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Central Clearing Solutions

In 2011, the South African Treasury issued a policy document for financial reform that included changes in the institutional arrangements for financial regulation and supervision. These changes can be categorised under three headings: introduction of a Twin Peaks regulatory structure; strengthening financial stability oversight, and strengthening coordination and information exchange arrangements.

The South African authorities have established an interim inter-agency Financial Stability Oversight Committee (FSOC) that, when legislated, will be responsible for the oversight of the financial system from a macro prudential perspective

The South African authorities have adopted a phased and carefully planned approach to the implementation of OTC derivative regulatory reforms as follows:

  • Phase I – a code of conduct for, and registration of, markets participants and implementing central reporting of OTC derivative transactions;
  • Phase II – risk management, i.e. margin and capital requirements for non-centrally cleared derivatives (where appropriate); and
  • Phase III – standardisation, central clearing and central trading (where appropriate).

The new market reforms clearly state the objective of having a Central Clearing Counterparty to report OTC trades to a Trade Repository as well as centrally manage all OTC transactions to enhance transparency and enable management of systemic risks by regulators.

Dreadnought envisages a true CCP for South Africa that not only utilizes the balance sheets of the institutions participating in this market, but includes a foreign counterpart that is globally recognized. Dreadnought hopes that this can enable SA participants to access offshore liquidity at a market related cost and that is less cumbersome than having alternate membership at offshore clearinghouses.

The SA exchange control rules also dictate that prudential limits discourage transactions in foreign currency over a certain threshold.