Equities: JSE Cash Equity Mechanics
What the exam tests
This section tests the full life cycle of a JSE-listed cash equity: order entry and matching, the T+3 settlement cycle run through Strate, corporate-action adjustments, and the conduct rules around insider trading and market manipulation under the Financial Markets Act.
Core rules
- Trades match on the JSE central order book on price, then time priority; off-book trades between members must still be reported to the exchange.
- Equities settle T+3. The clearing member, not the exchange, carries settlement risk against the client.
- The corporate-action calendar is anchored so that a purchase on the last day to trade (LDT) settles in time for the buyer to appear on the register on the record date. The ex date is the business day after LDT, so buying on the ex date leaves you off the register.
- Dividends declared by SA companies carry dividends tax at 20% unless the holder is exempt; the price drop on the ex date is measured against the gross dividend, not the net cash received.
Worked example: theoretical ex-rights price (TERP)
A company has 1,000,000 shares at 500c and announces a 1-for-4 rights offer at 400c.
- New shares: 1,000,000 / 4 = 250,000
- Value before: 1,000,000 x 500c = R5,000,000
- Cash raised: 250,000 x 400c = R1,000,000
- Post-issue value: R6,000,000 over 1,250,000 shares = 480c TERP
The 20c drop is not a loss. The right to buy at 400c is worth 80c per new share, which offsets the dilution.
Traps that cost marks
- Calling the cum-to-ex price fall a loss while ignoring the value of the right or the dividend.
- Using the record date as the last day to trade.
- Assuming the market price, rather than the subscription price, drives the dilution.
- Forgetting that a share buyback reduces shares in issue and lifts EPS without any operating improvement.