JSE Clear is an independent clearing house and central counterparty (CCP), as defined in the Financial Markets Act and is the appointed clearing house and central counterparty for all transactions in listed derivatives concluded on the JSE's markets.

Through its Rules, JSE Clear takes the necessary and appropriate steps to clear and risk manage transactions in securities listed on the JSE's Equity, Commodity, Interest Rate and Currency derivatives markets.

JSE Clear‘s clearing members clear for one or more trading members through which clients trade. Each trading member is responsible for its client's losses (if a client defaults); just as each clearing member is responsible for the losses of the trading members for which it clears, should those members default. If a client (or trading member) cannot meet its obligations, the trading member (or clearing member) will stand good for those obligations. As the CCP, JSE Clear novates all derivative trades concluded on the JSE and ultimately protects against the risk that one of the clearing members defaults on its obligations. This structure underlies the JSE Clear risk management framework and is shown in the diagram.

JSE Clear strives to ensure best-in-class risk calculation and risk management practices and meet global regulatory requirements, applicable to our markets.

Lines of Defence

JSE Clear employs various risk measures in its role as the CCP to mitigate counterparty credit risk in the derivatives markets, including:

  • Clearing membership requirements including financial and capital adequacy requirements as well as operational and risk management requirements.
  • Products are assessed against predefined criteria to determine which are admitted for clearing.
  • Prefunded resources are maintained to ensure the obligations of market participants can be met in the event of default. Prefunded resources are comprised of initial margin and the default fund.
  • Initial margin requirements are determined through statistical methodologies to ensure that all exposures are adequately collateralised. The sufficiency of the margin is back tested daily against actual market movements to ensure required coverage levels are maintained.
  • The default fund is sized to ensure the sufficiency of total prefunded resources in the event of a clearing member default under extreme but plausible market scenarios. Stress testing is performed daily to monitor the sufficiency of the default fund.
  • In the event of a clearing member default, losses will be funded in accordance with the risk waterfall as follows:
    • Initial margin of the defaulted clearing member is used first.
    • Should initial margin be insufficient, the defaulting clearing member’s contribution to the Default Fund is used.
    • Thereafter, JSE Clear’s contribution to the Default Fund is used.
    • If any obligations to the market remain thereafter, the non-defaulting clearing members’ contributions to the Default Fund are utilised.
    • Should the financial resources listed above be insufficient to cover the defaulting clearing member’s obligations, the shortfall will be apportioned through a process of variation margin gains haircutting and affected market participants will have a claim against the defaulting clearing member for losses incurred.

Margins

An initial margin is required when a trade is initiated, and variation margin is posted daily to account for daily profits and losses. The variation margin is the daily profit or loss and is exchanged daily between the parties to every transaction. This prevents there being a build-up of winnings to be paid by the losing party. The initial margin is akin to a “good faith” deposit on the position that is registered in the name of a person or member. JSE Clear’s margins are quantified per contract, per beneficial owner and updated regularly. The margin is segregated at client level and some level of offset is given to positions in similar contracts. JSE Clear back tests margins regularly to ensure that margin coverage is as specified by the methodology used. In addition, stress testing is done daily to estimate the amount by which losses could exceed the margin posted in the case of an extreme market event.

IM Parameters
Margin Calculators

Stress Testing

JSE Clear determines the amount and regularly tests the sufficiency of the total financial resources available to cover default through stress testing. Financial resources consist in general of variation margin payments to settle daily position profits and losses, initial margin held throughout the lifetime of the position and a default fund. JSE Clear considers a list of relevant stress scenarios, both historic and hypothetical, as it relates to stress testing of credit and liquidity risk.

Credit stress testing results are used to inform the size of the JSE Clear default fund. On a daily basis, the results are used to monitor and manage JSE Clear’s exposure to clearing members.

The aim of stress testing for liquidity risk is to assess whether JSE Clear has sufficient liquid resources to meet intra-day and multi-day obligations under stressed conditions. There are broadly two types of scenarios that could cause a liquidity stress – the default of a clearing member or an operational event.

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See JSE Clear’s Liquidity Policy

Default Management

To ensure its readiness in the case of a default, JSE Clear has documented its default management processes and procedures and tested these during simulation exercises. JSE Clear also has a clearly defined and transparent full risk waterfall that defines how risk mitigants will be used for default purposes. In the case of a clearing member default, positions will be closed out by the clearing house and any losses incurred will be apportioned in terms of the risk waterfall.


Investment

In accordance with the JSE Clear Rules, JSE Clear separates all client margins and clearing member default fund contributions from its own moneys and manages and invests these margins and default contributions according to predefined investment mandates. All funds are placed with high credit quality local commercial banks.

JSE Clear ensures, in accordance with the JSE Clear Investment Mandate, that sufficient funds are available on a daily basis to return margin on trades settled and /or cover losses in the case of a default, by adhering to the following placement limits; at least 30% of the total fund size must be invested on call at all times, not more than 30% of the amount on call may be invested with one institution, maximum tenor for investment of funds is 180 days and weighted average maturity of the fund may not exceed 50 days.

Governance

JSE Clear Executive Management is responsible for ongoing risk management of the Derivatives Market, reporting to the JSE Clear CEO and acting under delegated authority from the JSE Clear Board. To ensure continuing stakeholder engagement, the Risk Management Team consults regularly with the JSE Clear Risk Advisory Committee, which is an independent advisory committee.

All risk management policies and methodologies are taken to the JSE Clear Risk Committee for review. The JSE Clear Risk Committee and JSE Clear Board consist of representatives from the clearing members, independent experts and JSE and JSE Clear management. ​

Please refer to the Resources page for all pertinent risk documentation.

CCP 12 Global Quick Access Transparency Links

The Quick Access Transparency Links ("QATL") document provides a series of links to JSE Clear’s rulebook and policies in accordance with CCP Global's template. The information contained in this document is provided for ease of reference.

CCP12_Transparency_Quick_Links_20240603 140 KB 01.07.2024

FMI Quantitative Disclosures

The CPSS-IOSCO Principles for Financial Market Infrastructures (PFMI) states that Financial Market Infrastructures (FMIs) should provide relevant information to participants, relevant authorities and the broader public. Quantitative data are important components of the set of public disclosures that is expected of FMIs as part of satisfying the PFMI. Accordingly, the Committee on Payments and Markets Infrastructures (CPMI) published a minimum set of standards for public quantitative disclosures, and encouraged CCPs to use a common template within which to publish their quantitative disclosures. This template, populated with the quantitative disclosures pertaining to JSE Clear, is found below:

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Risk Management

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