JSE's New billing Models for Interest Rate Market Aim to Reduce Fees and Boost Liquidity

June 18, 2012


JOHANNESBURG, 18 JUNE 2012. In a bid to boost trading volumes and increase transparency in the bonds and financial derivatives market, the JSE today announced that it has simplified and reduced charges on Bond Futures and Options and Cash Bond transactions. This is in line with the promise the JSE made when it acquired the Bond Exchange of South Africa (BESA) in 2009 to retain BESA’s fees structure for two years and then to lower those fees where possible.

“In the spot bond market, the new billing model will reduce fees by R2.8m based on the previous 12 months’ trade volumes. This would result in most clients paying less to trade but for those few clients who would incur higher fees, the JSE has limited their increase to 6% in 2012,” says Warren Geers, GM: Bonds and Financial Derivatives at the JSE. “Bond future and option fees are also cut but the Index and Jibar future charges remain unchanged. This means that for the same volumes traded in 2011, the JSE would be reducing fees by R800,000 to the market for derivative trades.” In total, across all the interest rate traded products on the exchange, the JSE will be reducing the fees by R3.6 million, ensuring the market will benefit from these new savings.

Like the currency derivatives billing model announced two weeks ago, the new models are volume-based reward programmes and include a new sliding scale of fees for bond futures and options as well as rebates for market makers. The Interest Rate Derivatives billing model was implemented on 1 June and the Spot Bond billing model is to be introduced on 1 July 2012.

Market makers, who provide the live pricing to the market and are essential to making the market attractive to both local and international investors, will now receive higher rebates for bringing trading volumes into the relevant markets.

“This will be the first time that trading fees for interest rate derivatives products have changed since the inception of Yield-X at the beginning of 2005. By changing the trading fees of bond futures and options, we hope to encourage greater transparency by incentivizing market makers to grow their on-screen trading volume,” says Geers.

Bond futures and options are currently charged at R7.50 per R1million, with the new fees being reduced by 67% for the larger trades, which will now be R2.50 per R1 million. This will align the new cash spot bond fees with the new derivative fee structure.

Says Geers: “Bond Futures make up 80% of the Interest Rate Derivatives contracts traded in 2011, with contract numbers growing by 74% in the first quarter of 2012 over the comparative period in 2011. But in terms of overall value traded, at R6.6 trillion in 2011 the value traded on our spot bond market dwarfs the bond futures market.

For cash bonds and repo transactions, the fees were very confusing with fixed fees of R13,000 per month, per member and then the variable costs were unknown to most market participants until the statement was issued by the JSE at the end of the month. The new fees structure is very simple and the fees are the same for all market participants, which is R10,000 per month per member, and a further R1.90 (excl Vat) per R1million traded. This effectively reduces fixed monthly fees by R36,000 (23%) for each member. He adds: “The changes to the billing model for the Cash Bond market was driven by the need to increase transparency by simplifying the model.”

“Importantly, the JSE has implemented a new model which includes a hedge strategy across spot and derivative markets. All spot bond deals that are hedged as a result of a derivative trade will incur zero fees, and similarly if the spot bond is hedged in the derivative market, no fees will be applied to the derivative trade. The last thing we are trying to achieve is a double cost for market participants when doing hedge trading.”

A volume-based rebate structure for spot bond trading has also been introduced which will reward those members with larger volumes, so the effective rate reduces below the R1.90 per R1million.

Band 1 Volume RebateValue Traded       Rebate       
<=    R 25bn  0%
<=    R 50bn  15%
<=    R 150bn  25%
<=    R 200bn  35%
<=    R 250bn  40%
<=    R 300bn  50%
<=    R 400bn  60%
<=    R 500bn  70%
<=    R 750bn  80%
>    R 750bn  80%
“We’re anticipating more trade in both the bonds and financial derivatives markets because it will be cheaper to do so and there are more incentives in doing so. With the adoption of Basel III and the capital constraints it will place on banks – cleared, margined products such as bond futures should also be increasingly in demand. We are confident that these adjustments will make us more competitive and attract more over the counter derivative business onto the exchange,” says Geers.

Roz Thomas
Corporate Communications Consultants
Tel: +27 11 463 2198
Cell: +27 82 925 8806
Email: rozt@corpcom.co.za  

Thamari Claasens
Tel: +27 11 463 2198
Cell: +27 72 921 3520
Email: thamari@corpcom.co.za  

Warren Geers
GM: Bonds and Financial Derivatives
Tel: +27 11 520 7470

About JSE Limited
As South Africa’s only full service securities exchange, the JSE connects buyers and sellers in four different financial markets, namely equities, equity derivatives, commodity derivatives and interest rate products. The JSE Ltd offers the investor a truly first world trading environment, with world class technology, surveillance and settlement in an emerging market context. It is amongst the top 20 largest equities exchanges in terms of market capitalisation in the world. In terms of derivatives, the JSE is currently ranked the 20th largest exchange by the Futures Industry Association (FIA).

For further information, please visit www.jse.co.za