SARB ~ Financial Surveillance Department ~ Reclassification Opportunities for ETFs

Circular #15/2020 ~ Reclassification of inward listed debt and derivative instruments & ETFs referencing foreign assets – 29th October 2020

Key extracts:

Following the Minister of Finance’s announcement in the 2020 Medium Term Budget Policy Statement Authorised Dealers are advised that all the remaining foreign classified debt and derivative instruments as well as exchange traded funds referencing foreign assets, that are inward listed on a South African exchange, traded and settled in Rand, will be reclassified as domestic.

‘The Financial Surveillance Department defines foreign exposure for macroprudential limit purposes as all foreign assets held where such assets are foreign currency denominated, except for the dispensations in (iv)(b) below, as well as foreign assets denominated in Rand, e.g. Rand denominated instruments issued offshore.

(A) Introduction:

(i)    Instruments that offer South African investors exposure to foreign referenced assets in Rand terms must be listed on a South African exchange. The types of instruments include equity, debt and derivatives. These instruments may only be denominated in Rand.

(B) Qualifying issuers of inward listed instruments:

(i)    The following entities qualify to issue inward listed instruments on a South African exchange referencing foreign assets:

(a) non-resident entities;

(b) local Authorised Dealers;

(c) South African exchanges; and

(d) CIS managers registered under CISCA to administer collective investment schemes.

(C) Classification of inward listed instruments:

(i)    Approved inward listed shares, including exchange traded funds as wellas debt and derivative instruments, traded and settled in Rand on a South African exchange, are classified as domestic.

(D) Investors in inward listed instruments:

(i) The following entities may invest in inward listed instruments without restriction:

(a) South African institutional investors;

(b) Authorised Dealers;

(c) South African companies, trusts, partnerships and private individuals;

(d) emigrants, subject to adhering to the emigration policy as outlined in section B.2(J) of the Authorised Dealer Manual; and

(e) bona fide non-residents.

(E) Application procedure:

(i)    Requests by a qualifying issuer to inward list an instrument on a South African exchange referencing foreign assets must be referred to the Financial Surveillance Department through an Authorised Dealer, for consideration.