Presentation on Margin Methodology

Presentation on Margin Methodology

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 Enable pre-trade risk management Consistency with SAFEX margining Secure daily data transfer Rapid implementation 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 Price Volatility Volume Relative Spread Size Process Overview Allocated Broker CSDP Commit by12h00 onT+3 T T+1 T+2 T+3 T+4 T+5 CAPADREQONBROKER If NOcommit, thenclient to resolvetill 10h00onT+4 If NOTresolved, positionreversedto broker reversesubstitution CSDP must commit by12onT+4 If RESOLVED, tradesettles 10h00 T+4 2DAY MARGIN JSEFailsManagement Process Initiated STEP1- borrowstock IFNOSTOCK GIVEUPTRADE

SETTLE SUCCESFULLY 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 The Margining Matrix Deal Size Sec. Codes 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 39,500 100 200 300 500 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 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 12% 12% 12% 12% 12% 12% 12% 12%

12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 14% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 14% 23% 28% 35% 46% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 13% 17% 22% 28% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 11% 11% 11% 11% 11% 11% 11% 11% 11%

11% 11% 11% 11% 11% 11% 17% 26% 31% 41% 53% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 24% 36% 48% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 14% 20% 26% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 11% 16% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8%

8% 8% 8% 8% 8% 8% 8% 8% 8% 12% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 18% 22% 28% 36% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 18% 22% 28% 37% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7%

7% 7% 7% 7% 7% 7% 9% 13% 17% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 11% 17% 21% 26% 34% 16% 16% 16% 16% 16% 16% 16% 16% 16% 16% 16% 16% 16% 16% 16% 17% 31% 37% 48% 62% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7%

7% 7% 7% 7% 7% 8% 12% 16% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 19% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 13% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 17% 27% 33% 41% 54% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7%

7% 7% 7% 7% 7% 7% 10% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 12% 15% 19% 25% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 11% 15% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 7% 10% 13% 17% 23% 23% 23% 23% 23% 23% 23% 23% 23% 23% 29%

32% 34% 36% 38% 49% 73% 88% 100% 100% 13% 13% 13% 13% 13% 13% 13% 13% 13% 13% 13% 13% 13% 14% 15% 21% 30% 36% 46% 60% 19% 19% 19% 19% 19% 19% 19% 19% 19% 21% 23% 25% 26% 27% 28% 36% 51% 61% 79% 100% 35% 35% 35% 35% 35% 35% 35% 44% 50% 54% 58% 61% 63% 66% 68% 85% 100% 100% 100% 100% 70% 70% 70% 70% 70% 70% 70% 78% 89% 97% 100% 100% 100% 100% 100% 100% 100% 100%

100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% NPK 8% Visual Matrix Graph 110% SOT 100% 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 90% M GF 80% 70% EQX 60% 50% ANG 40% SAP IOT 30% DDT 20% FSR 10% 11,000 0% 10 0 20 0 30 0 50 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 00 ,00 ,00 ,00 ,00 ,00 ,00 ,00 ,00 ,00 ,00 ,00 ,00 ,00 ,00 ,00 ,00 ,00 ,00 1, 5 10 15 3 5 4 0 4 5 5 0 1 0 0 3 0 0 5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 2 0 25 3 0 3, 1, 2, 5 , 1 0, SOT 0 20 : 10 1 0 : 40 3 0 1 0 : 60 5 0 1 0 : 80 7 0 0 1 10 : 01 90 0 30 : 2 0 1 00 50 : 4 0 01 00 70 : 6 0 0 0 90 1 : 00 80 0 20 1 : 0 0 00 1 0 0 40 1 : 00 3 00 0 0 60 1 : 0 0 5 00 0 0 80 1 : 0 0 7 0 10 0 1 0 0 00 : 00 12 01 90 0 00 : 1 0 0 1 14 01 0 0 00 : 1 00 3 16 01 0 0 00 : 1 00 5 18 01 0 0 00 : 1 0 0 7 20 01 0 0 00 : 1 00 9 40 01 0 0 00 : 3 00 60 01 00 0

