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Financial Markets Control Act, 1989 (Act No. 55 of 1989)

17. Rules of Financial Exchange

 

 

(1) Subject to the provisions of this Act and any exemption or addition that may be deemed appropriate by the Registrar in a particular case, the rules of a financial exchange shall provide to the satisfaction of the Registrar —

(a)

(i) that its affairs are managed by a committee and shall make provision for the establishment, composition and functions of an executive committee of the financial exchange;
(ii) that adequate provision is made for the implementation of section 12A;
(iii) that no person is admitted as a member or allowed to continue as a member unless that person —
(aa) is of good character and integrity, or in the case of a corporate body is managed and controlled by persons who are of good character and integrity;
(bb) complies, or in the case of a corporate body is managed by or employs persons who comply, with the standards of training and experience and other qualifications required in terms of the rules; and
(cc) employs the number of persons required in terms of the rules and who comply with the standards and other qualifications contemplated in item (bb);

[Item (cc) substituted by section 6(b) of Act 73 of 1996]

[Subparagraph (iii) amended by section 6(a) of Act 73 of 1996]

[Paragraph (a) substituted by section 12(a) of Act 55 of 1995]

(b) for —
(i) the manner in which and the terms and conditions under which members are to deal in financial instruments; and
(ii) the adequate disclosure of information, relating to members' dealings with buyers and sellers of financial instruments to such buyers and sellers.

so as to ensure efficiency, honesty and fair practice in relation to such dealings;

[Paragraph (b) substituted by section 12(b) of Act 55 of 1995]

(bA) for the delivery and for settlement and for ancillary matters;

[Paragraph (bA) inserted by section 12(c) of Act 55 of 1995]

(bB) for the circumstances under which and the conditions on which a member may grant credit to any person;

[Paragraph (bB) inserted by section 12(c) of Act 55 of 1995]

(c) for the exclusion as a member of a person who is not of good character and high business integrity;
(d) for the standards of financial requirements, training and experience, and other qualifications, for admission as a member;

(dA)

(i) that no officer or employee of a member may advise on or conclude any transaction on behalf of such member in the course of that member's business in relation to the buying and selling of financial instruments, unless authorised to do so in terms of the rules;
(ii) that no member may employ any person unless such person has entered into a written agreement with the member in terms of which the person agrees to comply with the provisions of the Act, the rules, the directives and code of conduct of the financial exchange concerned;

[Paragraph (dA) inserted by section 12(d) of Act 55 of 1995]

(dB) that members are obliged to ensure that buyers and sellers of financial instruments are aware of such buyers' and sellers' material obligations in terms of the Act and the rules;

[Paragraph (dB) inserted by section 12(d) of Act 55 of 1995]

(dC) that no member may carry on the business referred to in section 5 unless such member is authorised to do so in terms of the rules.

[Paragraph (dC) substituted by section 2 of Act 13 of 1998]

(e) for the exclusion of a body corporate as a member where a director of the body corporate, a person concerned in the management of the body corporate or a person who has control of the body corporate, would be excluded as a member by virtue of the provisions of this Act;

[Paragraph (e) substituted by section 65(a) of Act 104 of 1993]

(f) for recording the transactions effected on the financial market in question;

(g)

(i) that complaints against any member or officer or employee of a member are adequately investigated;
(ii) that adequate steps are taken for the investigation and discipline of any member or officer or employee of a member who contravenes or fails to comply with the provisions of this Act or the rules;
(iii) that a member shall not be directed to terminate the employment of an officer or employee on any grounds in respect of which that officer or employee has not had an opportunity of making representations to the committee or disciplinary tribunal contemplated in section 13(b) which made the decision;
(iv) that any officer or employee who has made representations as contemplated in subparagraph (iii) and paragraph (l)(ii), shall be entitled to be supplied with a copy of a record of the relevant proceedings of the meeting to which that member, officer or employee made such representations; and
(v) that the committee or the disciplinary tribunal contemplated in section 13(b), as the case may be, may, upon good cause shown and subject to such conditions as it may impose, modify or vary any sentence which it may previously have imposed upon any person provided that in modifying or varying such sentence, the committee or such tribunal shall under no circumstances increase such sentence;

[Paragraph (g) substituted by section 12(e) of Act 55 of 1995]

(h) for co-operation with the Registrar by the furnishing of information in respect of dealings in listed financial instruments on the financial market in question;
(i) for the effective monitoring of compliance with, and enforcement of, the rules and any arrangements made by the financial exchange with a recognised clearing house for the provision of services and facilities in respect of the buying and selling of financial instruments on the financial market in question and for the clearing, netting or settlement of transactions;

