This is a centralised, market-wide integrated collateral management service offered to financial institutions without the necessary management systems that will be complimentary to existing functions within financial institutions, which is aimed at improving the tracking and efficient use of collateral management in South Africa. The services will automatically manage bilateral eligibility criteria, allocate the cheapest way to deliver securities against open exposures, have regular intra-day valuation and margin calls as well as substitutions, optimisation and tracking of all collateral placed and received.
Strate has signed Binding Agreements with Clearstream, a subsidiary of Deutsche Bourse, which will provide the collateral management functionality on a white-labelled basis for South Africa. Strate, as the South African CSD for dematerialised bonds, equities and money market securities, is perfectly positioned as an independent trusted third party to provide these services to the financial markets.
The high-level project plan is as follows:
- Project governance and scope finalisation
– 3rd quarter of 2012 (complete)
- To finalise the functional and technical specs
– 4th quarter of 2012 (complete)
- Development and testing
– 3rd quarter of 2013
- Implementation pilot
– 4th quarter of 2013
Strate is currently in the development process and continues to work closely with seven institutions that have expressed interest as early adopters of the services. The interaction with these potential early adopters not only enables us to understand each institution’s specific requirements, but it also has the beginnings of a market standard for collateral management locally,” says Anthony van Eden, Strate’s Chief Operating Officer.
“We continue to engage regulators, National Treasury and the South African Revenue Service to share the risk mitigation and benefits that a centralised automated solution will have for the South African financial market, which will be faced with a greater requirement for high-quality eligible securities. Simultaneously, we endeavour to address some of the current legal issues and uncertainty around the use of securities as collateral, such as securities transfer tax (STT) liabilities affecting equities,” he adds.
Strate will utilise the global Collateral Management services developed by Clearstream, the European supplier of posttrade services, which for the past 20 years has serviced more than 50 central banks, several commercial banks and lending desks as well as globally recognised CCPs. Since 2011, Clearstream has offered the solution on an outsourced basis to CSDs outside Europe’s borders to countries that wish to use the service for their domestic market under their local authority’s jurisdiction.
The service can manage bonds, equities, money markets and other eligible asset classes in multi-currencies. Accordingly, Strate’s Collateral Management project is expected to be rolled out in three phases:
- Firstly, the solution will cater for domestic assets with domestic exposures (to launch Nov 2013);We will then work with the South African Reserve Bank’s Foreign Exchange Department to explore:
- The use of domestic assets as collateral against open foreign exposures; and
- The use of foreign assets as collateral against open domestic exposures.
Significant interest has been shown in the market for the subsequent phases and we will keep the market appraised on the progress of each phase during the course of the year,” says van Eden.
Strate is also monitoring developments in the international arena to understand further benefits it can derive for its Collateral Management services. The Australian market is currently in the process of going live with its Collateral Management solution and Strate is engaging key market players to understand the advantages of the solution within its environment.
Our findings suggest that there are several fragmented pools in the market, which often leads to the inefficient use and inability to optimise collateral. Furthermore, there are no standards for collateral operations outside the collateral agreements themselves. Strate will limit the extent of any changes to the market by leveraging the existing processes for securities movements and, where cash is required for the top-up margin, facilitating the movement through existing settlement practices,” concludes van Eden.
In addition, Strate is running a series of activities in collaboration with education partners to inform the market of the importance of a centralised collateral management solution for South Africa.
A Collateral Management road show is taking place in Cape Town on 23 April 2013.
Should you require more details regarding the Collateral Management project, please do not hesitate to contact the Collateral Management team: Collateral@strate.co.za or via 011 759 5434