0 0 : 5 00 80 01 00 0 : 10 00 0 7 0 00 00 1 0 0 : 0 20 00 1 9 0 0 00 : 00 1 0 30 00 1 5 0 0 00 : 00 2 0 40 00 1 5 0 0 00 : 00 00 35 0 0 1 00 : 4 00 50 0 00 00 200 Securities Example 120% 100% 60% 20% AAA ABC High Risk ABI ABL ABR 80% ACN ACR ACY Medium Risk ADH ADL ADO 40% ADR ADT Low Risk 0% AEC AEG AFB AFE AFG

AFI AFL AFX AGL AGS AHH AHN Margin Requirements: AGL v NPK AGL: Ave Volume 2.7m, Volatility 43.49% NPK: Ave Volume 1.7m, Volatility 28.63% 35% 30% 25% 20% AGL 15% NPK 10% 5% 0% 0 10 0 30 0 00 , 1 0 0 0 0 0 0 0 0 0 00 00 00 00 00 00 00 00 00 , , , , , , , , , 0 0 0 00 10

20 30 40 50 00 00 30 ,0 0 1, 3, 1 1, 00 0 10 ,0 00 20 ,0 00 30 ,0 00 40 ,0 00 50 ,0 0 30 0 0, 1, 000 00 0, 3, 000 00 0 10 ,00 ,0 0 00 ,0 00 30 0 10 0 Median Margin Examples 120% 11,000 100% AGL 80% DTC 60% NPK 40% RCH 20% MGF 0%

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 0.30% Spread RCH Relative Spread RCH Relative Spread 0.60% 0.50% 0.40% 0.20% 0.10% 6/4/01 5/21/01 5/7/01 4/23/01 4/9/01 3/26/01 3/12/01 2/26/01 2/12/01 1/29/01 1/15/01 1/1/01 12/18/00 12/4/00 11/20/00 11/6/00 Date 10/23/00 10/9/00 9/25/00 9/11/00 8/28/00 8/14/00 7/31/00 7/17/00 7/3/00 6/19/00 6/5/00 5/22/00 5/8/00 4/24/00 4/10/00 3/27/00 3/13/00 2/28/00 2/14/00 0.00% Spread PET Relative Spread PET Relative Spread 25% 20% 15% 10%

5% 6/4/01 5/21/01 5/7/01 4/23/01 4/9/01 3/26/01 3/12/01 2/26/01 2/12/01 1/29/01 1/15/01 1/1/01 12/18/00 12/4/00 11/20/00 11/6/00 Date 10/23/00 10/9/00 9/25/00 9/11/00 8/28/00 8/14/00 7/31/00 7/17/00 7/3/00 6/19/00 6/5/00 5/22/00 5/8/00 4/24/00 4/10/00 3/27/00 3/13/00 2/28/00 2/14/00 0% 50% Spread ESS Relative Spread ESS Relative Spread 100% 90% 80% 70% 60% 40% 30% 20% 10% 6/4/01 5/21/01 5/7/01 4/23/01 4/9/01 3/26/01 3/12/01 2/26/01 2/12/01

1/29/01 1/15/01 1/1/01 12/18/00 12/4/00 11/20/00 11/6/00 Date 10/23/00 10/9/00 9/25/00 9/11/00 8/28/00 8/14/00 7/31/00 7/17/00 7/3/00 6/19/00 6/5/00 5/22/00 5/8/00 4/24/00 4/10/00 3/27/00 3/13/00 2/28/00 2/14/00 0% Implementation Daily Download FTP RisCura Risk Engine Pre-Trade Risk Analytics Brokers A B C D Email JSE SE SA Failed Trades Margin Matrix E Pre-Trade Risk Analytics 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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