The 24 financial market players who form part of the SA financial blockchain consortium (SAFBC) have been recognised for their blockchain research efforts in the Banker Technology Projects of the Year Awards 2017. The Banker is owned by the Financial Times and is one of the world’s premier banking and finance resources, read in over 180 countries.
Formed in 2016, the consortium aims to redefine the South African financial system based on blockchain technology, which has tremendous promise to improve transaction speeds and reduce costs that will help address financial exclusion issues. Members of the Fractal Solutions team at Strate Chair the IT Stream of the SAFBC and are the Secretariat as well for the consortium.
Members of the SAFBC are: ABSA, AlexanderForbes, BankservAfrica, Bowmans, Capitec, Curo Fund Services, Citadel Wealth Management, Finswitch, FirstRand, FNB, Ince, Investec, JSE, Nedbank, PASA, Rand Merchant Bank, Sanlam, Silica, Standard Bank, Standard Chartered, Strate, ZAR X, FSB (observer), SARB (observer).
According to the magazine, SAFBC is exploring different technologies, including Ethereum, Chain, Hyperledger and Corda. “The consortium is attempting to show how this technology is a paradigm shifter. The historic assumptions that were taken for granted, such as digital money intimately tied with credit risk against the institution holding the money, as well as the entire concept of fractional-reserve banking, are being questioned, and this questioning is allowing a whole host of possibilities to emerge, pointing to a much better financial system that better serves the needs of customers and clients of the industry, according to SAFBC,” it reads.
The SAFBC acknowledges its collaboration between members as the key recipe for its success.
CSD Working Group on DLT, an association of Central Securities Depositories working on developing reference products using Distributed Ledger Technology, has released product requirements for the proxy voting business case during the International Securities Services Association (ISSA) Operational Committee meeting in London on April 24, 2017.
The document titled “General Meeting Proxy Voting on Distributed Ledger: Product Requirements” contains requirements to all technical aspects of the product:
Functional requirements for the process, described as a minimal viable product aimed at a generic market, and extension functionality that covers specific local needs of the markets in Russia, South Africa, Switzerland, Chile, Nordic and Baltic countries.
Trust requirements, enabling to provide the value typically associated with DLT-based solutions.
Baseline data entities, roles and their access rights.
The document aims to provide a complete description of a reference product for proxy voting – one that can be used by business in most markets worldwide. The priorities of the working group were to capture the business value of using DLT in the field of proxy voting without completely reworking established business practices.
Alexander Chekanov, Enterprise Architect at NSD, the leader of the working group, says: “With this effort, we aim to provide clarity to the infrastructure operators and market participants in how to implement DLT-based solutions in their local markets and to create value associated with the technology. Proxy Voting has served as an excellent business case where the advantages are both visible and easy to achieve without causing a major disruption on the market. For NSD in particular, it is one of the many steps that we take to make Russian post-trade infrastructure more open and reliable for both the local market and internationally”.
Monica Singer, CEO of Strate, says: “Strate has always maintained that collaboration with key market players and experts leads to the successful implementation of industry-wide projects that add significant value to the markets. Distributed ledger technology has opened the doors to a new world of how people can transact and we’re excited to be an integral part of this journey, where we’re changing history. Together with other working group members, we have embraced this technology to improve the financial markets and are excited at the progress being made on proxy voting using distributed ledger technology”.
Javier Jara, Commercial and Legal Affairs Manager at DCV, says: “For the Central Securities Deposit of Chile, it is very important to be part of this project as one of the representatives of Latin America, it implies being in the leadership of projects that use Blockchain technology for Securities Deposits. In particular, this project of Proxy Voting raised the common requirements to all markets, allowing the incorporation of extensions that adapt to other specific markets, so when this project reaches the Chilean market, will already be thought of local needs. We hope to continue working with our colleagues from other Central Securities Depositaries around the world, to increase in the collaboration and support in adaptations and developments in new technologies”.
The document has been produced by the working group during the period between October 2016 and April 2017 and involved collaboration between NSD, Strate (South African CSD), SIX Securities Services (European ICSD based in Switzerland), Nasdaq (CSD in Nordic and Baltic region) and DCV (CSD of Chile). The presentation to the ISSA Operational Committee in London on April 24th was the first public reveal of the document.
The group is continuing to work on the business case of proxy voting on DLT. Future updates of the document will be focused on:
business value distillation for infrastructure operators and market participants,
standardization and formal alignment with the existing market practices and ISO20022 standard,
extensions for more markets worldwide.
The latest version of the document is available online (Click here).
