Dynamic hedging

In terms of Exchange Control Circular 12/2010, the Minister of Finance has granted approval to Authorised Dealers to provide active currency management facilities to their South African resident and non-resident clients.

This means that South African residents, non-residents, corporates, individuals or institutional investors can now enter into foreign exchange hedging contracts without proof of foreign commitments provided the maturity of the contract is within 6 months.

The effect of this is that entities can now better manage anticipated foreign commitments like dividends and tenders without providing the underlying documents to confirm the commitment. Foreign currency contracts can also be restructured by changing or cancelling the contract as long as it is within the six month period.

Hedging of this nature can still only be done with Authorized Dealers and not with foreign parties directly or over a trading platform.

Documentary evidence only needs to be provided to the bank effecting the pay away and the rule to provide documentation within 14 days from establishment of the contract no longer applies. 

During the 6 month period, if a foreign commitment does not materialize, the client can surrender the contract by means of a swap provided the profit or loss is for the account of the client and  is settled in Rand.