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Company law, 302 > Chapter 19:Financial Markets > Flashcards

Chapter 19:Financial Markets Flashcards

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1
Q

Characteristics of a good efficient market

A
  • timely and accurate price and share volume information
  • Liquidity, assets can be bought or sold quickly at a price similar to prior transactions
  • Low transaction costs, cost of reaching markets and actual brokerage costs and transferring assets
  • prices rapidly adjust to new information
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2
Q

Primary markets

A

Securities are initially listed

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3
Q

Secondary markets

A

Buying and selling securities after they were already issued and listed.

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4
Q

Listed exchange

A

Stocks, bonds and future exchanges are organized and regulated market infrastructures which comply with applicable statutory requirements where securities are listed on exchange and then sold by market participants

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5
Q

Five listed SA exchanges

A
  1. JSE Limited
  2. 4Ax Exchange
  3. Equity Express Securities Exchange
  4. ZAR-X Exchange
  5. A2X Exchange
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6
Q

Financial Market Act

A
  1. Records the requirements

2. Sets out regulatory duties and functions of all market infrastructure, including licensed exchanges

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7
Q

JSE

A

Connects buyers and seller through horizontal integration.
Provide listings, clearing and settlement services for these markets-vertical integration.
required to enforce rules and listing requirements to ensure effective supervision and regulate both members that trade on its markets

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8
Q

Benefits of listing securities on exchange

A
  • Opportunity to raise capital
  • Opportunity to to invest in listed companies and realize profit if price of shares increases.
  • Enhance reputation and public profile of company
  • Enhancing company liquidity of company shares.
  • Can facilitate broad based black economic empowerment through board participation limitation
  • If company meets eligibility requirements for inclusion in index, increasing liquidity in trading of shares
  • Listed entities attract more diverse range of investors such as pension funds and asset managers
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9
Q

Minimum requirements of licensed exchange S11(1)

A

a) manner securities may be listed or removed or trading of listed securities can be suspended
b) Requirements with issuers of listed securities and securities which are intended to be listed and issuers agents must comply
c) The standards of conduct issuers, agents, officers, directors must meet
d) Standards of disclosure and corporate governance that issuers of listed securities must meet
e) details relating to listed securities may be necessary
f) The steps taken by exchange or persons to whom exchange delegated disciplinary functions for investigation and discipline of issuer or director, officer, employee of issuer that fails to comply with listing requirements
g) Failure to comply with listing requirements, any more of penalties as described in FMA, which may be imposed by exchange or person to whom exchange has delegated its disciplinary functions

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10
Q

South African Regulatory Framework:

A

The Financial Sector Regulation Act 9 of 2017 & Financial Markets Act 19 of 2012

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11
Q

Financial Sector Regulation Act

A 
Set up die to SA G20 commitments 
Sets up the twin peak finacial regulatory system 
Also set up:
1. Prudential Authority 
2. Financial Sector Conduct Authority

Regulates financial industry and in conflict between the FSRA and FMA the FMA prevails.

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12
Q

Prudential Authority

A

Supervises and regulates safety and soundness of financial institutions conduct their business and treat customers

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13
Q

A Safer Financial Sector to Serve South Africa Better (published by National Treasury)

A
  • Decisive move away from regulatory approach
  • Reduces possibility of regulatory arbitrage
  • Close gaps in regulatory system
  • Effectively combats financial crime
  • Reduces threats to financial instability
  • Protects customers by ensuring financial institutions treat customers fairly
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14
Q

Systemic Risk

A

dangers of failure or disruption of whole or significant part of the SA financial system

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15
Q

Financial Sector Conduct Authority

A

Set up by FSRA and required under FMA to report matter that may pose sytemic risk to financial system to the Minister of Finance and the Governor of the South African Reserve Bank (the Governor)

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16
Q

Provisions of the FSRA dealing with systemic risk fall.

A
  1. Reporting responsibility placed upon FSCA in event it perceives circumstances to be indicative of systemic risk
  2. Statutory obligation on market infrastructures to refrain from any conduct that could result or cause systemic risk
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17
Q

Financial Markets Act

A

Introduces important capital markets like the Securities Services Act

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18
Q

Twin peaks

A

First peak: prudential requirements applicable to capital markets (particularly banks, insurance companies) Prudential Authority is lead regulator in macro-prudential, micro-prudential and financial stability issues

Second peak: the market conduct. The FSCA is the lead regulator on market conduct for financial services. regulates market conduct of all aspects of financial services including banking, insurance, advisory and related services

Balances investor protection and enhance international competitiveness of securities servicesin SA

19
Q

Aims of FMA

A
  • Ensure SA financial markets are fair, efficient and transparent
  • Increase confidence in SA financial markets by:
    a) Requiring securities services be provided in fair, efficient and transparent manner
    b) Contributing to maintenance of stable financial market environment:
    ~promote protection of regulated persons, clients and investors
    ~reduce systemic risks
    ~promote international and domestic competitiveness of South African financial markets and of securities services in SA
20
Q

To whom does the FMA apply to?

A

The financial markets with regards to the supply of services and providing infrastructure to the financial market.

