JSE Magazine catches up with the Director: Post-Trade Services at the JSE, Leila Fourie, about her division’s work, which plays a vital role in risk management, regulation and clearing as well as settlements


Q: What are the main challenges facing the JSE’s Post trade environment for your CCP clearing houses? How has risk management changed over the years and what were the main tests the exchange faced?
A: One of the few positives that can be taken away from the financial crisis of 2008 (particularly the legacy of the Lehman Brothers disaster), is that it exposed enormous weaknesses which created a platform for change in the way the financial industry assessed and managed risk in the post-trade space.

Traders are now choosing trading venues based on the credibility of the risk service and the cost of capital and clearing. As a clearing operator across all traded markets, the JSE was challenged to do a complete re-evaluation of its risk-management standards and practises to match and, where possible, exceed new benchmarks adopted globally.

Spurred on by international regulatory pressures and a genuine desire to ensure the integrity and sustainability of our local markets, the JSE introduced a comprehensive new risk-management framework, as well as implemented brand new risk models for margin management, exposure and concentration risk management, and credit and liquidity stress testing. The CCP [central counterparty] has thus undergone widespread transformation, driving very real enhancements to the way the derivatives market is run and administered.

Q: You are heading up a formidable team at the post-trade services division that is responsible for clearing and settlement operations, information services, risk management and change delivery. This division has impressive achievements in sound risk management and regulation. Please tell us more about your team.
A: I am fortunate to be surrounded by insightful and competent team members who are navigating a huge change agenda. Jannie Immelman leads the team responsible for automation, information analytics and the development and management of the JSE’s indices. Tyrone Arendse heads up the change agenda, communication and user readiness associated with all transformation. Terence Saayman is responsible for risk and capital management. He has been at the forefront of much change in the way we measure and manage risk, while ensuring that clearing houses are adequately capitalised in the event of a default.

Alex Comninos is the business owner responsible for managing and leading the integrated clearing project, a multi-year, large IT transformation initiative that is designed to enable sophisticated, real-time clearing and management of risk to ensure that investors’ funds are protected and settlement is assured. Brett Kotze oversees the clearing operations and is the business owner for the JSE’s number one priority project that involves reducing the settlement cycle from five to three days.

Q: Before joining the JSE, you headed up Standard Bank’s card division and previously contributed towards the introduction of very significant features such as the FTSE/JSE Africa Index Series, the implementation of the exchange’s equities trading system and the development of an integrated clearing strategy. What do you find most rewarding about your current position?
A: Many changes that are introduced have a structural impact on the market and engaging with our regulators and market participants is absorbing and inspiring. This change is not limited to SA but is part of a global phenomenon and, as a result of this, I engage with peer exchanges and clearing houses. The global insights that they share so freely is also highly stimulating. I am very fortunate to be surrounded by competent and energetic people from whom I learn on a daily basis.

‘The greatest challenge in the Post-Trade Services space is the volume and complexity of change it is required to direct and embed in the markets it oversees’

Q: What was the significance of Safcom (now JSE Clear) becoming the first clearing house in the world to achieve CPSS-IOSCO compliance (a global standard for risk management) in December 2012, and what was the role your team played in this important development?
A: The certification of JSE Clear as a CPSS-IOSCO compliant CCP shows the tremendous advancements made over the course of the last few years. The major benefit to the market is the structural improvements that we had to introduce to managing risk and provide settlement assurance.

The achievement of CPSS-IOSCO compliance is a major step to enhance the credibility of the SA market as a foreign investment destination and the appointment of a qualifying clearing house in SA is critical to ensure growth in the derivatives market as a result of the implementation of Basel III.

JSE Clear’s compliance is particularly important to derivative traders. If the clearing house that a bank deals with as a clearing member is not CPSS-IOSCO compliant, banks will have to hold up to 10 times more capital against their clearing house positions.

Q: A year later, in 2013, new rules came out to govern the JSE Clear default fund to further protect investors. Why was this important and what role did your team play in this?
A: The JSE Clear default fund constitutes an important component in the lines of defence that have been put in place to protect participants in the derivative market in the event that a participant defaults on a trade. The rule changes introduced in 2013 were designed to strengthen the protection offered by the fund, as well as entrench changes to the way the fund was maintained.

A new methodology was adopted to define the size of the fund to more accurately reflect the risk present in the market at any given time, and new processes were established to govern member contributions. These changes were all driven by post-trade services.

Q: What challenges do you foresee for post-trade services in future?
A: The greatest challenge in the post-trade services space is the enormous volume and complexity of change that it is required to direct and embed in the markets it oversees.

The division is currently responsible for driving the first and second priority projects being undertaken by the exchange, namely T+3 and the Integrated Trading and Clearing (ITAC) initiative. Both of these are massive, multi-year change initiatives that touch a host of areas within the organisation (including policy, operations and IT). While the benefits that both these projects will unlock are substantial, the effort required to get them implemented correctly should not be underestimated.

By Louise Brougham-Cook
Image: Gallo/GettyImages