ELECTRONIC TRADING PLATFORM ( ETP ) FOR GOVERNMENT BONDS MARKET COMMITTEE. Terms of Reference

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1 ELECTRONIC TRADING PLATFORM ( ETP ) FOR GOVERNMENT BONDS MARKET COMMITTEE Terms of Reference 1. PURPOSE 1.1. This document establishes the terms of reference for the Market Committee ( Committee ) for the ETP The Committee is a consultative and decision-making body The Committee will provide a structure and forum for consultation between the stakeholders involved in the ETP that includes the National Treasury, Primary Dealers, the South African Reserve Bank ( SARB ), the Johannesburg Stock Exchange ( JSE ), Strate and MTS The objective of the Committee is to implement and manage the ETP in line with the mandate specified in section 3 of these Terms of Reference The Committee will act as a forum for consultation and will make the final recommendation to address issues relating to the governance and operations of the ETP and other matters post implementation of the ETP. 2. BACKGROUND 2.1. Globally bond markets have radically shifted away from traditional bilateral request-for-quote (or RFQ ) market trading to increasingly electronic trade execution systems. This has resulted in increased volumes of transactions traded on electronic platforms and has contributed to deeper and more liquid markets The government bond market is a distinct market in nature, size and traded volumes, and serves an important function in the development of any economy. A well-established government bond market is critical to support the growth and competitiveness of the domestic debt market, and an ETP for government bonds will bring significant benefits and efficiencies to the South African market, including: improved transparency and fairness better price discovery and liquidity

2 lower transaction fees and costs favourable access to the market promote long-term debt issuance attract foreign investors place South Africa in line with international best practice National Treasury is collaborating with the World Bank and various market stakeholders that include the Johannesburg Stock Exchange ( JSE"), Strate, MTS, South African Reserve Bank ( SARB ) and Primary Dealer ( PD ) banks, to establish an ETP that will cater for the trading of benchmark South African government bonds in the secondary market The ETP shall serve as a new market operated by the JSE under the auspices of a governance framework and set of rules approved by the Financial Sector Conduct Authority ( Authority ). 3. MANDATE 3.1. The Committee shall be responsible for the successful implementation of an ETP for government bonds The Committee must establish and implement appropriate and effective governance systems and processes of the ETP, having due regard to: The objectives of the Financial Markets Act, No. 19 of 2012; Promoting the efficiency and integrity of South African financial markets; International standards and best practice; and Ensuring that there is as little disruption to the proper functioning of the market as possible in the transition to the ETP implementation. 3.3 The Committee shall be responsible for: Reviewing and agreeing to the contents of the rules of the ETP, drafted by the exchange prior to submission to the Authority for approval Setting the governance and operational framework of the ETP, which must deal with the following: membership criteria of and participation on the ETP; the determination of criteria for admitting benchmark government bonds for trading on the ETP; defining the trading obligations of the market-making members (independently of the National Treasury s PDs obligations); the reporting obligations of the ETP in terms of market statistics, which may include but need not be limited to, monthly turnover figures in bonds and data with respect to counterparty type, maturity and trading system instrument; and giving consideration to the introduction of other authorised users to allow for access to the ETP in line with determined regulatory provisions in the Act. [2]

3 3.3.3 Determining the high-level functional and technical requirements that the ETP will need to meet to fulfil its purpose, which functional and technical requirements will allow for: the ETP to be accessed by all authorised users admitted as members on the ETP (including external authorised users); dissemination of ETP data on a continuous basis during normal trading hours on reasonable commercial terms; providing a publically available list of authorised users or members of the ETP; the ability to monitor and report on the usage of the ETP by the authorised users; a quote-driven market for authorised users of the ETP with firm and executable prices for the bonds in that market; appropriate requirements necessary for the alignment of the ETP with the existing JSE reported market in bonds; the market operating times; the conditions under which the market is no longer considered a fair market when market makers are unable to trade/connect, including agreement on the appropriate percentage of market makers that need to be connected and making two-way prices prior to halting the market; and any other matter necessary for the development and implementation of the ETP The Committee shall be required to deliberate on the particular issues of the ETP and to make appropriate recommendations to address issues in accordance with the process stipulated in the ETP rules The Committee shall act as a sounding board for issues of interest to the members The Committee shall be responsible for the ETP after the implementation date of the platform The Committee shall be responsible for dealing with all ETP related issues on a regular basis and in line with the adopted governance and operational frameworks, and ETP rules The Committee may establish sub-committees that are representative of all the stakeholders on the ETP, to deal with specific technical ETP matters The sub-committee must comprise of a National Treasury representative as delegated The Chairperson of the Market Committee will approve the sub-committee and the appointment of the representatives The sub-committee will report to the Market Committee for final approval and/or signoff. 4. PRINCIPLES 5. The Committee members are required to act with integrity and in good faith, and in the best interests of and for the benefit of the wider financial markets A Committee member or the body that the Committee member represents, or any other body with which either the Committee member or the Committee member s organisation or both are associated, should not procure any undue business or other benefits through information obtained directly or indirectly from the Committee, such information being deemed to be privileged information not available to any other party outside the structures of the Committee. [3]