21
Q

Regulated persons

A
  • licensed central securities depositories
  • clearing houses
  • exchanges
  • trade repositories
  • authorized users
  • clearing members
  • nominees
  • participants
  • Issuers
  • any other persons designated as such by the Minister
22
Q

Market infrastructure (FMA Section 1)

A
  • licensed central securities depository
  • licensed clearing house
  • licensed exchange
  • licensed trade repository

Entities need to be licensed and must fulfil licensed duties and functions as set out in FMA.
Market infrastructures obliged to inform registrar of events that may pose systemic risk to financial markets

23
Q

Trading securities

A

FMA regulates the purchase and sale of listed securities by imposing obligations on market infrastructures to adopt and enforce rules that deal with and regulate all matters.
Provision of services needs to be compliant with preemptory requirements set out in FMA.

24
Q

Authorized users

A

Gatekeepers between buyers and sellers of securities and exchange on which securities are traded

Must comply with rules of exchange applicable to authorized users. code of conduct, a regulatory instrument.

25
Q

Custody and administration of securities

A

Established by FMA and FSRA.

FMA ensures transactions are efficient and buyers receive their securities and sellers receive payment

service providers assist in alleviating stress of transaction processes.

Provision deals with single custody and admin platforms with which transfer of securities amongst market participants can occur using different service providers, recorded and arrangement regarding transfer between service providers carried out according to standards and protocols

Market infrastructure=central securities depository

26
Q

Certificates

A

Listed securities- Issued and traded in dematerialized form
Physical certificates are required and transferred by delivery to purchaser if shareholder sold it. If purchaser wishes for the certificate to be held by another after receipt from owner, it can be held by Central securities depository

27
Q

First licensed Central Securities Depository

A

Strate & Granite

28
Q

CSD participants

A

ABSA bank limited, First Rand Bank Limited, Nedbank Group Limited, Computershare, Societe Generale and the Standard Bank of south Africa Limited

29
Q

Two types of clients

A
  • People maintaining shares in broker custody. brokers maintain account with CSD participant. Only participants deal directly with Strate. securities in custody of CSD participants with whom clients broker maintains an account for custody and admin purposes
  • Persons electing to appoint their own CSD participant to act on their behalf
30
Q

Nominee

A

Owners can register securities in name of nominee, also regulated by FMA
approved to act as registered holders of securities or interest on behalf of others, must be approved by rules of exchange.
Nominees not approved by CSD or exchange need to be approved by registrar

31
Q

Clearing and settlement

A

payment and associated transfer of securities from disposing party to the acquiring party.

  1. the exact number of securities to be transferred and payment required to achieve this must be calculated and determined
  2. act required to settle the obligations arising from transaction
32
Q

Clearing houses

A

Perform clearing services in terms of FMA
must be licensed separately. license needs to be renewed by registrar annually. FMA allows for clearing houses to merge or assets and liabilities of one clearing house to be transferred or taken over by any other clearing house by registrar approval

33
Q

Trade repositories

A

maintains central electronic database of transaction data which FMA requires all unlisted transactions to be disclosed in

34
Q

Segregation of securities

A

Following Financial Markets Bill memo, FMA incorporates INternational Organizations of Securities Commissions and Bank of International Settlements recommendation that securities regulation should support segregation of securities

35
Q

Securities services

A

Buying and selling securities, custody and admin, management and clearing and settling in listed securities

36
Q

Prohibitions of FMA

A
  • Persons cant operate as CSD, Clearing house or Trade depository without FMA license
  • persons cant act as authorized users or participants unless authorized to do so
  • Persons cant buy or sell listed security unless complying with FMA.
  • Persons cant buy or sell listed securities unless complying with regulations and conditions set out by MInister and registrar for buying and selling unlisted securities
37
Q

Market infrastructures

A

licensed CSD, Clearing houses, trade depositories, exchanges
Obliged as by ss 10, 30 &50)

Imposing an exchange without meeting the listing requirements includes reprimand, imposing fines, disqualification from holding office of director or officer of listed company for any period of time.

38
Q

Market infrastructure Regulation

A

persons who cannot be appointed director in terms of Companies Act or penalized in disciplinary proceedings for contravention of rules of any professional organization for dishonesty or does not fit requirements set out by FSCA, they cant be appointed member of controlling body in MI.

FMA needs FSCA approval to acquire shares of nominal value over 15% of total nominal value of all issued shares of that market infrastructures

this ensures FSCA maintains control over ownership structure of licensed market infrastructures to ensure no introduction of systemic risks into SA financial system and securities markets.

39
Q

Regulation of market abuse

A

abuses must be reported to the Directorate of Market Abuse, a specialised branch of the FSCA

market abuse covers issues relating to manipulative improper practices of trading as well as false misleading or deceptive statements or forecasts. Price stabilizing mechanisms are excluded from these provisions

40
Q

S77 of FMA

A

specific or precise information not made public and which-

a) obtained or learned as insider
b) made public would be likely to have material effect on price or value of any security listed on regulated market

use thereof is prohibited as it harms security and derivatives market integrity

41
Q

S80 of FMA

A

no person can act in manner that may have effect of creating false deceptive appearance of supply, demand or trading activity in security

42
Q

False statements

A

Harms integrity of and undermines public confidence in markets.

prohibition hereof could also relate to withholding price sensitive information from market often to avoid negative effect it would have on share price

43
Q

S81 of FMA

A

Relates to past or future performances of listed securities that are false, misleading or deceptive.

Company law, 302 (3 decks)

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