LEGAL ASPECTS OF MANAGING FAILURE OF A CENTRAL SECURITIES DEPOSITORY (CSD) PARTICIPANT

Abstract

The success of the financial market in South Africa is dependent on investor confidence and such confidence is dependent on market stability and certainty with regard to the financial risks to which market participants are exposed when trading on the financial markets. Even before the global meltdown impacted on South Africa, some concerns were raised that the South African legal framework pertaining to the financial market does not contain comprehensive principles regulating the procedures and legal position after the event of insolvency of a market participant. In response, Strate Limited, with the assistance of other market players, has drafted a proposed manual, the Participant Failure Manual, regulating the event of insolvency of market participants, referred to as “Participant Failure”. This note aims to discuss the meaning of Participant Failure, provide an overview of the Participant Failure Manual and more importantly, discuss the impact of Participant Failure on settlement, and recommendations as proposed in the Manual.