Strate partners with A2X Markets for Collateral and Settlement Services

On Friday 13 October, 2017, the first non-cash collateral exposure between A2X Markets and one of its brokers was successfully reported and settled using Strate’s Tri-Party Collateral Management Services. This came just over a week after A2X Markets had announced it was operational and  settling transactions on a T+3 settlement cycle using Strate’s settlement infrastructure.

 

Instead of placing cash to cover the capital exposure requirement (where cash is typically required to cover market and settlement risk), Strate’s collateral solution also enables broker’s to place securities as collateral for their exposure risk on A2X. This frees up cash for the broker, allowing brokers to more efficiently use cash to fund other transactions.

 

“A2X is excited with the prospects that Strate’s Collateral Management System adds to the market in reducing the risk between trade date and settlement date. Strate’s Collateral Management System brings about high levels of automation and the calling of collateral is seamless to the users,” says Brett Kotze, Head Post-Trade Services at A2X Markets.

 

Beverley Furman, the Managing Executive of CSD Operations at Strate, adds: “The capital markets are evolving and Strate has been nimble in developing premier solutions that cater for such dynamic players. A2X has an innovative business model that further decreases risk and capital costs for brokers, which ties into Strate’s philosophy of creating solutions that are efficient, reduce risk and add value to stakeholders. We are proud to be partnering with A2X Markets and its clients for both settlement and collateral solutions.”

 

Financial services companies, African Rainbow Capital Investments (AIL), Peregrine Holdings (PGR) and Coronation Fund Managers (CML) are the first counters to have a secondary listing on A2X Markets. It has approved RMB Morgan Stanley, Peregrine Securities, Investec Securities and Avior Capital Markets as its stockbrokers, with more brokerages expected to be approved in coming weeks.

 

A2X Markets was officially granted its licence by the Financial Services Board in April 2017, then becoming the country’s fourth licensed South African exchange and Strate’s newest client. It is targeting many of the largest companies currently listed on the JSE, to secondary list on A2X Markets. It says it is also offering brokers material discounts to transact in these shares, while maintaining the high standard of regulation as set by the Financial Market Act.

 

 

The future of South Africa’s capital markets: Far from lacklustre

South Africa has one of the most sophisticated financial markets and has earned a reputation for its sound financial market development. Looking to the next five years, A2X Markets CEO and co-founder Kevin Brady believes the market could become more dynamic and efficient as new exchanges are granted licences.

 

A2X Markets was officially granted its licence by the Financial Services Board in April 2017, becoming the country’s fourth licenced South African exchange and Strate’s newest client. During an interview at A2X’s offices in the heart of Sandton, Johannesburg, Brady had an informative discussion with Strate to describe his company’s business model and settlement cycle.

 

He explained that A2X, as an alternative exchange, would bring modern technology and the latest business techniques to an industry that’s been around for hundreds of years. “A2X will target many of the largest companies currently listed on the JSE, to secondary list on A2X. It will then offer brokers material discounts to transact in these shares, while maintaining the high standard of regulation as set by the Financial Market Act,” he says, while describing the exchange’s business model. By way of an example, he explained the secondary listing principal is well established in South Africa and is the same as a dual listing, where a company has a primary listing on the London Stock Exchange, such as Anglo America and BHP Billiton, and a secondary listing on the JSE.

 

A2X’s model fits into the current capital markets structure, including adopting a familiar T+3 post-trade settlement cycle. “With that, we understand how vital it is to have a renowned and reliable settlement infrastructure, which is why we appointed Strate as the Central Securities Depository for A2X. Strate is open for business and it has been very welcoming of new exchanges.”

 

Beverley Furman, the Managing Executive of CSD Operations, a division of Strate, adds, “This is a very exciting time for our financial markets. As an investment destination, South African capital markets are unique in the sense that they operate on developed first-world infrastructure and the market is well regulated.” A testament to the regulation of the country’s stock exchanges is the ranking highlighted in the 2016-2017 World Economic Forum’s Global Competitiveness Index, which has placed South Africa as the third best ranked country globally (among 138 developed and developing nations) for the regulation of securities exchanges.

 

Furman concludes that Strate is proud to be part of this journey and to be recognized as the independent, trusted service provider within the market. “We are delighted to welcome A2X as the newest player to the South African capital markets and as Strate’s newest client.”