1 Copyright© JSE Limited Bonds and Financial Derivatives: Quo Vadis? JSE Media Day – August 2012 Graham Smale – Director: Bonds and Financial Derivatives

2 Agenda Equity Derivatives Currency Derivatives Bonds Bond and IR Derivatives

– What has changed since last year In January 2012 all financial products, excluding cash equities and commodities we centralised under a single Exco position headed up by Graham Smale, who previously headed up the Interest Rates division. The operations staff for bonds and financial derivatives has been centralised under Brett Kotze, General Manager: Clearing and Settlement, reporting to the Director: Post Trade Services Divisional management has been streamlined into product groups and support; Equity Derivatives – Magnus de Wet Interest Rates and Currencies – Warren Geers Can-Do products – Paolo Govetto Change Management, Training and Education – Anthony Leibrandt Quantitative Support – Rudolph Oosthuizen

4 Equity Derivatives

5 Equity Derivatives The JSE has a rich product suite Index futures options – The flagship product and responsible for most of the activity Single Stock Futures and Options – A leveraged alternative to shares IDX futures and options – Exposure to international equities, including BRICS (Bricsmart the JV with other BRICS exchanges) Any-day expiry futures and options – Flexibility of expiry on standard products Can-Do futures and options – OTC replication of complex products (as long as we can value it we will clear it) Current challenges Global equity markets are subdued in the wake of sustained economic uncertainty and the tsunami of regulatory change The technology arms race

6 How does 2012 Look? A mixed scorecard ProductJul-12 / Jul-11 % Index Futures-6.5% SSFs-49.0% IDX+76.7% Can-Do’s+9.1% Index Options-4.8% SSF Options-11.9% Open Interest-3.4%

7 Index Futures – Our Benchmark Product

8 The Rise and Fall of Single Stock Futures Contracts

9 The Rise and Fall of Single Stock Futures Value Traded

10 Index Options

11 Single Stock Options

12 Equity Derivatives Opportunities for 2013 and Beyond Bringing the equity derivatives closer to underlying equities Billing models Market-making incentives Product evolution Exchange-cleared CFDs – To benefit from the consequences of the implementation of Basel III on the costs of OTC products Speculative dividend futures IDX – International shares and indices Stimulation of the options market – Electronic trading and Market-making Technology Evolving the technology platform (Millennium Exchange) Co-location – The rise of the machine and the value of proximity

13 Currency Derivatives

14 How does 2012 Look? Good Volume Growth ProductJul-12 / Jul-11 % Currency Futures+75.7% Currency Options+184.8% Any-Day Options+974.8% Can-Do’s+653.9% Open Interest+27.1%

15 Currency Futures

16 Currency Options

17 Plans for Currency Derivatives Evolution of the billing model Incentives for market-makers and volume providers Offering products that compete effectively with the OTC market Any-day expiry Can-Do’s - Exotic options Linking cash settled contracts to specific spot transactions on expiry Cross currency pairs – e.g. EURUSD, requires policy and Excon approval

18 Bonds and IR Derivatives 18

19 Products The JSE runs a combined market for listed instruments: Government and non-government bonds Securitisations Commercial paper Bond and bond index derivatives Short-term interest rate (STIR) futures (Jibar futures)

20 How does 2012 Look? A product whose time has come? ProductJul-12 / Jul-11 % Spot Bonds+12.9% Bond Repos+18.3% Foreign Purchases+44.5% Bond and IR Derivatives+118.8% Bond and IR Options+731.5% Bond and IR Derivatives Open Interest+59.0%

21 Product toolset Jibar Futures GOVI Future Inflation ILBI Real Rates Interbank Swaps Government Bonds “Risk-free”

22 Issuance by sector

23 Bonds by type

24 Bond Issuance – Dec-06 24

25 Bond Volumes – Dec-06 25

26 Risk-Adjusted Bond Volumes – Dec-06 26

27 Bond Issuance – Dec-11 27

28 Bond Volumes – Dec-11 28

29 Risk-Adjusted Bond Volumes – Dec-11 29

30 Bonds and IR Derivatives Focus areas for 2012 and beyond Defining new secondary market trading rules for the cash market Government bonds – This will be the output from a policy forum chaired by National Treasury Non-government bonds – Working with the market on options Clearing of bonds – Counterparty risk will become a limiting factor under Basel III Growing the interest rate derivatives market Liquidity providers on key products – Aids with the “transparency” debate New product development – Bond futures similar to popular international products Billing model New billing model for cash bonds Linking the cash and derivatives markets

31 THANK YOU

32 REFERENCE SLIDES