4 5.2. However, the various participating bodies are able to share their inputs amongst each other and to keep their members updated with developments Each Committee member and any person associated with the Committee in any way owe a duty of care towards the Committee to: act bona fide, for the benefit of the Committee, avoid any conflict between the Committee s interests and the interest of such member or person, as the case may be, and exercise such care and skill in the carrying out of his or her functions in relation to the Committee as may be expected of a diligent person holding a similar appointment Any enquiries from the press should be responded to by simply stating that all the relevant parties are engaged in a series of meetings to deliberate on the particular issues giving rise to the formation of this Committee. 6. COMPOSITION 6.1. The Chairperson of the Committee shall be the Director-General of National Treasury or his elected representative The members of the Committee shall comprise: As voting members: the Director-General of National Treasury, or the National Treasury representatives as appointed by the Director-General with two votes, members of the platform with one vote shared between the members, one representative of the JSE as appointed by the JSE with one vote. The following shall be non-voting members: one representative of the SARB as appointed by the SARB, one representative of Strate, and one representative from MTS, with a remit that is limited to technical matters The term of appointment of members of the Committee shall be indefinite or until replaced by an alternative representative The Chairperson will approve the representatives with regard to the stakeholder they represent, responsibilities and their role on the ETP Interested parties that are not members of the Committee may be invited by the Chairperson to participate in Committee discussions as and when required The Secretariat supporting the Committee will be from the National Treasury. 7. MEETING PROCEDURES [4]

5 Frequency of meetings 7.1. The Committee shall meet at least once a quarter or when requested for the fulfilment of its functions The Chairperson may call an urgent meeting or special meeting to discuss urgent matters affecting the ETP for government bonds Members of the Market Committee may request through the Chairperson for an urgent or special meeting to be held The Chairperson must determine the date, time, and agenda for the Committee meetings and together with the Secretariat shall notify members of the Committee at least seven (7) days before the date of the meeting. Such a meeting shall only address the matters for which it was convened. Attendance of the meetings 7.5. Committee members must attend all the scheduled meetings of the Committee, including meetings called on an ad-hoc basis for special matters, unless prior apology, with reasons has been submitted to the Chairperson or the Secretariat In an event, where an alternative representative attends on behalf of a Committee member in their absence, the representative will enjoy the same rights as the Committee member and will participate fully in the matters of the Committee including voting. Agenda and minutes 7.7. A formal agenda, minutes and supporting documents will be distributed at least (7) days prior to the meeting, to all the Committee members Any items to be considered for the agenda must be submitted to the Chairperson through the secretariats or representatives of the sub-committees Approved minutes of the proceedings of the Committee meetings shall be stored in line with legal and records management principles. Decision-making Committee members shall at all times endeavour to reach decisions by consensus In the event that Committee members are not able to reach consensus on a matter, such matter shall be taken on a vote. Voting shall be by a show of hands and 50 per cent plus one (1) (majority vote) of the Committee members shall carry the decision of the Committee In the event of a failure to achieve a majority vote, the decision of the Chairperson will have a casting vote, in addition to a deliberative vote. Quorum Any meeting of the Committee shall be quorate by the presence of all the three voting members. [5]

6 7.14. Quorum shall include members who are linked through any electronic means such as teleconferencing, video-conferencing etc. that allows them to participate in the meeting s proceedings If, at the beginning of the meeting there is no quorum, the Chairperson shall adjourn the meeting for 30 minutes to allow members who might be delayed to join the meeting The Committee may also agree to proceed with the meeting subject to a proviso that the resolutions passed at such meeting shall be reserved for ratification at the next meeting, or through a round robin process. Round Robin Protocol Whenever a meeting cannot take place for any reason, the Chairperson of the Committee may declare that a particular matter be resolved through a round robin process when appropriate. 8. CONFLICT OF INTEREST 8.1. Members shall declare their interest before the start of each meeting 8.2. If there is any conflict of interests, a member must inform the Chairperson in writing and withdraw from all the proceedings of the Committee, unless the Chairperson deems the conflict to be trivial or irrelevant. 9. REVIEW OF THE TERMS OF REFERENCE 9.1. The Committee shall review these Terms of Reference at least once a year or whenever required in order to align with the work of the Committee and once approved by the Committee, signed by the Chairperson. 10. TERMINATION The Committee shall terminate at the discretion of the National Treasury, after consultation with the other members of the Market Committee. APPROVAL & SIGNATURES Chairperson Date [6]