In global markets, managing currency risk is vital for investors as well as corporates engaged in cross-border trades. On most stock exchanges, listed currency derivatives play a crucial role in providing effective hedging tools while upholding market integrity. These instruments – including futures and options on major global currencies – need to be structured within a transparent, regulated framework that prioritises investor protection.

Supported by key regulatory frameworks, robust clearing mechanisms and stringent oversight measures, the JSE’s listed derivatives market ensures that participants can trade with confidence, knowing that transactions are fair, secure and efficiently settled, says Elaine Mabiletsa, the JSE’s Manager of Currency Derivatives. ‘The key benefit of trading listed derivatives is that they are standardised and all contract specifications are published on the JSE website,’ she says.

‘The JSE also offers bespoke instruments, which cater to the flexibility that supports specific hedging and investment strategies. JSE Clear, the central counterparty, guarantees settlement of all traded instruments, thereby eliminating counterparty risk. The daily mark-to-market process is defined in each contract spec, with daily rates published on the website to ensure transparency, accessibility and inclusivity,’ she says.

Mabiletsa explains that the key regulatory frameworks governing the JSE currency derivatives market are the JSE’s Interest Rate and Currency Rules and Directives, which govern the conduct of its members and market participants. The bourse is also governed by the Financial Markets Act, which is overseen by the Financial Sector Conduct Authority, and there is Reserve Bank governance in relation to the instruments listed and types of market participants allowed to trade in the currency derivatives market. The JSE’s regulation of currency derivatives products also protects end users from excessive risk, she says.

‘The currency derivatives traded on the exchange attract an initial margin upon entering into a position, and on a daily basis, the JSE calculates the value of the instruments in clients’ portfolios. Through this process, should there be a change in the value of the portfolio, the client would either have to top up the margin on hold via what we refer to as variation margin, or alternatively receive a cash payment to reduce the margin amount on hold. This is a daily exercise which is processed during the end-of-day activities and managed by JSE Clear jointly with the registered clearing members in the market.’

The JSE market regulation and surveillance teams also have internal processes that support the market to ensure fair market pricing and adherence to the governance structures.

‘The JSE has a well-entrenched Chinese wall between the regulatory team and the capital markets team responsible for driving market innovation and accessibility. It’s important for the teams to ensure that there is mutual respect for each other’s roles and responsibilities and thereby engage timeously when working on making any changes or introducing new elements. The JSE’s culture fosters this kind of behaviour through regular organisation-wide initiatives and leadership presence and support.’

Apart from the regulations, the JSE also has a guarantee framework in place. ‘This framework promotes trust by assuring the financial markets that, even if a large clearing member should experience challenges which prevent it from continuing with business as usual, there is a sufficient buffer in place to ensure that the currency derivatives market can continue to function and stand true to the settlement of positions that are open.’

The JSE is continually taking steps to ensure that its currency derivatives market remains competitive, compliant and beneficial for a wide range of users, she says.

 Mabiletsa says the exchange tries to find ways of improving the instruments listed to appeal to a broader range of clients ‘whether this be through changes to valuations processes to keep up with global trends, ensuring the regulatory frameworks are constantly reviewed to provide accessibility to our market or listing new and interesting products to meet market demand’.

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