Our DMA process allows investors to submit an electronic order to a Trading Service Provider (TSP). This order is then received by the TSP and routed by means of the TSP’s operated order entry application (OEA) to the JSE’s Trading and Information Solution. As a DMA client you are afforded the ability to participate in the auction periods and continuous trading periods with relative ease and speed.
To ensure that JSE members promote market integrity and adequately manage their risk in conducting their trading activities, each Trading Services Provider (TSP) that wishes to implement an Order Entry Application (OEA) that provides Direct Market Access (DMA) to the member’s clients is required to meet certain criteria regarding the operation of such systems in terms of Directives BT 9 and BT 10.
The purpose of this questionnaire is to enable the JSE to gain a clear understanding of how the application will be operated and controlled and to obtain assurance from the member that the operation of the application will not negatively impact on the integrity of the market and will facilitate effective risk management of orders processed by the application. The response submitted by the member to this questionnaire will assist the JSE in assessing whether the member’s OEA appears to meet the key objectives set out in Directive BT 10.
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Definition of an Order Entry Application (OEA)
The JSE rules define an OEA as follows:
“Order entry application” means any system, software or program operated by a member which facilitates electronic submission of orders to a member trading application, and which complies with such requirements as the JSE may from time to time prescribe in the directives.
Definition of Direct Market Access (DMA)
The JSE rules define DMA as follows:
“Direct market access” means the process whereby an order is received electronically by a TSP and then submitted electronically to the JSE equities trading system by means of an order entry application operated by the TSP, without the intervention of a registered securities trader.
Requirements for an OEA that facilitates DMA
The requirements applicable to the operation of an OEA that provides DMA are contained in Directives BT 9 and BT 10 which state the following:
“BT 9 - A TSP shall not operate an Order Entry Application that provides Direct Market Access (“DMA”) without the prior written approval of the JSE. The approval when granted will be for the use of an OEA by the member to facilitate the electronic submission of orders and shall be on the condition that the member ensures at all times that the OEA meets the key objectives set out in BT 10. The JSE may at any time review and withdraw such approval.
BT 10 - A member applying to operate an OEA that provides DMA must be able to demonstrate, to the satisfaction of the JSE, that the OEA meets all of the following key objectives:
Avoidance of Erroneous Orders and Manipulative Practices
The OEA must ensure that orders are not submitted to the JSE equities trading system or left open in the JSE equities trading system where such orders could result in erroneous trades, a false appearance of trading activity or an artificial price for an instrument.
Management of Order Limits and Order Types
Adequate controls should be implemented to ensure that orders are within the normal trading patterns of the relevant clients. The OEA should also be able to limit the life of an order and be able to control each of the relevant order types.
The OEA must be able to verify, before submitting any orders to the JSE equities trading system, the capacity of the client/member to settle trades resulting from orders processed via the application, through the use of appropriate exposure limits for non-controlled clients and checks on availability of funds and securities for controlled clients.
Adherence to Trading Phases
The OEA must be able to detect and react to the various JSE defined trading sessions.
Maintenance of Audit Trails
The OEA must be able to identify the source of all order details submitted to the JSE equities trading system and must ensure and be able to evidence the maintenance of the integrity of the order details from the receipt thereof by the member to the submission of the order to the JSE equities trading system.
Adherence to JSE Rules and Directives
All orders submitted to the JSE equities trading system by the OEA and the trades resulting from those orders must comply with the requirements of the rules and directives.
Adherence to security and technical requirements
The technical specifications of the OEA must comply with the JSE Users Specification Documentation and must ensure that the operation of the application will not adversely impact the operation of the market. Access to the application software and the data utilised by that software must be strictly controlled to prevent undue manipulation.
An application to the JSE to operate an OEA that provides DMA shall be in the form prescribed by the JSE from time to time.”
It should also be noted that in terms of rule 6.10.11, the Market Controller may instruct a member to immediately discontinue using a member or client application or may restrict the usage by a member of any or all components of a member or client application. This action would be considered in circumstances where the JSE is of the view that the OEA is not meeting one or more of the key objectives set out in Directive BT 10.
It is also important to note that in terms of Directive BT13, a member must ensure that the JSE allocates one or more trader identification numbers to the member in respect of an OEA that provides DMA which will facilitate the identification of orders processed by the OEA as being DMA orders.
Application for the use of an OEA that facilitates DMA
In utilising an OEA that facilitates DMA, the measures that a member would apply to assure settlement of transactions by controlled clients are materially different to those that would be applied in respect of transactions by non-controlled clients. For controlled clients and own accounts, the OEA should be able to confirm the availability of funds or securities, whereas for non-controlled clients the member would instead set credit or trading limits which would be maintained within the system.
In recognition of the different control measures that would be applied by a member in utilising an OEA for controlled clients versus non-controlled clients, the JSE requires a member applying to implement an OEA that facilitates DMA to indicate in their application whether the OEA is to be utilised for controlled clients or non-controlled clients, or both.
If the member is only intending to utilise the OEA for one of the two categories of clients, the approval, when granted, will only be in respect of that category of clients. If the member subsequently wishes to utilise the OEA for the other category of clients, they will be required to submit a separate application. The separate application will enable the JSE to assess whether the member has implemented adequate measures in utilising the OEA to assure settlement of transactions by the other category of clients.
If a separate application is subsequently submitted for the use of an OEA that facilitates DMA in respect of another category of clients, the member will only need to respond to those questions in the Settlement Assurance section of the questionnaire which relate specifically to that category of clients.
Management of Hidden Orders
Hidden Limit orders allow participants to enter limit orders on to the order book without displaying either the price or volume to other participants. Hidden orders are able to interact with both displayed orders and other hidden orders in the central order book.
Therefore, in summary, hidden orders MUST:
- Be large in scale
- Meet the Minimum Reserve Size (MRS) to qualify as hidden
- Specify a Minimum Execution Size (MES) that is equal to or greater than MRS
Hidden orders MUST NOT:
- Be entered or amended during auction periods
Evaluation and Approval Process
For all applications, the evaluation and approval time-line is 10 Business days. If the submitted documentation is incomplete, the JSE will request the member to resubmit the application and the approval process will restart from the date of resubmission.
Additional information to be submitted by members
In terms of Directive BT 11, the JSE may request information from members regarding their use of OEAs that facilitate DMA in order to monitor the extent of usage of such systems and to assess the appropriateness of the measures implemented by members to control the use of such systems on an ongoing basis.