paid by client 1,000,000 Interest on cash collateral 5,458 Risk mgt fee (calc’d on the IM obligation) -167*

1,000,000 5,292

Initial Margin, Interest & Risk Mgt Fee Flows Illustrative examples – Current and ITaC

During month (when exposure created)

Month end (1st day of new month)

Cash collateral paid by client 1,000,000 Interest on cash collateral less ‘haircut’ 5,292*

1,000,000 5,292

* Interest on cash collateral of 5,458 less ‘margin haircut’ of 167

Inputs used for purpose of the illustrative examples: IM requirement = R1,000,000; Interest rate (Safex rate) = 6.55%; Risk fee / ’margin haircut’ = 20bp Note interest calculation is simplified - assumes IM cash deposited from beginning of month and does not change

Cash collateral paid by client 600,000* Interest on cash collateral 2,183 Risk mgt fee (calc’d on the IM obligation) -167

600,000 2,017

*Client covers remainder of IM obligation by pledging securities collateral to the value of R400,000 (post valuation haircut)

Current

ITaC without

securities

ITaC with

securities

10 10

Agenda

1. Fees

a. Booking Fees


2. Trade Reporting

3. Deal Management

4. Commissions


11 11

Trade Reporting, Deal Management & Commissions Context

• Clearing Members will be able to: • Manage reported trades on-behalf of TMs (Post Trade gateway) • Listen to drop copy of orders (Drop Copy gateway) • Listen to drop copy of trades (Post Trade gateway) • Subscribe to market data (Market data gateway)

• Clearing Members will not be able to:

• Create new, amend or cancel orders • Cancel on-book trades • Create user-created instruments (new strikes, anydays) intraday

12 12

Trade Reporting On-behalf-of CompID

• A clearing member will own and login with a CompID belonging to the trading member firm dedicated as the on-behalf-of CompID

• This CompID will facilitate the trade reporting functionality executed by clearing members or on-behalf-of activity that may be required

• Without this CompID, a clearing member will not be able to perform reported trade activity

• The CompID is also important for any cancellations and default management activities that need to be performed by the clearing member on behalf of the trading member

• Trader Groups are available to segregate firms into logical partitions of either type of activity, geographically location etc.

13 13

Trade Reporting Users

• Trader IDs are assigned to all registered Traders, so that they can perform On-Book and Reported trading functionality.

Note: Each Trader must be registered with the JSE per Market. Upon registration, each Trader is assigned a unique Trader ID, which is included in all order, quote and trade messages, submitted by a Firm to the JSE Trading System.

• Clearing Member User IDs are allocated to Clearing Member Users.

• Clearing Member Users are able to report Reported trades to the JSE Trading System.

• They do not, however, have the ability to submit any Orders onto the Central Order Book

• The JSE Trading System caters for certain Reported trading activity performed by Clearing Member Users on behalf of Trading Member Firms.

• Back Officer User IDs are allocated to Back Office Users.

• Back Office Users have the ability to report Reported trades to the JSE Trading System.

• Back Office Users do not, however, have the ability to submit any Orders onto the Central Order Book

14 14

Trade Reporting Intraday Trading Sessions

Trading is split into On Book trading and Off Book trading (Reported Trading)

• On Book trading will have the following scheduled sessions daily

• Start of Trading • Opening Auction (only for Equity Derivative Market) • Continuous Trading • Post Close

• Off Book trading will have the following scheduled sessions daily • Start of Trading • Trade Reporting • Post Close

• On Book Continuous Trading will commence at 08:30 SAST for the Equity Derivative Market and 09:00 SAST for the Currency Derivative Market and cease at 17:30 and 17:00 respectively

• Off Book trading will commence at 08:00 SAST for both Markets, ending by 18:00 for the Currency Derivative Market and 18:30 for the Equity Derivative Market

15 15

Trade Reporting

• Reported Trades or Off Book Trades are concluded outside the central order book. These trades may be submitted by one member (Single-sided Off Book Trades) or by both members (Dual-sided Off Book Trades).

• All Trade Types associated with the Trade Report will ensure that the trade is

published and included in statistical data updates. • Single Sided Reporting Model

• Off Book trades where the member (firm) is the same on both the buy and sell legs of the trade

• Dual Sided Reporting Model

• Off Book trades is where there are two members (firms) to a trade i.e. the member is different on the buy and sell legs of the trade.

