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JSE SECURITIES EXCHANGE SOUTH AFRICA

JSE SECURITIES EXCHANGE SOUTH AFRICA. Margining Methodology. Margining Methodology. Objectives Process Overview Methodology Results & Examples Implementation Conclusion. JSE SE SA Objectives. Accurate transparent methodology Compensate for volatility, liquidity & deal size risk

solomon-chapman
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JSE SECURITIES EXCHANGE SOUTH AFRICA

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  1. JSE SECURITIES EXCHANGE SOUTH AFRICA Margining Methodology

  2. Margining Methodology • Objectives • Process Overview • Methodology • Results & Examples • Implementation • Conclusion

  3. JSE 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

  4. Specific 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. MARGIN Volume Price Volatility Relative Spread Size

  5. Process Overview

  6. Methodology • 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

  7. The Margining Matrix Deal Size 39,500 Sec. Codes 8% NPK

  8. Visual Matrix Graph

  9. 200 Securities Example High Risk Medium Risk Low Risk

  10. Margin Requirements: AGL v NPK • AGL: Ave Volume 2.7m, Volatility 43.49% • NPK: Ave Volume 1.7m, Volatility 28.63%

  11. Median Margin Examples 11,000

  12. Spread 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

  13. RCH Relative Spread

  14. PET Relative Spread

  15. ESS Relative Spread

  16. Implementation Brokers RisCura A Daily Download Risk Engine B Pre-Trade Risk Analytics C FTP D Email E JSE SE SA Failed Trades Margin Matrix

  17. Pre-Trade Risk Analytics

  18. Conclusion • 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

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