Chapter 1: Financial Institutions Flashcards
4 Responsibilities of the South African Reserve Bank
- Formulating and implementing MONETARY POLICY
- Ensuring the SA money, banking and financial system as a whole is sound.
- Assisting the SA government, as well as other members of the economic community in the formulation and implementation of macroeconomic policy.
- Informing the South African community and all interested stakeholders abroad about monetary policy.
7 Roles of the South African Reserve Bank
- Banker and adviser to the government
- Provision of economic and statistical services
- Management of the South African money and banking system
- Settlement of inter-bank claims
- Provision of internal corporate support services and systems
- Formulation and implementation of monetary policy
- Regulator of the financial sector (prudential regulation & systemic oversight)
Primary objective of monetary policy in South Africa
To achieve and maintain price stability in the interest of sustainable and balanced economic development and growth.
Price stability reduces uncertainty in the economy and, therefore, provides a favourable environment for growth and employment creation.
SARB inflation target
Between 3% and 6%
The money market
Refers to interest rate instruments with a duration of less than one year.
The market covers bank deposits and short-term securities such as Treasury Bills (TBs) and Promissory Notes (PNs).
Key functions of the SARB Financial Markets Department
- Implementing the Reserve Bank’s monetary policy decisions. (e.g. refinancing SARB liquidity requirements, and managing liquidity in the money market)
- Participating in spot and forward foreign exchange markets to serve foreign exchange needs of the Reserve Bank and its clients.
- Acting as funding agent of the government by conducting bond and Treasury bills auctions.
- Facilitating the effective functioning of the domestic financial markets through participating in these markets
- Managing the Reserve Bank’s gold and foreign exchange reserves.
- Maintaining correspondent banking relationships by interacting with the Bank’s counterparties, both domestic and foreign.
- Providing market information and analyses to assist the governors in their decision-making.
- Providing custody and settlement services to the government and the banks.
- Managing the risk inherent in gold, foreign exchange, refinancing and government funding activities.
2 Key roles of the JSE
- Raising new finance for companies and governments (the primary or new issue market) through Initial Public Offerings (IPOs)
- Providing a secondary market for investors.
6 Main lenders at the JSE
- Retirement funds
- Life insurance companies
- Individuals
- Non-Life insurance companies
- Collective investment schemes
- Investment companies and trusts
The JSE connects buyers and sellers across 3 main groups of market platforms:
- Equity products on the Main Board and the alternative exchange
- Debt market covering Government Bonds, Corporate Bonds, and the Repo Market.
- Derivatives market including Bond, Interest Rate, Equity, Commodity and Currency Derivatives.
Responsibilities of the JSE Market Regulation division
It is responsible for ensuring that business takes place in an orderly manner and that investors are afforded proper protection by:
- Regulating members of the JSE: Members have to follow the JSE’s rules, which cover trading practices and professional standards.
- Regulating transactions: The price, time and volume of all trades have to be reported soon after they have occurred. This reporting means that it is possible to check whether instructions have ben properly carried out, or whether insider dealing may have occurred.
- Regulating companies: Any company wishing to have its securities quoted on the JSE must meet the exchange’s requirements for listing, including proper reporting requirements.
JSE: Clearing
Clearing is the process of preparing the trade for settlement and allows the members on both sides of the trade to ensure that they, or their clients, have the securities or cash ready to settle on settlement day.
JSE: Settlement
Settlement for both equities and bonds take place 3 days after the execution of the transaction of the trade (T+3).
Settlement is normally concluded through STRATE.
STRATE is a company owned by the JSE and the major banks, that acts as the Central Securities Depository and provides an efficient electronic system for transactions.
Merchant banks
Specialise in assisting organisations to capitalise their business.
7 Roles played by a typical merchant bank
- Give advice on takeover and merger strategies and defences.
- Give advice on investment projects.
- Give advice on black economic empowerment projects.
- Give advice on the best ways to raise capital.
- Act as issuing houses.
- Arrange underwriting of new issues.
- Facilitate private equity transactions.
Commercial banks
(aka retail banks)
Provide individuals and companies with banking facilities - a means for their customers to transfer monies to third parties.