16 16

Trade Reporting Reported Trade Matching

The details below must be submitted in a Reported trade:

• Instrument ID (Symbol)

• Size of the trade

• Price of the trade (Indicate the price for price traded instruments and yield for yield traded instruments.)

• Trade sub-type of the trade (Refer slide 12 and 13)

• Trade reporting model of the trade (Single or Dual-Sided)

• Date and time the trade was agreed between the two firms

• Trade Identifier that is assigned to the trade by counterparties

• Two free-text fields are available when reporting a trade

• Both fields flow through to the clearing system

• One field is specifically sent to the counterparty – ensure frontends are clear about this functionality (software providers) (Refer slide 17 and 18)

17 17

Trade Reporting Reported Trade Matching (cont.)

• The details below must also be submitted in a Reported trade, in addition to the previous slide. These fields are not used to match a Buy and Sell side of a Trade Capture Report message. The initiating firm identifiers are:

• Firm - PIC Code (e.g. ABCXXXTM001)

• Trader Group (e.g. ABCRSDOWN01)

• Trader ID (e.g. 14324)

• Account (e.g. ABC121)

• A number of counterparty identifiers are included on the message (includes the following):

• Firm ID – PIC Code

• Counterparty Trader Group (no longer required)

• Branch (e.g. BR22)

• Client Account (e.g. Free Text) – refer to slide 17

18 18

Trade Reporting Reported Trade Matching (cont.)

• A field to specify the branch against which a trade is reported on the counterparty side is available.

• This field will be sent to the counterparty firm as part of the TCR

• Upon receipt of the message on the counterparty side by the software, this ‘branch’ field is used to limit who is able to view the trade request

• The Counterparty TraderGroup field is no longer applicable

• TraderGroups are not required in any interaction of reported trades

• TraderGroups remain as part of enablement setup for a firm to decide if they wish to segregate any groups of traders

• Trading Members will not be able to see on-behalf of dual-sided reported trades in their frontends before they execute.

• The trading member will, however, receive immediate notification of any trade the firm has entered into.

19 19

Trade Reporting Important to Note

• Editing of reported trades reference fields will not be possible after they have matched and fed into the clearing system.

• The Derivative Markets will not allow any backdated Reported trade submissions to be captured.

• All Reported trades can only be booked on the same trading day.

Cancellation of Trades

• Off Book trades can only be cancelled on the same day

• Next day cancellations for off book trades can be facilitated through booking an equal and opposite off book trade

• Off Book trade requests (unmatched) can be withdrawn, but only if the trade has not been accepted by the counterparty

20 20

Trade Reporting Trade Types

Negotiated Trade – (NT)

The negotiated trade sub type will be used as the generic trade

sub type for reported trades. This trade type replaces the previous

Report Only trade functionality in its

simplest form.

Exchange for Physical – (EP)

A transaction negotiated privately in

which a Futures contract for a physical item is exchanged for

an actual physical good. This trade type

is applicable to the Currency Derivatives

Market.

Roll Trades – (RT) These are used to

facilitate the closing out of a position in the near

expiring contract and moving that position to a further dated contract. Because this will always constitute two reported trades, one selling and one buying, the trading system needs to be told how to link these. This is

achieved by using the StrategyLinkID field.

21 21

Trade Reporting Trade Types (cont.)

Strategy Trade – (SR) Trades that include two or more legs that

combined, create a certain strategy will be deemed to be strategy trades. These

strategies are primarily traded On Screen, however the trading system can

accommodate these in the form of Reported Trades.

These standard JSE strategies include:

• Inverse Calendar Spreads • Delta Options

Individual legs of these strategy trades need

to be linked, demonstrating that a certain strategy was used. This is achieved by using

the StrategyLinkID field

Price Adjust – (PA) JSE Surveillance may, where a trade has been matched as a result of a clear error, instruct the affected

member or members to execute a trade cancellation or effect a trade

price adjustment. The original trade will be cancelled as per standard procedure, and subsequently a

reported trade will be booked at an adjusted price as instructed. Note: this is only applicable for onscreen

trade cancellations.