The CSD Working Group on DLT welcomes any feedback or collaboration opportunities from potential partners. To get in touch with the working group, please contact one of the member organizations:
Strate was named the winner of the Inaugural Conscious Companies Awards held at an evening gala event on 11 May in the northern suburbs of Johannesburg.
There has been much to be said about the inclusivity of stakeholders to create and nurture shared value, as opposed to shareholder value, says Strate CEO Monica Singer. “Companies are typically seen as vessels with limited liability, no heart nor soul. However, to be acknowledged as a company that is recognized for bringing humanity to capitalism is amazing, because it shows that Strate has the heart and soul to make a fundamental difference in its ecosystem,” she says.
Given that the world is interoperable, Singer truly believes in Ubuntu and that ‘we are because you are’ and encourages businesses to recognize that they should be consciously making a positive impact to the stakeholders within the communities that they operate in.
Conscious companies, by their very definition, operate with a sense of higher purpose and recognise the inherent value of linking business success with the socio-economic upliftment of the rest of society. “Truly conscious companies understand the need to be authentic in what they do and in driving change for the greater good, showing that caring forms part of their DNA in everything that they do,” adds Singer.
Her desire to change the world led to the creation of a company that truly cares for and nurtures its employees. A company can create magic by caring for people, because those people will go on to achieve their form of greatness, creating ripples of change across society.
“Since its inception, Strate has made it our end goal to put the needs of the country first by embracing solutions that simultaneously transform and revolutionise markets and empower South Africans. We started by digitizing securities settlement in the financial market because it was in the best interest of South Africa’s financial markets.”
Prior to the birth of Strate, the country was ranked the worst emerging market for operational and settlement risk. Daily trades on the stock exchanged average 4000 in a day. The company has spent the past two decades building on those capabilities for the benefit of all South Africans, and as a result, South Africa is now rated among the top economies globally for financial market development and regulation of its exchanges. Trades average 280 000 on a bad day in today’s market. “Our philosophy has been to sell trust and its purpose has always been to serve the market for the greater good, in everything we do,” she explains.
Strate’s success has been underpinned by the spirit of collaboration. “Twenty years ago, we worked together with the financial market to transform the way things worked. Over the years, we have been working with various companies to boost financial literacy. Interestingly, companies like the Maharishi Institute and Thomson Reuters are some of those companies, and they have too been recognized as finalists in the Conscious Companies awards. Going forward, we are working with various parties locally and globally to embrace disruptive technologies and how it will change the lives of people for the better.”
75 companies were nominated for the award. Nominees were judged against the criteria listed below, where the company:
• understands what it takes to be authentic
• operates with a higher sense of purpose
• integrates the interest of all stakeholders
• develops visionary leaders
• builds a culture of trust, accountability, governance and caring
• encourages creativity and innovation
• is a responsible citizen in the communities that they operate in
Strate put forward its evidence for the criteria, with many examples of collaboration to create shared value. The company put forward its education initiatives across the board, conducive working environment for employees, as well as efforts to uplift the Africa and Middle East region. Further to this was examples of how it reinvests in the financial markets by way of its Special Purpose Reserve Fund, a fund that collects fines for non-compliance with Strate’s Rules and Directives that then pays for market education initiatives – from grass root to the highest degrees in finance at some prestigious South African universities.
Prof. Mervyn King, together with Nomahlubi Simamane, Vukani Magubane and Dr. Essop Pahad formed the panel of judges. They selected finalists for the awards in two categories: The NGO/NPO/NPC category as well as Company category.
The winners in the NGO/NPO/NPC category were Afrika Tikkun, an organisation which is chaired by Singer. The Maharishi Institute’s Imvula Empowerment Fund was named the runner up.
The winner of the Company category was Strate, and Belgotex Floor Coverings was named the runner up.
“We would like to commend all companies recognized in the awards and others across the continent that share similar values. It reflects that we walk this journey together to secure a future that will bring prosperity to all,” concludes Singer.
All too often, good infrastructure goes unnoticed. This is probably one of the reasons why few South Africans know and understand the country’s Central Securities Depository, Strate, however, without it, investors would shy away from South Africa.
Prior to the implementation of Strate in 1999, SA was categorised as one of the worst emerging markets in terms of operational and settlement risk. Trading volumes on the stock exchange were averaging 4,000 trades daily, very thin when this is compared to the 350 000 on average during a month today.
The Central Securities Depositories (CSDs) Strate, South Africa and NSD, Russia have signed a Letter of Intent at the Sibos event in Geneva in September 2016.
