Strate Collateral Management Services (SCMS): An automated, compliant Tri-Party Collateral solution that completely meets the market’s collateral needs

Regulation for cleared and non-cleared derivatives has driven the themes of collateral transparency, segregation, collateral tracking , standard reporting requirements and eligibility. Upcoming regulation, such as Secured Funding Transaction Reporting (SFTR), is further driving these themes at a transactional level for securities lending and borrowing, margin lending, commodities lending and borrowing and repurchase transactions. It is clear that the administrative burden on secured funding transactions is only going to increase in the foreseeable future, especially as collateralisation takes place on a per security basis.  It is therefore critical to have certainty that each transaction undertaken, whether on a pledge or cession basis, fully complies with local market regulations in an efficient manner.


Strate offers a Tri-Party collateral product called Strate Collateral Management Services (SCMS), which is offered in addition to the traditional pledge and cession options. SCMS fully automates collateralisation processes between collateral givers and receivers, as well as the underlying post-trade ‘plumbing’, to ensure that transactions are effected efficiently and in compliance with local regulations, while futureproofing against upcoming regulations. This functionality fully alleviates the administrative burden typically associated with both pledge and cession transactions. This is achieved by Strate’s direct integration to the CSD Participants of collateral givers and receivers, and the use of segregated depository accounts.  The solution is abstracted above the settlements layer and is able to manage complex collateral rules and then automatically execute the most optimal collateral by instructing custodians in an efficient, compliant and accurate manner.


Typically, pledging at a securities level has been a significant administrative burden. However, with SCMS, pledges are perfected at a securities level in terms of Section 39(1) of the Financial Markets Act via an automated system in just a few minutes, with no manual intervention or administration required from users. This enables highly efficient intra-day collateral substitutions on an unlimited basis.  SCMS further extends this automation by allowing collateral givers to trade out of a single account, while at the same time enabling both cession and pledge of securities at an ISIN level – as corporate events, pending sales and reserved securities are already factored into the solution’s algorithm. Collateral optimisation is thus enabled for collateral givers, as they will not be required to manage collateral between separate collateral accounts  and keep ‘buffer’ collateral in order to meet needs of multiple collateral receivers.


The SCMS solution is already live in the South African market and has enabled the automated use of both pledge and cession constructs across multiple exposure types  and categories of financial and non-financial institutions.


If you are interested in learning more about our Tri-Party Collateral Services, please contact Steve Everett on +27 11 7595496.


Application to Become a Local Operating Unit for Legal Entity Identifiers Underway

During 2014 Strate’s regulator, the Financial Services Board (FSB), announced that Strate had been allocated a globally unique four-digit prefix that it will use to issue Legal Entity Identifiers (LEIs). Strate has now applied to become a fully-operational local operating unit (LOU) to the Regulatory Oversight Committee (ROC).


The LEI is a 20-digit, alpha-numeric code, to uniquely identify legally distinct entities that engage in financial transactions. It has been designed as a globally recognised standard (through ISO 17442) that can be applied to any organisation or firm involved in a financial transaction internationally. It enables a quick and reliable assessment of market participant’s financial transaction exposures to one another to identify potential risk across the financial system. While regulators can monitor these risks, companies are able to better analyse their operational risks and proactively mitigate them.


The LEI is a solution to overcome the fragmented system of identifying companies to mitigate systemic risk and address vulnerabilities across international financial markets.


The ROC is a committee of global regulators established after recommendations by the international Financial Stability Board and subsequently endorsed by the Group of 20 nations that endorses LOUs to issue LEIs. The ROC endorsement is a prerequisite for using LEIs for reporting both local and international financial transactions.


Should Strate’s endorsement as a pre-LOU be approved, any legal entity seeking an LEI will be able to submit its application through Strate’s LEI service, along with the required supporting documentation.


Strate will continue to provide feedback on the progress of this application.

The Benefits of Strate for Listed Companies, Chartered Secretaries and the Financial Markets

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.



Introduction to Withholding Tax on Interest

Interest payments in foreign jurisdictions are often subject to a withholding tax on payments to non-residents.


This implies that non-residents would receive interest payments net of tax. In accordance with the Taxation Laws Amendment Act No. 31 of 2013, the South African Revenue Service (SARS) has introduced a withholding tax on interest at a rate of 15%, effective 1 January 2015, as per section 50(A) to 50(H) of the Income Tax Act. The legislation aims to align South African tax practices with international norms.


The legislation impacts interest payments that are either paid by South African companies/persons to non-residents, or interest received or accrued to non-residents from a source within South Africa. The primary purpose of the legislation is to subject interest payments due to non-residents from a South African source to  a final tax. Section 50(D) of the Income Tax Act provides certain exemptions from withholding tax on interest. If any of these exemptions apply, such interest payments are not subject to a final tax, but are subject to normal income tax consequences.


While the beneficial owners are taxed, the companies paying the interest (or more practically the withholding agents as the Service Providers) are required to withhold and pay the tax to SARS on behalf of the ultimate recipients. The taxes withheld are payable to SARS on the last day of the month (e.g. May 2014),  following the month during which the interest is paid (e.g. April 2014).


Some foreign investors will be exempt from withholding tax on interest and some may be eligible for a reduced tax rate. This is dependent on the Double Tax Agreements (DTAs) between South Africa and the foreign jurisdiction.


