Johannesburg Bourse Starts Fund to Protect Derivative Trades

South African derivatives clearing members and the Johannesburg Stock Exchange will set aside 500 million rand ($54 million) for a fund aimed at protecting banks from possible defaults.

Safcom, the clearing house for derivative contracts such as single stock futures, will set up a default fund where clearing members and the JSE will contribute additional cash, the bourse said in a statement today. The exchange currently calls for about 14 billion rand in margin to cover trading of 350 billion rand a day, the JSE said.

“Existing clearing members of Safcom already pay margins on derivative trades as a first level of protection,” Leila Fourie, director for post-trade services at the stock exchange, said by phone. The fund will act as a second level of protection, in addition to margin deposits held on transactions, when a clearing member fails to honor a deal, she said.

The fund’s introduction follows the 2008 financial crisis when Dealstream Securities Ltd., a South African derivatives broker, collapsed and FirstRand Ltd., the country’s second-largest bank, lost money.