The intention is to forge a partnership between the two CSDs to develop solutions utilizing Distributed Ledger Technology (DLT) with the first use case focused on proxy voting. The parties believe that through industry-wide collaboration, CSDs will be better positioned to face the changes presented by DLT technology and develop innovative solutions for the benefit of the financial market.
DLT, which has emerged as a relatively new and rapidly growing innovative technology, is set to revolutionise the financial markets and fundamentally create a paradigm shift. Given that there is the potential for financial markets to create a distributed ledger that settles securities transactions, financial market infrastructures need to embrace the technology and identify opportunities that will add value to their current clients.
This relationship allows both parties to explore opportunities for mutual cooperation in the post-trade settlement arena including:
* Information sharing regarding standards, regulations and DLT technologies.
* The exploration of solutions that are of mutual benefit to both CSDs; as well as
* Potential cost savings through the sharing of technology and development costs.
A number of other CSDs have expressed interest in joining the partnership and Strate / NSD have welcomed these discussions.
Monica Singer, CEO of Strate, says “It is an important time for CSDs to be working together to define the future landscape in the DLT environment. Strate looks forward to developing this long-standing and valuable relationship with NSD to develop solutions for emerging market CSDs”.
Eddie Astanin, chairman of the executive board, NSD comments “We believe that the securities settlement and custody industry is one of the promising sectors where we can use new technologies. I think that post-trading may become the starting point of transition of the distributed ledger technology and blockchain from theory to practice. In 2015, we began research and initiated new developments; since that time we have developed valuable expertise in this sphere, and now we are eager to share it with our colleagues. “
In April 2016, National Settlement Depository was one of the first financial organizations in the world that announced the development of a blockchain-based prototype of e-proxy voting.
Mr. Astanin added that “fast development of technologies and the huge number of startups that enter the market every month is a challenge of our time for major companies. We have to be one step ahead of everyone else and to use the opportunities we have now. Only the united efforts of the largest players in our industry will enable them to respond to new challenges and integrate new technologies.”
With an average of R2.4 trillion bonds under Strate’s custody, Strate’s bond market clients will soon enjoy using one of the best and most-used CSD technologies globally, the TCS BaNCS Market Infrastructure (MI). It will enable the move from older technology ISO15022 standards to ISO20022 standards. Issuers will also be provided with an interface that can enable them to do their top-ups, redemptions, make calls or check balances directly with the CSD. The streamlined corporate actions processes are expected to offer better, faster entitlement communication and payment distribution.
Strate is well on its way in introducing the revolutionary bond settlement system that uses a Securities Ownership Register (SOR) and provides numerous benefits to the market – such as ready support for segregated depository accounts and multiple settlement runs.
The technology also has the functionality for corporates to apply to become a direct CSD Participant at Strate. The technology allows a move away from omnibus account structures and break those down into individual or institutional accounts, an internationally-recognised best practice known as the SOR. The SOR is already utilised in Strate’s technology that settles money market securities. The introduction of an SOR provides issuers with real-time access to their note holders and improves transparency for the market.
Institutional clients, individuals and issuers that have their own accounts at the CSD will continue to have these operated by their CSD Participant. The technology will also enable member settled accounts, which provides the details of institutions or individuals sitting under stock brokers’ accounts. Strate’s solution allows the stock exchange to supply it with the information on a daily basis, uploaded directly into its system.
While South Africa is used to bonds settling on a T+3 settlement cycle in the Strate environment, the new system can cater for any settlement cycle from T+0 upwards. Its functionality also allows for back-to-back links across different markets; so if an asset is bought on exchange and is sold on the over-the-counter market, this functionality allows for greater efficiencies across all these markets.
TCS BaNCS MI for bonds will continue to use central bank funds to facilitate the payment leg of the transaction, ensuring risk mitigation remains a priority through simultaneous, final and irrevocable delivery versus payment (SFIDvP). In terms of this, securities can never move without the cash being paid, or vice versa, irrespective of the settlement cycle. Furthermore, it provides multiple settlement runs to minimise failure.
The bonds implementation is scheduled for mid-2017 forms part of a wider programme where Strate will replace its IT infrastructure for all asset classes. The implementation of money markets took place in February 2016, while the equities market will be switched over at later stages using a phased approach.
The new infrastructure offers the market a streamlined service, as multiple systems are consolidated into one. Strate is now in a position to offer more innovative products to the market in a much shorter time, using the new system.
The Liquidity Alliance is Now Able to Extend Collateral Management Services to Buy-side via 360T: The
Service enables the buy-side to trade triparty repos with banks on 360T platform as collateralised alternative to unsecured cash deposits.