[Paragraph (i) substituted by section 12(f) of Act 55 of 1995]

(j) for the equitable and expeditious settlement of disputes between members in respect of dealings in listed financial instruments;
(k) for appropriate mechanisms for the settlement of disputes between financial instrument traders and their clients in respect of dealings in listed financial instruments by the traders on behalf of the clients;

(l)

(i) [Subparagraph (i) deleted by section 6(c) of Act 73 of 1996]
(ii) that the membership of a member shall not be suspended or terminated on any ground in respect of which he has not had an opportunity of making representations to the executive committee, and that a person who has so made representations to the executive committee shall be entitled to be supplied with a copy of a record of the meeting at which his representations were considered;

(lA)

(i) that adequate capital or guarantees be required from members for all their activities;
(ii) that no person be admitted as or allowed to continue to be a member unless at the time of such person's admission and thereafter while such person remains a member he complies with the capital or guarantee requirements in terms of the rules;
(iii) that the capital or guarantee requirements of members are reviewed regularly in order to ensure that the risk exposures of a member are adequately covered; or
(iv) for different capital or guarantee requirements for different categories of members or for the different activities of a member's business;

[Paragraph (lA) inserted by section 12(h) of Act 55 of 1995]

(lB) that no member may effect a transaction in financial instruments with a person who such member reasonably believes requires approval in terms of section 5, without having taken reasonable measures to ascertain that such person has the necessary approval;

[Paragraph (lB) inserted by section 12(h) of Act 55 of 1995]

(lC) that trading in any financial instrument may be halted for such period as the executive committee may deem necessary in the public interest or for the purposes of market stability;

[Paragraph (lC) inserted by section 12(h) of Act 55 of 1995]

(m) that a member shall provide sureties or security to the satisfaction of the executive committee, for the discharge of his liabilities arising out of dealings in financial instruments;

[Paragraph (m) substituted by section 12(i) of Act 55 of 1995]

(n) that a fund shall be established and maintained whether by levies on transactions or otherwise for the discharge, up to a maximum amount as provided for in the rules, of outstanding liabilities of a member arising out of dealings in financial instruments;

[Paragraph (n) substituted by section 12(j) of Act 55 of 1995]

(o) for the manner in which and conditions under which financial instrument traders may advertise the services rendered by them in respect of dealings in listed financial instruments;

(p)

(i) for the manner in which fees shall be charged by financial instrument traders for their services, and the notification thereof to their clients; and
(ii) for the furnishing by financial instrument traders to their clients of other information in respect of dealings in listed financial instruments by the traders on behalf of the clients;
(q) in respect of a financial instrument trader —
(i) for the separation of a client's funds, financial instruments and other corporeal or incorporeal things from the assets of the financial instrument trader;

[Subparagraph (i) substituted by section 25 of Act 54 of 1991]

(ii) for a prohibition of the use of funds belonging to one client to finance the dealings of another client;
(iii) for a prohibition of the use of client's funds in operating the financial instrument trader's own business; and
(iv) who knowingly buys listed financial instruments from a client or sells listed financial instruments to such a client on his own account, that the financial instrument trader shall notify the client concerned in advance that those financial instruments were bought or sold by the trader on his own account;
(r) that, where relevant, any person who issues listed financial instruments shall make available to persons dealing in the financial instruments all information at the person's disposal for determining their current value;

(s)

(i) for the manner in which and conditions under which financial instruments are to be listed on the financial market in question;
(ii) for the removal or suspension of listed financial instruments from or in the list referred to in section 14 and the omission of financial instruments from a list of quotations of prices referred to in section 15 (1) (a) (ii);
(iii) for the application of new or amended conditions imposed upon existing listed financial instruments by an executive committee;
(t) for the audit by an auditor registered under the Public Accountants' and Auditors' Act, 1991 (Act No. 80 of 1991), as an accountant and auditor and engaged in public practice as such, of the accounting records to be kept and furnished to the Registrar by a financial exchange and a member thereof under and in accordance with the regulations;

[Paragraph (t) substituted by section 65(b) of Act 104 of 1993]

