Prudential Requirements_A Flashcards
What are the minimum requirements of the FMA regarding the content of a member’s accounting records?
Records to contain details of:
1. Receipts and Payments, both own and clients;
2. Income and expenditure, explaining the nature thereof;
3. Assets and Liabilities;
4. Purchases and Sales, both own and clients;
5. Receipts and dispatch of documents of title; and
6. Securities and documents of title in the possession or control of the member showing:
a. physical location;
b. owner;
c. purpose for which held; and
d. whether they are subject to any change.
How frequently must a member reconcile all balances with banks and custodians?
As frequently as is appropriate for the volume of transactions on the accounts but not less than every 2 days.
In extending credit to a client or counterparty, either through a loan of funds, a loan of securities or an indulgence in
relation to an obligation of a client or counterparty to a member, what must a member ensure?
- That the granting of credit does not compromise its ability to meet its financial resources requirements as
specified in the rules and directives. - That the granting of credit does not adversely impact its liquidity to the extent that it may not have sufficient
funds to meet its short term commitments. - That the realisable value of any collateral or other security provided by the client or counterparty which reduces
the exposure on which the member’s Counterparty Risk Requirement is calculated, in terms of DC 9.4, can be
reliably measured.
By when are members required to submit returns reflecting members risk positions and its financial resources (Capital
Adequacy Return) to the Director: Market Regulation?
Within 10 business days of the end of each month.
Within how many months of a member’s financial year end must the following reporting statements be submitted to
the Director: Market Regulation?
1. Annual financial statements,
2. Annual reconciliation statement,
3. Auditor’s special reports.
3 Months.
What criteria must be met to include redeemable preference shares as capital in determining a member’s financial
resources?
- The initial period to redemption shall be at least 2 years.
- The remaining period to redemption shall be at least 3 months.
In order to include loan accounts, which include shareholders loan accounts as capital in determining its financial
resources, what is a member required to do?
Ensure that they are legally subordinated in a manner prescribed by the Director: Market Regulation.
What criteria must be met to include guarantees received as capital in determining a member’s financial resources?
- Guarantor approved by Director: Market Regulation.
- Guarantee irrevocable for a period of 3 months into the future.
- Guarantee capable of being drawn upon on presentation.
Itemise 6 types of assets which are not included in adjusted liquid capital?
- Intangible assets (Goodwill, etc.)
- The maximum current exposure of the member arising from any guarantee given or assets pledged to secure the
obligations of a third party. - Holding in credit institutions and investment firms IF
a. greater than 10% of Issuer’s capital; or
b. greater than 10% of member’s available capital resources
From the following information calculate the member’s surplus liquid capital.
13 weeks fixed expenditure base requirement R 500 000
Risk requirements:
Equity position risk R 80 000
Bond position risk R 32 000
Counterparty risk R 13 000
Large exposure risk R 21 000
Adjusted liquid capital R 700 000
Motor cars which have been fully paid for can be sold for R120 000 cash
BERR R 500 000
PRR Equities R 80 000
PRR Bonds R 32 000
CRR R 13 000
LER R 21 000
Total Risk Requirement R 646 000
ALC R 700 000
Cash for motor cars R 120 000
Total ALC R 820 000
Surplus ALC R 174 000
Calculate the position risk requirement from the following positions reflected on a member’s stock scan.
Share type Long (L)
Short (S)
Share Long (L) Book value Market value
Type Short(S) R R
A Illiquid L 45 000 50 000
B Highly liquid L 63 000 60 000
C Normal L 81 000 70 000
D Illiquid S 82 000 80 000
E Highly liquid S 83 000 90 000
General risk
Share A 50 000 x 8% 4 000
Share B 60 000 x 8% 4 800
Share C 70 000 x 8% 5 600
Share D (80 000) x 8% (6 400)
Share E (90 000) x 8% (7 200)
(Total) 800
Specific risk
Share A 50 000 x 15% 7 500
Share B 60 000 x 5% 3 000
Share C 70 000 x 10% 7 000
Share D (80 000) x 15% 12 000
Share E (90 000) x 5% 4 500
34 000 Total PRR 34 800