22

Client Reference Field Mappings On Book

Order Entry (MIT) TCR and Execution Report (MIT)

RTC Deal Update

ClientOrderID

(String 20) ClientOrderID ClientOrderID

RTCRefField

(String 255) ClientOrderID – This must be unique per Comp ID across days (as there are GTD and GTC orders)

RTCRefField - Optional free text field on deal management activity

23

Trade Report Entry (MIT)

TCR and Execution Report (MIT)

RTC Deal Update

FirmTradeID

(Tag 1041) FirmTradeID FirmTradeID

RTCRefField

(String 255)

Secondary

TradeReportID

(Tag 818)

Secondary

TradeReportID TradeReportID

Client Reference Field Mappings Off Book

24

Client Reference Field Mappings Off Book Mapping

Current

Reference #1

Reference #2

Branch

ITaC

FirmTradeID (11)

SecondaryTradeReportID (10)

SecondaryFirmTradeID (10)

RTCRefField (255)

FirmTradeID – Mandatory free text field SecondaryTradeReportID – Optional free text field SecondaryFirmTradeID – Optional field can be used for counterparty branch information RTCRefField - Optional free text field on deal management activity

25

Client Reference Field Mappings Off Book - Use of FirmTradeID Field

Client 1 Client 2

Clearing Member 1

Clearing Member 2

Trading Member 1

Trading Member 2

Trade Agreement

Instruction

On Behalf of action

Trade Reported and accepted Counterparty

Reference Field - FirmTradeID

Reference Field - FirmTradeID

Reference Field – FirmTradeID used further by Client’s downstream systems

26

Client Reference Field Mappings Off Book - Use of SecondaryFirmTradeID Field

Client 1 Client 2

Clearing Member 1

Clearing Member Branch

Trading Member 1

Trading Member 2

Instruction

Reference Field - SecondaryFirmTradeID

(Branch)

Trade Reported to Counterparty

Branch 2

Branch 1

Routing based on SecondaryFirmTradeID (Branch)

Trade Agreement

27

Software Developers Off Book Functionality

• Please confirm with your frontend provider on how they are facilitating this functionality

• There is a Branch.csv file available as per Volume 09D – JSE Reference Data Management this can be used to identify branch codes when reporting dual-sided Off Books

28 28

Trade Reporting Single-sided Off Book Trades

29 29

Trade Reporting Dual-sided Off Book Trades

30 30

Trade Reporting Message Flow and Field logic

• Details are available in Volume 03 – Post Trade Gateway section 12.4

Message Flow

Ref Group Description

A1 New On Book Submission

A2 Cancel Cancel request issued for On Book trade

A3 New Off Book Single Party Submission

A4 Cancel Cancel request issued for Single Party trade

A5 New Off Book Dual Party Submission

A6 Cancel Cancel request issued for Dual Party trade

A7 Withdraw Off Book Dual Party Withdrawal Submission

A8 Cancel Withdrawal of cancellation request

A9 Decline Off Book Dual Party Decline Submission

A10 Cancel Decline the cancellation request

31 31

Trade Reporting Recap of ITaC Solution (cont.)

• Price bands on reported trades

• Trading system validates reported trades and flags those priced

outside of the price band

• Breaching trade matched and sent to the counterparts and to the

clearing system

• Deals published by the clearing system also include a flag indicating

whether the trade breached a price band

• Should the Clearing Member require that the trade be cancelled, a

trade cancellation will need to be affected on the trading system

32 32

Agenda

1. Fees

a. Booking Fees


2. Trade Reporting

3. Deal Management

4. Commissions


• Deal management will be performed on the JSE Clearing System

• All existing deal management functions will be catered for

• Change: Taking a turn in deal management will NOT be possible

• Trading members to capture commissions for transactions concluded in an agency capacity

• An optional, free-text reference field is available in deal management

• Deal sub account modification

• Position sub account modification

• Allocation correction

• Principal correction

• Assigns (give-ups)

• Allocations

• Tripartite allocations

• Accumulations

Deal Management Overview

Deal Management Functions Matrix

34

Capacity State of Deal* in RTC Action allowed

Principal On principal account

• Accumulate • Deal sub account modification • Position sub account modification • Principal correction • Allocate on exception basis only • Allocation error correction