Service already offered by Clearstream and 360T, will be made available to all members of The Liquidity Alliance
The collateral management of the triparty repos is done in a fully automated, white-labelled manner by The Liquidity Alliance.
The availability of the service in the markets of The Liquidity Alliance members will be subject to local regulatory conditions and demand from the buy-side.
The buy-side and non-financial institutions are increasingly seeking collateralised alternatives to unsecured cash deposits as they have a heightened counterparty and concentration risk awareness following the financial crisis. The current low interest rate environment is also making cash deposits less attractive.
Triparty repos are a safer alternative to unsecured cash deposits. An additional advantage of triparty repos for the buy-side is that they will be able to re-use the securities they received as collateral for other purposes such as central counterparty margining.
The Liquidity Alliance, including ASX (Australia), Cetip (Brazil), Clearstream (Luxemburg), Iberclear (Spain) and Strate (South Africa), will be able to meet this demand by giving the buy-side an option to collateralise triparty repos with banks through 360T, a platform for foreign exchange and money markets trading.
Buy-side customers will be able to trade triparty repos via the same 360T frontend they use for FX and other money market trades. After confirmation on the platform, all relevant data will automatically be routed straight through to the collateral service of the local member of The Liquidity Alliance, hence minimising the back-office burden and operational risks.
Mathew Kuppe, Managing Director, 360T Asia Pacific, commented: “360T already has buy-side customers in all domestic markets of members of The Liquidity Alliance. The Liquidity Alliance will now have the option to offer these customers the benefit of collateralised trading which was previously only available to financial institutions, via an integrated front end.”
360T has been in a partnership with Clearstream to offer triparty repo trading for banks and the buy-side via the Global Liquidity Hub since 2013. The acquisition of 360T in October 2015 by Deutsche Börse Group, of which Clearstream is a member, now enables Clearstream to extend its joint services with 360T to all members of The Liquidity Alliance in a white-labelled manner. The Liquidity Alliance members will independently review local regulatory conditions and demand from the buy-side for the service.
About The Liquidity Alliance
The Liquidity Alliance was formed in 2013 by five market infrastructures:
ASX, a financial infrastructure in Australia;
Cetip, a central securities depository specialising in OTC derivatives, in Brazil;
Clearstream, the German central securities depository and Luxembourg-based international central securities depository;
Iberclear, the central securities depository in Spain;
Strate, the central securities depository in South Africa.
Associated members of the Liquidity Alliance:
CDS, the central securities depository in Canada;
SGX, a financial infrastructure in Singapore;
VPS, the central securities depository in Norway.
The Liquidity Alliance is made up of financial market infrastructures which share and develop common collateral management solutions to address the growing global need for more collateral. They collaborate to create opportunities for their customers and for the wider industry while promoting best practices in liquidity and collateral management. The Liquidity Alliance encourages greater pan-industry cooperation through the promotion of expert insight and research as well as though conferences and events.
On 5 October 2015, Strate implemented a new solution to process corporate action payments via the South African Reserve Bank (SARB). Strate has been working closely with issuers, local banks and the SARB to implement this new solution.
Strate is pleased to report that during the week of 12 October 2015, five corporate actions payments valued at R1.2 billion were processed seamlessly via the SARB.
The processing of payments via central bank funds improves liquidity management, mitigates certain risks in the market and provides numerous benefits. These include:
Improved cash flows through the elimination of unnecessary intermediate steps and the costs associated with this;
Greater stability within the financial market, as payments using central bank funds rather than commercial bank funds carry a much lower risk profile; and
Efficiencies within the payment process. Once the funds have been released into the SARB’s South African Multiple Option Settlement (SAMOS) system, there will no longer be timing differences in respect of the receipt of funds by each of the CSD Participants.
Strate would like to thank the issuers, banks, SARB and all other parties involved for making this milestone for the South African markets a huge success. Both the traditional and new processes will continue to be offered for the foreseeable future. Issuers are, however, encouraged to approach the Strate relationship team to explore the benefits that this new solution offers them.
Strate, and key representatives from South Africa’s financial markets, hosted the board of the Nigerian Central Securities Depository (CSD), CSCS Nigeria, during July 2015.
The intention was to forge closer relationships between the two countries and to understand the various roles and responsibilities performed by key organisations in the South African financial markets. This included the technologies used, strategies and policies followed, approaches to governance and the products and services available.
This relationship was further entrenched by the signing of a Memorandum of Understanding (MoU) with CSCS at the Sibos event held in Singapore during October 2015, which allows both parties to explore opportunities for mutual cooperation in the post-trade settlement arena to the benefit of their respective financial markets.
