Safcom, South Africa’s clearing house appointed by the Johannesburg Stock Exchange (JSE) to provide services to the local exchange-traded derivatives market, on yesterday became the first in the world to qualify for CPSS-IOSCO compliance.
CPSS-IOSCO is a global standard for risk management aimed at any organisation enabling the part of a trade that occurs once an investor gives the “buy” command, namely, clearing, settling and recording the transaction.
The standard was designed as part of an international drive towards financial stability in the wake of the 2008-09 global financial crisis.
“If clearing houses are ineffective, they could be a transmitter of contagion, financial shocks and default,” the JSE said in a statement on Thursday. “CPSS-IOSCO compliance demands adherence to a comprehensive set of principles designed to enhance investor protection, promote transparency and reduce systemic risk.”
Safcom’s achievement is important to derivative traders because Basel III, the global regulatory standard on banking regulations including capital adequacy, imposes prohibitive capital penalties on banks which deal with clearing houses that aren’t IOSCO-compliant.
“Failure to comply means banks will have to hold up to 10 times more capital as surety, which will result in the derivatives market becoming increasingly expensive to trade in, further resulting in a decrease in investments,” the JSE explained.
“The JSE believes that the achievement of IOSCO compliance is a major step forward for Safcom, and an important move to enhance the credibility of the South African market ecosystem as a foreign investment destination,” said Leila Fourie, director of post trade services at the JSE.
“The appointment of a qualifying clearing house in South Africa enables growth in the derivatives market as we approach the implementation of Basel III.”
The achievement was the result of collaboration between the JSE, the country’s banks and Safcom’s other market participants, as well as JSE regulator the Financial Services Board, which reviewed and assessed the compliance activities.