JSE SECURITIES EXCHANGE JSE SECURITIES EXCHANGE SOUTH AFRICASOUTH AFRICA

JSE SECURITIES EXCHANGE JSE SECURITIES EXCHANGE SOUTH AFRICASOUTH AFRICA

Margining MethodologyMargining Methodology

Margining MethodologyMargining Methodology

Objectives

Process Overview

Methodology

Results & Examples

Implementation

Conclusion

Objectives

Process Overview

Methodology

Results & Examples

Implementation

Conclusion

JSE SE SA ObjectivesJSE SE SA Objectives

Accurate transparent methodology

Compensate for volatility, liquidity & deal size risk

Enable pre-trade risk management

Consistency with SAFEX margining

Secure daily data transfer

Rapid implementation

Accurate transparent methodology

Compensate for volatility, liquidity & deal size risk

Enable pre-trade risk management

Consistency with SAFEX margining

Secure daily data transfer

Rapid implementation

Specific Margin ObjectivesSpecific Margin Objectives

The margin should take into account the specific risk of the position, including the price volatility, liquidity and specific size

(nominal shares) involved from EOD on T+3.

The margin should take into account the specific risk of the position, including the price volatility, liquidity and specific size

(nominal shares) involved from EOD on T+3.

MARGINMARGIN

Relative SpreadRelative Spread SizeSizePrice VolatilityPrice Volatility VolumeVolume

Process OverviewProcess Overview

T T + 1 T + 2 T + 3 T + 4 T + 5

AllocatedBroker

CAPAD REQ ON BROKER

CSDPCommitby 12h00on T + 3

If NO commit, then client toresolve till 10h00 on T + 4

SETTLESUCCESFULLY

If RESOLVED,trade settles

If NOT resolved, position reversed tobroker “reverse substitution” CSDP

must commit by 12 on T+4

10h00T + 4

JSE Fails Management ProcessInitiated

STEP 1 - borrow stock

IF NO STOCKGIVE UP TRADE

2 DAYMARGIN

MethodologyMethodology

MtM uncommitted trades on EOD on T+3

Compute 2-day VaR margin

Scale VaR for liquidity horizon

Adjust margin for position size

Compile margin matrix

Provide information to JSE

JSE margins trades

MtM uncommitted trades on EOD on T+3

Compute 2-day VaR margin

Scale VaR for liquidity horizon

Adjust margin for position size

Compile margin matrix

Provide information to JSE

JSE margins trades

The Margining MatrixThe Margining Matrix

100 200 300 500 1,000 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 100,000 300,000 500,000 1,000,000 2,000,000 DDT 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15%AGL 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 14%ANG 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 14% 23% 28% 35% 46%BAW 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 13% 17% 22% 28%BOE 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8%CRN 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 17% 26% 31% 41% 53%DTC 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 24% 36% 48%SAP 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 14% 20% 26%ASA 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 11% 16%BIL 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 12%FDS 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 18% 22% 28% 36%INT 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 18% 22% 28% 37%FSR 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6%RMH 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 9% 13% 17%JDG 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 17% 21% 26% 34%MHH 16% 16% 16% 16% 16% 16% 16% 16% 16% 16% 16% 16% 16% 16% 16% 17% 31% 37% 48% 62%OML 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6%REM 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 8% 12% 16%MCE 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 19%NPK 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 13%ENR 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 17% 27% 33% 41% 54%SBC 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 10%NED 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 12% 15% 19% 25%SOL 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 11% 15%RCH 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 7% 10% 13% 17%IOT 23% 23% 23% 23% 23% 23% 23% 23% 23% 23% 29% 32% 34% 36% 38% 49% 73% 88% 100% 100%BSB 13% 13% 13% 13% 13% 13% 13% 13% 13% 13% 13% 13% 13% 14% 15% 21% 30% 36% 46% 60%MZL 19% 19% 19% 19% 19% 19% 19% 19% 19% 21% 23% 25% 26% 27% 28% 36% 51% 61% 79% 100%EQX 35% 35% 35% 35% 35% 35% 35% 44% 50% 54% 58% 61% 63% 66% 68% 85% 100% 100% 100% 100%MGF 70% 70% 70% 70% 70% 70% 70% 78% 89% 97% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%SOT 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Sec. Codes

Deal Size

NPK

39,500

8%

Visual Matrix GraphVisual Matrix Graph

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

100

200

300

500

1,0

00

5,0

00

10,

000

15,

000

20,

000

25,

000

30,

000

35,

000

40,

000

45,

000

50,

000

100

,000

300

,000

500

,000

1,0

00,0

00

2,0

00,0

00

3,0

00,0

00

5,0

00,0

00

10,

000,

000

DDT AGL

ANG BAW

BOE CRN

DTC SAP

ASA BIL

FDS INT

FSR RMH

JDG MHH

OML REM

MCE NPK

ENR SBC

NED SOL

RCH IOT

BSB MZL

EQX MGF

SOT

11,000

SOT

SAP

FSR

EQX

MGF

ANG

DDT

IOT

200 Securities Example200 Securities Example

0%

20%

40%

60%

80%

100%

120%

0:10

0

201

: 300

401

: 500

601

: 700

801

: 900

1001

: 20

00

3001

: 40

00

5001

: 60

00

7001

: 80

00

9001

: 10

000

2000

1 : 3

0000

4000

1 : 5

0000

6000

1 : 7

0000

8000

1 : 9

0000

1000

01 :