Agency

On client suspense account

• Accumulate • Allocate • Assign • Tripartite • Deal sub account modification • Position sub account modification

On client account • Accumulate • Allocation correction • Principal correction

* A deal is one side of a trade i.e. either the buy leg or sell leg of the trade

• Members to engage with their software providers to ensure their requirements ito automation (bulk uploads) for performing deal management are met

• Currently on Nutron, Trading and Clearing Members use the ‘Div’ functionality to change only the reference fields (Ref1 and Ref2) on deals

• This functionality is not catered for in the new JSE Clearing System

Deal Management Highlighted Issues

36

Agenda

1. Fees

a. Booking Fees


2. Trade Reporting

3. Deal Management

4. Commissions

a. Overview

b. Set up of commission models on front ends

c. Commission entry information including reference fields

d. Commission submission scenarios

e. Processing of commissions & reporting


37 37

• With ITaC go-live taking a turn in deal management will NOT be possible

• Trading members will need to capture commissions for transactions concluded in an agency capacity

• Trading members will be required to actively monitor and manage commission entries

• Executing trading members may cancel a submitted commission entry

• Recipient trading members may reject a commission entry

NB:

• If a commission is rejected the trade is not rejected/cancelled

• If not cancelled or rejected the commission entry will be processed at EOD

Commissions Overview

38 38

EOD Processing

• JSE Clear will facilitate

• Settlement of net commission amounts across Clearing Members on T+1

• Clearing Member to facilitate

• Processing of commissions between their Trading Members

• Clearing Member or Trading Member to facilitate

• Collection of commissions charged to a Trading Member’s own clients

Commissions Overview

39 39

Agenda

1. Fees

a. Booking Fees


2. Trade Reporting

3. Deal Management

4. Commissions

a. Overview






40 40

Commissions Setup of commissions models on Front Ends

• Member front-ends to cater for commission models per the trading member’s requirements e.g. percentage of trade value / quantity / volume, flat fee etc.

• Fee models will be set up once-off and updated as required

Front ends to apply the models to calculate the ZAR commission amount (including VAT) for submission to the JSE Clearing System at the time trading and deal management is performed

41 41

Agenda

1. Fees

a. Booking Fees


2. Trade Reporting

3. Deal Management

4. Commissions

a. Overview






42 42

Commissions Commission entry information incl. reference fields

The following information must be included when submitting a new commission to the JSE Clearing System:

• Market* – EDM or FXD

• Initiating Member* – TM or Branch

• Recipient Member* – TM or Branch

• Client reference – Client Account Code; required if recipient (payer of the commission) is a client i.e. own or tripartite client

• Commission reference

• Trade ID/Deal ID if the commission is for an individual trade

• In the case of a bulked commission this can be populated with a list of the Trade IDs or other reference that the recipient will recognise

• Commission amount* – Rand (ZAR) value inclusive of VAT

*Mandatory

NB. For give-up business it is vital that all s/w providers and stakeholders are aligned in terms of the use of the reference fields

43 43

Agenda

1. Fees

a. Booking Fees


2. Trade Reporting

3. Deal Management

4. Commissions

a. Overview






44 44

Commissions Commission entry scenarios

• In order to convey the workings of the commissions solution in a more tangible way, the following slides attempt to illustrate how front-ends may* facilitate commissions entry for various agency transaction scenarios

* NB. Front-end commissions functionality will vary per solution provider and will be dependent on the requirements provided by each Trading Member

• In these scenarios it is assumed that front-ends will have the functionality to calculate and populate commission entries by applying the pre-configured commissions models to the order/trade/deal

• Front-ends may also allow the Trader to override the commission amount before submitting to the JSE Clearing System

45 45


Scenario

Transacting on behalf of

Mechanism of transaction

A1

Own client

Execute On Book order directly on client’s account

A2 Execute Off Book trade directly on client’s account

A3 Allocate trade in deal management to client

B1 Another

TM/Branch Assign trade in deal management to client (a TM/Branch)

C1 Tripartite

client Perform a tripartite allocation in deal management to allocate trade to tripartite client