The agreement includes:
Regular meetings between senior management to increase mutual understanding of business developments;
The exploration of solutions that are of mutual benefit to both CSDs; as well as
Mutual consultation aimed at improving co-operation between their respective securities depository and settlement systems, or at strengthening the co-ordination between the securities depository infrastructures of both countries.
Strate looks forward to developing this long-standing and valuable relationship with CSCS and the possibilities that this MoU brings to the financial markets of Africa’s two largest economies.
Representatives from Strate and CSCS Nigeria at Strate’s Offices in Illovo, Johannesburg.
Back Row (From left to right): Dale Connock, Rudi Steenkamp, Sola Adeeyo, Obinna Nwosu, Haruna Jalo-Waziri, Hannes van Eeden, Ariyo Olushekun, Iann Seymour-Smith, Charles I. Ojo, Emeka Madubuike, Obianuju Okeke.
Front Row (From left to right): Leigh Bevis, Tanya Knowles, Oscar Onyema, Monica Singer, Kyari Bukar, Ifueko Omoigui, Maria Vermaas.
Governance. Compliance. Risk. Three words that are well known to any chartered secretary. So when it comes to the post-trade environment and the processing of corporate actions, why should someone in the profession settle for anything less?
For close to two decades, Strate has provided the local market with the highest governance standards, compliance and effective management of risk. With transactions in excess of R130 billion daily, Strate is responsible for the settlement of money market securities, as well as equities and bonds for the Johannesburg Stock Exchange. It also provides settlement for a range of derivative products, such as warrants, exchange-traded funds, retail notes and tracker funds and it has recently added collateral management services to its portfolio.
The importance of a country’s clearing and settlement infrastructure cannot be undermined, as it supports the overall stability of the financial system as well as the implementation of monetary policy and efficient processing of transactions.
For CSD Participants, Strate offers Simultaneous Final Irrevocable Delivery versus Payment (SFIDvP) in central bank funds via the South African Reserve Bank (SARB), an accolade that eludes many CSDs – even in developed markets around the world. It also maintains the official legal register of securities ownership in South Africa.
Today, in excess of 98% of the issued shares of all JSE-listed companies are in dematerialised form in Strate. It is this portion of the share register where Strate plays an integral role in the processing of corporate actions. These are executed electronically via straight through processing protocols that have dramatically increased the level of efficiency and mitigated risks in this space. From an equities perspective, this equates to some 160 events a month with an average cumulative value of more than R20 billion.
Corporate actions announcements represent a high-risk part of the securities processing business and the intricacies associated with such events continues to make the corporate actions arena one of the most complex post-trade activities to manage.
Strate attends to all the activities throughout the life cycle of the event, from the time the event is announced until payment is processed. Strate ensures that funds and shares are distributed to the CSD Participants, who in turn ensure that their clients receive their entitlements. From an issuer perspective this process is seamless and gives issuers the comfort of knowing that corporate actions are processed timeously and accurately to their shareholders thereby eliminating risk from the market. Since the inception of Strate, dividend claims have practically been eliminated.
Strate has also embarked on a new solution that is looking to enhance the current model even further so that corporate action payments are processed via central bank funds, i.e. via the SARB. The process, which went live during early October 2015, required very little change by the issuers who opted to use this solution. The new solution improves liquidity management and mitigates certain identified risks in the market.
Technology is evolving at a rapid pace and Strate wants the best-of-the-best technology for the market so that it can enhance the profile of South Africa’s financial markets, boost liquidity and align with global best practice. Strate is investing in the TCS BaNCS Market Infrastructure (MI) solution to replace its current settlement technology, consolidating three settlement systems into one. In line with global trends, the solution will also provide comprehensive support for both nominee and beneficial ownership account structures.
Strate has already begun the migration of money market securities into the new technology. This will be followed by a bonds and equities infrastructure replacement respectively. With regard to the new TCS BaNCS MI platform for bonds, it will bring a number of exciting benefits to the market other than those of the current UNEXCor system inherited by Strate. One such benefit is the provision of a securities ownership register (SOR) model, which will provide issuers real time access to information in the Beneficial Ownership Download, or shareholder register. (This is also something that is being explored for the BaNCS MI for equities).
The new bonds settlement infrastructure will also offer numerous settlement runs and no settlement exclusions, high-level straight-through-processing across all aspects of the bond market and additional functionality to accommodate complex structured products.
While the introduction of Strate over 17 years ago led to an adoption of a modern electronic-based settlement and clearing model, which has eliminated a number of associated risks, the use of Strate’s value-added services cannot be overlooked. When investing in South Africa, there is no doubt that one should never settle for anything less than Strate in the post-trade environment.
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