1100

00

1200

01 :

1300

00

1400

01 :

1500

00

1600

01 :

1700

00

1800

01 :

1900

00

2000

01 :

3000

00

4000

01 :

5000

00

6000

01 :

7000

00

8000

01 :

9000

00

1000

001

: 150

0000

2000

001

: 250

0000

3000

001

: 350

0000

4000

001

: 450

0000

AAA

ABC

ABI

ABL

ABR

ACN

ACR

ACY

ADH

ADL

ADO

ADR

ADT

AEC

AEG

AFB

AFE

AFG

AFI

AFL

AFX

AGL

AGS

AHH

AHN

High Risk

Medium Risk

Low Risk

Margin Requirements: AGL v NPKMargin Requirements: AGL v NPK

0%

5%

10%

15%

20%

25%

30%

35%

100

3

00

1,0

00

10,

000

20,

000

30,

000

40,

000

50,

000

300

,000

1,0

00,0

00

3,0

00,0

00

10,

000,

000

AGL

NPK

AGL: Ave Volume 2.7m, Volatility 43.49%

NPK: Ave Volume 1.7m, Volatility 28.63%

AGL: Ave Volume 2.7m, Volatility 43.49%

NPK: Ave Volume 1.7m, Volatility 28.63%

Median Margin ExamplesMedian Margin Examples

0%

20%

40%

60%

80%

100%

120%

100

3

00

1,0

00

10,

000

20,

000

30,

000

40,

000

50,

000

300

,000

1,0

00,0

00

3,0

00,0

00

10,

000,

000

AGL

DTC

NPK

RCH

MGF

11,000

Spread RiskSpread Risk

Relative Spread = (Offer - Bid)/Mid

Quantifies spread as % of asset price

Allows objective spread comparison

Enables spread risk comparison

Implicit risk (cost) of trading

Relative Spread = (Offer - Bid)/Mid

Quantifies spread as % of asset price

Allows objective spread comparison

Enables spread risk comparison

Implicit risk (cost) of trading

RCH Relative SpreadRCH Relative Spread

RCH Relative Spread

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

2/14/00

2/28/00

3/13/00

3/27/00

4/10/00

4/24/00

5/8/00

5/22/00

6/5/00

6/19/00

7/3/00

7/17/00

7/31/00

8/14/00

8/28/00

9/11/00

9/25/00

10/9/00

10/23/00

11/6/00

11/20/00

12/4/00

12/18/00

1/1/01

1/15/01

1/29/01

2/12/01

2/26/01

3/12/01

3/26/01

4/9/01

4/23/01

5/7/01

5/21/01

6/4/01

Date

Sp

rea

d

PET Relative SpreadPET Relative SpreadPET Relative Spread

0%

5%

10%

15%

20%

25%

2/14/00

2/28/00

3/13/00

3/27/00

4/10/00

4/24/00

5/8/00

5/22/00

6/5/00

6/19/00

7/3/00

7/17/00

7/31/00

8/14/00

8/28/00

9/11/00

9/25/00

10/9/00

10/23/00

11/6/00

11/20/00

12/4/00

12/18/00

1/1/01

1/15/01

1/29/01

2/12/01

2/26/01

3/12/01

3/26/01

4/9/01

4/23/01

5/7/01

5/21/01

6/4/01

Date

Sp

rea

d

ESS Relative SpreadESS Relative SpreadESS Relative Spread

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2/14/00

2/28/00

3/13/00

3/27/00

4/10/00

4/24/00

5/8/00

5/22/00

6/5/00

6/19/00

7/3/00

7/17/00

7/31/00

8/14/00

8/28/00

9/11/00

9/25/00

10/9/00

10/23/00

11/6/00

11/20/00

12/4/00

12/18/00

1/1/01

1/15/01

1/29/01

2/12/01

2/26/01

3/12/01

3/26/01

4/9/01

4/23/01

5/7/01

5/21/01

6/4/01

Date

Sp

rea

d

ImplementationImplementation

BrokersBrokersRisCuraRisCura

FTPFTP

EmailEmail

AA

BB

CC

EE

DD

Pre-Trade Risk Analytics

Pre-Trade Risk Analytics

JSE SE SAJSE SE SA

Daily DownloadDaily DownloadRisk EngineRisk Engine

Failed TradesFailed Trades

Margin MatrixMargin Matrix

Pre-Trade Risk AnalyticsPre-Trade Risk Analytics

ConclusionConclusion

Fully covers volatility, liquidity and position size risk

Consistent with SAFEX margining

Tested & ready to implement

Fully automated

Data transfer redundancy

Broker pre-trade risk analysis

Compensates JSE for risk

Fully covers volatility, liquidity and position size risk

Consistent with SAFEX margining

Tested & ready to implement

Fully automated

Data transfer redundancy

Broker pre-trade risk analysis

Compensates JSE for risk