Chapter 3: Members & Brokers on the JSE

Question 1

2 Categories of JSE membership

Answer 1

• Corporate entity (unlimited liability)

- Limited liability corporate entity - public/private company

Question 2

Corporate entity (Unlimited liability) JSE member

Answer 2

A private company with its shareholders being jointly and individually, together with the company, liable and all shareholders being stockbrokers.

Question 3

Corporate Entity (limited liability) JSE member (public/private company) composition

Answer 3

Can either have:

• Only stockbrokers as its shareholders
• Or non-stockbroker shareholders with a prescribed minimum number of stockbrokers as directors.

Question 4

Prerequisites for JSE membership

Answer 4

• A member must be incorporated and registered as a domestic company under the Companies Act.
• A member must hold sufficient liquid capital to meet its base requirement and its risk requirement.
• Must appoint a compliance officer who must ensure compliance by the member with the Act and JSE rules and directives
• Must appoint a settlement officer who must ensure that all transactions are settled properly and according to the requirements.

Question 5

Member base capital requirements:

Answer 5

The higher of:

- An adequate amount to meet a member’s operating expenditure for a period of 13 weeks

Question 6

Risk requirement

Answer 6

The sum of the member’s position risk requirement, counter-party risk requirements, foreign exchange requirement and large exposures requirements.

Question 7

Members acting as agents

Answer 7

The member will do the buying/selling on behalf of the client and will receive a commission for his services.

Question 8

Members acting as a principle

Answer 8

The member can sell some of his own shares to his client and/or purchase shares directly from his client. When acting as a principle, he may not charge brokerage.

Question 9

Brokers

Answer 9

Individuals who possess knowledge on the functioning of the JSE, the analysis of financial statements, portfolio management etc. and are therefore capable of providing their clients with knowledgeable advice on investments on the JSE.

Question 10

5 Prerequisites for brokers

Answer 10

• Must be at least 21 years of age
• Must pass the examination of the SA institute of stockbrokers
• Must be members of the Institute
• May not have been expelled from the JSE or any other financial market worldwide.
• Must pay the entrance fee and the annual subscription.

Question 11

Functioning of a controlled account

Answer 11

His stockbroker has acces to your funds and shares. the funds that a person entrusts to his stockbroker will be placed by the broker in the JSE trust fund.
Any shares handed over to the broker will first be dematerialised and the electronic record will be kept safely by the stockbroker’s CSPD (Central Securities Depository Participant)

Question 12

Functioning of a non-controlled client

Answer 12

The client appoints his own CSPD to be the custodian of his shares and his funds will be in his own bank account.
When this client sells or purchases shares he has to notify his broker as to whom his CSPD is.

Question 13

Settlement requirement of the JSE

Answer 13

T plus 5

Thus it must take place within 5 working days after the transaction day (T)

Question 14

2 General instructions given by a client to his broker

Answer 14

• Market order

- Limit order

Question 15

Market order

Answer 15

Simplest instruction. This specifies only the number of shares that mus be purchased or sold in a specific company.
The broker will then try to buy/sell at the best possible price.

Question 16

Limit order

Answer 16

The number of shares and the price is specified. The broker will try to purchase/sell at the prescribed price or better.

Question 17

5 Main share transaction costs:

Answer 17

• Brokerage
• Strate settlement cost
• Investor protection levy
• Value added tax
• Uncertified securities tax (UST)

Question 18

Brokerage

Answer 18

The broker will charge his client a commission expressed as a percentage of the transaction amount - 1.4% currently. This fee has a minimum amount (currently of R150)

Question 19

Strate settlement cost

Answer 19

Transaction fee is charged for the transfer of the shares and money between the various CSDP’s.
The costs amount to:
- R10,92 per transaction (up to R200 000)
- Transactions between R200 000 and R1 mil charge 0,005459%
- If worth R1 mil+, R54,59 is charged

Question 20

Investor protection levy

Answer 20

A levy used by the JSE to monitor transactions on the market to ensure that they have not been executed based on insider information.
Amounts to 0,0002% of the transaction amount

Question 21

Value added tax

Answer 21

The government requires that the broker must charge VAT on his brokerage at 14%

Question 22

Uncertified securities tax

Answer 22

Only paid during a purchase transaction. Charged by the state (further tax): 0,25% on the transaction value.

Question 23

Stamp duties

Answer 23

Paid if a transaction is executed directly between two parties (no broker, no JSE). Amount to 0,25% of the transaction amount.
If the transfer takes longer than 6 months, its 0,75%