JSE Clear accepts securities as collateral against open derivative positions

8th February 2024 By: Schalk Burger - Creamer Media Senior Deputy Editor

The JSE's independent clearing house JSE Clear has introduced a new service to accept securities as collateral against open JSE derivative positions.

Previously, only cash was accepted as collateral. By now accepting South African government bonds as collateral, investors are able to use their cash for different purposes, alleviating cash liquidity pressures and reducing their costs of cash funding.

This service offering marks a proactive approach by JSE Clear to support investors who wish to improve efficiency, it says.

Investors with listed JSE derivative exposures may now meet their margin collateral requirements by providing a combination of cash (in rand) and liquid South African fixed-rate government bonds.

Initially, JSE Clear will accept government bonds to cover 35% of margin collateral. This amounts to billions of rands in cash released back to investors who can use the cash for entering into more trading activity, or to address other needs.

Lowering the cash requirement for collateral also materially lowers the risk of cash liquidity constraints, which generally arise in times of market stress, the JSE says.

“Our ability to accept securities as collateral gives our investors an extra tool to more flexibly manage their cash flows and availability. Investors are now able to substitute expensive and scarce cash with bonds, which are sometimes considered to be lazy assets.

“We are able to provide investors with this meaningful benefit while still maintaining appropriate levels of collateral for JSE Clear’s risk management purposes,” comments JSE Clear CEO Alicia Greenwood.

JSE Clear will hold securities as collateral by adopting the 'pledge' mechanism which means the investor retains ownership of the securities, and entitlement to related coupon payments, at all times. The assets will be ring-fenced and separated from the other assets of JSE Clear, thereby optimising protection of the investors’ assets.

Further, the securities collateral service will initially be available to cover 30% of total collateral requirements in the Equity and Currency Derivatives markets. JSE Clear intends to increase this percentage in the future, to consider a wider range of eligible securities, and to roll out the service to the Commodity and Interest Rate Derivatives markets.

“This development contributes positively to the financial efficiency of our investors, and to the lowering of South Africa’s systemic market risk, especially under stressed conditions. We envision this initiative offering our clients more flexibility, fostering greater market resilience and contributing to stronger and more vibrant capital markets,” Greenwood says.