(u) for ensuring the performance of transactions effected on the financial market in question either by the financial exchange's own arrangements or by means of arrangements made by the exchange with a recognised clearing house;
(v) for the appointment and functions of an executive officer, and that the executive officer, or employees appointed by the executive committee
(i) may be remunerated by the committee; and
(ii) may not buy or sell financial instruments on behalf of other persons;
(w) [Paragraph (w) deleted by section 6(d) of Act 73 of 1996]
(x) for further measures to ensure that the business of the financial market in question is carried on with due regard to the interests of the public.
(xA) that adequate provision is made for the operation of the trust account referred to in section 17B and for the circumstances under which funds shall be paid into and withdrawn from such trust account;

[Paragraph (xA) added by section 12(k) of Act 55 of 1995]

(xB) that provision is made for the manner in which a financial exchange shall be dissolved or restructured; and

[Paragraph (xB) added by section 12(k) of Act 55 of 1995]

(xC) generally, that the business of the member and the financial exchange is carried on with due regard to the public interest;

[Paragraph (xC) added by section 12(k) of Act 55 of 1995]

 

(2) The rules of a financial exchange shall prescribe the conditions under which a financial instrument trader may establish a company the main object of which is to hold financial instruments on behalf of his clients.

 

(3)

(a) The Registrar shall as soon as possible after granting a financial market licence, cause the rules of the financial exchange concerned to be published in the Gazette in English and any other official language at the expense of the financial exchange concerned.
(b) No addition to, amendment or rescission (other than a suspension) of the rules shall be valid, unless —
(i) the prescribed fee has been paid;
(ii) it has been approved by the Registrar in writing; and
(iii) a date has been stipulated in the Registrar's approval for the coming into operation of such addition, amendment or rescission.
(c) The Registrar shall, after considering any objection as contemplated in paragraph (f), approve or disapprove an addition, amendment or rescission referred to in paragraph (b) within a period of two months after expiry of the period referred to in paragraph (f).
(d) If the Registrar does not disapprove of an addition, amendment or rescission referred to in paragraph (b) within a period of two months after expiry of the period referred to in paragraph (f), the Registrar shall be deemed to have approved thereof and such addition, amendment or rescission shall come into operation on the day immediately following upon the date of expiry of the aforesaid period of two months.
(e) Upon receipt of an application for approval in terms of paragraph (b), the Registrar shall cause to be published at the expense of the financial exchange in English and any other official language in the Gazette a notice setting forth the proposed addition, amendment or rescission.
(f) The said notice shall call upon all interested persons (other than members of the financial exchange concerned) who have any objection to the proposed addition, amendment or rescission to lodge their objection with the Registrar within a period of 30 days from the date of publication of the notice in the Gazette.

[Subsection (3) substituted by section 12(l) of Act 55 of 1995]

 

(4) Whenever it is in the public interest, the Registrar may, after consultation with the executive committee and with the consent of the Minister, by notice in the Gazette add to, amend or rescind the rules of the financial exchange concerned with effect from the date immediately following upon the date of publication of the notice or such later date as may be specified therein.

[Subsection (4) substituted by section 12(m) of Act 55 of 1995]

 

(5)

(a) Subject to the prior approval of the Registrar, the executive committee may suspend any of the rules of the financial exchange concerned for a period not exceeding 30 days at a time after notice of such proposed suspension has been advertised in the Gazette.
(b) The Registrar may for the period of such suspension issue an interim rule in terms of subsection (4) to regulate the matter in question until such time as an appropriate amendment to the rules can be made in terms of this section.
(c) Any contravention of or non-compliance with an interim rule shall mutatis mutandis have the same legal effect as a contravention of or non-compliance with a rule.

[Subsection (5) substituted by section 12(n) of Act 55 of 1995]

 

(6) The provisions of any rule made under this section shall be binding on all members and on all officers or employees of members and on every person utilising the services of a member or who concludes a transaction with a member in the course of that member's business.

[Subsection (6) added by section 12(o) of Act 55 of 1995]

 

(7)

(a) A rule may, in respect of each contravention thereof by a member or an officer or employee of a member, prescribe one or more of the following penalties:
(i) A reprimand;
(ii) censure;
(iii) a fine not exceeding R1 000 000, which amount shall be payable to the fund referred to in paragraph (n) of subsection (1);
(iv) suspension;
(v) termination of membership; or
(vi) a direction to a member to terminate the employment of an officer or employee.
(b) The rule contemplated in paragraph (a) may also prescribe that full particulars regarding the imposition of a penalty shall be published and that any person convicted under that paragraph may be ordered to pay the costs incurred in the investigation or hearing in question.

[Subsection (7) added by section 12(o) of Act 55 of 1995]