46 46


A1. Own client order executed On Book directly on the client’s account

• Order is captured on client’s account

• Front-end calculates a pending commission at time of order capture

• Commission amount = ZAR value including VAT (Front-end may allow Trader to override auto-calculated commission amount)

• When the order executes the Front-end submits the commission into the JSE Clearing system

• Initiating TM = TM or Branch

• Recipient TM = TM or Branch (same as initiating TM)

• Client reference = Client account code

• Commission Reference = Trade ID (assuming commission is for an individual trade)

47 47


A2. Own client order executed through an Off Book trade directly on client’s account

• Off Book trade is captured directly on client’s account

• Front-end calculates commission at time of trade capture


• Front-end submits commission into the JSE Clearing System when the Off Book trade is confirmed i.e. accepted by counterparty:




• Commission Reference = Trade ID (assuming commission is for an individual trade)

48 48


A3. Allocation of trade in deal management to own client

• Trade is executed (on client suspense account)

• Trader allocates trade to client in deal management

• Front-end calculates commission at time of performing the allocation


• Front-end submits commission into the JSE Clearing System when the allocation is confirmed by the JSE Clearing System:




• Commission Reference = Deal ID (assuming commission is for an individual trade)

49 49


B1. Assign of trade in deal management to client who is a TM or Branch


• Trader assigns trade to TM in deal management

• Front-end calculates commission at time of performing the assign


• Front-end submits commission into the JSE Clearing System when the assign is confirmed by the JSE Clearing System:


• Recipient TM = TM or Branch (client)

• Client reference = null

• Commission Reference = Deal ID (assuming commission is for an individual deal)

50 50


C1. Tripartite allocation of trade in deal management to a tripartite client


• Trader allocates trade to tripartite client in deal management

• Front-end calculates commission at time of performing the allocation


• Front-end submits commission into the JSE Clearing System when the tripartite allocation is confirmed by the JSE Clearing System:


• Recipient TM = TM or Branch (counterparty TM or Branch)

• Client reference = Triparty Client account code

• Commission Reference = Deal ID (assuming commission is for an individual deal)

51 51

Agenda

1. Fees

a. Booking Fees


2. Trade Reporting

3. Deal Management

4. Commissions

a. Overview






52 52

Commissions Commissions Processing & Reporting

• At End Of Day, commissions will be aggregated and netted at Clearing Member level in the JSE Clearing System

• Only net commissions amounts at the Clearing Member level will be included in the Clearing Member daily payment instructions

• Commissions data submitted into the JSE Clearing System will be published back to the Trading and Clearing Members involved, supporting:

• CM processing of commissions between its TMs

• CM (or TM) processing of commissions charged to own clients (importance of correctly populating the Client Reference field on commission entries)

• Reporting, reconciliations and VAT invoicing/tax reporting

• Commissions are VAT’able, therefore Members to ensure VAT invoicing and tax reporting obligations are met – engage with software provider on requirements

• As previously discussed with Clearing Members those who have concerns w.r.t. processing of commissions should consult their legal and tax divisions to get an opinion on this

53 53

Agenda

1. Fees

a. Booking Fees


2. Trade Reporting

3. Deal Management

4. Commissions


54 54

Securities Collateral Process timing decision

• The JSE, together with Strate, is in the process of consulting with all stakeholders on whether a EODT or SODT+1 collateral process will work best for the market

• Initial solution was based on a collateral process at EOD on T however concerns were raised relating to:

• Requirement for late shifts with associated resource and cost impact (raised by CMs and to a lesser degree CSDPs)

• Operational risk of running a complex, new process in the evening

• Impact to lending desks - potential swap out of collateral or alternatively constraining the optimisation of collateral for participants

• An alternative process timing of SOD on T+1 has been put forward

• This will result in a later determination of the IM cash call (~08h35 on T+1) however it addresses the above concerns and pending final decision seems to have more support from the various stakeholder groups

• JSE is aiming to finalise the process timing decision by 9 February 2018 to allow for all stakeholders to prepare for collateral testing in MCMT (currently planned for Cycles 3, 4 and 5 of MCMT)

55 55

Questions?

55

[email protected]

+27 11 520 7777

Please refer all queries to the JSE Client Service Centre (CSC)

mailto:[email protected]

integrated trading & clearing (itac) business working …. same day deal management: currency...

Documents