1. Copyright © 2005 JSE Limited LEONARD JORDAAN ASEA CONFERENCE 12 SEPTEMBER 2005 ASSET BACKED SECURITIES

2. Copyright © 2005 JSE Limited 2.2. The Warrants Market Started in October 1997 Relatively flat market –Demand for highly geared instruments 3 warrants were listed in 1997

3. Copyright © 2005 JSE Limited 3.3. The Warrants Market 523 warrants were listed in 2001 (currently 520) Warrants approximately 50% of the total volume traded on the JSE in 2001 Since 2001, market steadily more volatile –Investors seek less gearing

4. Copyright © 2005 JSE Limited 4.4. Asset Backed Securities Give investors exposure to assets which would otherwise be difficult or expensive to access.

5. Copyright © 2005 JSE Limited 5.5. Asset Backed Securities (ABS) Basket of assets –ABS represents entire basket Security value referenced against the value of basket –Price of ABS moves in line with price of basket

6. Copyright © 2005 JSE Limited 6.6. Issuers of ABS May be issued by: –Institutions with adequate capital –Special Purpose Vehicle (SPV) Key factors: –Creditworthiness –Insolvency remoteness

7. Copyright © 2005 JSE Limited 7.7. Requirements for Issuers Issuer: –Institution: investor takes balance sheet risk of issuer –SPV: investor takes on hedge risk of issuer Listings Requirements: –Institution: net tangible assets of R2 billion –SPV: must be fully hedged at all times

8. Copyright © 2005 JSE Limited 8.8. Liquidity Main board listed companies –Shareholder spread requirements Warrants –Liquidity provider required (market maker ) ABS –Shareholder spread or liquidity provider or hybrid

9. Copyright © 2005 JSE Limited 9.9. Transparency Reference asset: –Must have a “market” price Allows: –Valuation of ABS –Arbitrage of ABS and reference asset

10. Copyright © 2005 JSE Limited 10. Examples in South Africa Equity: –Basket warrants –Dividend warrants –Variable equity warrants Interest rates: –Bond warrants Other assets: –Carbon credit notes

11. Copyright © 2005 JSE Limited 11. Questions