For more information on withholding tax on interest, please contact:


Gregory Naicker                                                  Ridhwaan Williams
+27(0)11 759 5371                                               +27(0)11 759 5446                              

Transnational Securities Law Publication Now Available

The first book to provide a comprehensive analysis of securities law at the transnational level has been published.
The book, titled ‘Transnational Securities Law’, identifies best-practice solutions that practitioners can apply pending formal harmonisation. It analyses the Geneva and Hague Securities Conventions highlighting gaps in the current legislation and identifying where improvements should be made.
The book focuses on private law, including substantive and conflict-of-law issues, as well as looking at recent regulatory developments. Each chapter assesses the current state of the law, and, for issues that have not yet been harmonised, presents possible ways to achieve greater synchronisation.
The Head of Strate’s Legal and Regulatory Division, Maria Vermaas, is one of many globally renowned academics and expert practitioners in the field to have contributed to the book. Transnational Securities Law will benefit practitioners in the field of securities law (including commercial and central bankers, custodians, their legal advisors and other financial market participants) who are interested in the current status of the law.


The book will also be of interest to policy makers and academics interested in both the current status of the law and future developments.
Should you be interested in purchasing a copy, the promotional code is 001 009 677 863 when purchasing it via Oxford University Press Southern Africa. This will offer will only be available to customers who buy directly from SA (not online or via booksellers) at the following:


Oxford University Press Southern Africa
PO Box 12119
N1 City
Cape Town 7463
Tel: (021) 596-2300
Fax: (021) 596-1222

The Requirement to Disclose Email Addresses in the Securities Register (BND)

During 2013, the disclosure of shareholder information became a topical subject for the market following changes to legislation, receiving quite a lot of attention from the South African financial media. The legislative changes resulted in a number of questions being raised about the electronic securities register, which is why we  have taken the opportunity to clarify some of the confusion regarding the requirement to disclose a shareholder’s email address in the beneficiary download (BND).


The Companies Act 71 of 2008 (section 50) and the Companies Regulations of 2011 (section 32) prescribe the minimum information that must be entered into the BND of a company. In terms of section 50(3) of the Companies Act, other information may also be prescribed by the CSD Rules. It is important to note that in terms of section 50(3) of the Companies Act, a record of uncertificated securities ‘must be administered and maintained by a participant or central securities depository in the prescribed form’.

The statement ‘in the prescribed form’ places a duty on the Participant or CSD to ensure that the prescribed information (as required by the Companies Act, the Companies Regulations, CSD Rules and Directives, etc.) is entered into the BND. In terms of section 32(2)(a)(ii) of the Companies Regulations, the securities register must, among other things, contain:
‘The person’s email address, if available, unless the person has declined to provide an email address’.  It appears that this statement can be misinterpreted to suggest that a shareholder’s consent is required before an email address is entered into the BND. Seeking a shareholder’s consent would seem to be an impractical exercise and ought not to be the intended legislative result. It is important to take note of one of the objectives of the Companies Act, being ‘to define the relationships between the companies and their respective shareholders or members …’.


It is evident from the Companies Act that communication between the company and its shareholder is of significant importance in the establishment and maintenance of this relationship, for example the duty of the company to send financial statements to the shareholders (section 31); send notices of shareholders’ meeting to the shareholders (section 62); publish a record date to the shareholders (section 59); send resolutions for voting by the shareholders (section 60 and 65(2)) etc. As such, this objective of the Companies Act must be considered when interpreting this requirement for email addresses to be provided. The intention of the lawmakers with this statement is to promote communication between the company and its shareholders.

The first part of the statement (‘the person’s email address if available, …’) makes it compulsory for an email address to be entered into the BND, if the shareholder has one. The second part of the statement (‘… unless the person has declined to provide an email address’), merely gives the shareholder an option to refuse to provide an email address. Therefore, based on the first part of the statement (‘the person’s email address if available …’), an email address of a shareholder, by default, must always be entered in the BND if the shareholder has an email address. A shareholder’s consent is not required. Seeking a shareholder’s consent seems impractical and does not support the objectives of the Companies Act.

A practical step would be to request email addresses from the shareholders or clients and enter into the BND those email addresses as may be provided. In instances where a shareholder has already provided an email address, it must as a default, be entered into the BND as required by the Companies Regulations.

Should you have further queries on this subject, please email Strate’s Legal & Regulatory Division via Strate-

Strate Receives Feedback on the Review of its CPSS-IOSCO Assessment

In December 2012, The Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organisation of Securities Commissions (IOSCO) released a set of 24 Principles for Financial Market Infrastructures (FMIs), as well as an associated Assessment Methodology and Disclosure Framework, to effectively help these organisations address essential aspects of risk management within the financial markets.

The adoption of these Principles is being strongly encouraged in most international markets by practitioners and regulators alike.

Given that Strate is one of South Africa’s FMIs, it voluntarily completed a self-assessment shortly after the Principles and Assessment Methodology were published by the CPSS-IOSCO. The outcomes of this review were submitted it to its regulator – the Financial Services Board (FSB) – for review during 2013.

Having completed its review, the FSB recently published the report on its website (click here to view the report). It confirms that Strate is recognised as “observing” 14 of the Principles and “broadly observing” a further 3. The remaining 7 Principles are not applicable to Strate at this time.

The ratings indicate that South Africa is at the forefront of adopting initiatives that ensure its financial markets remain robust and resilient, even during periods of market stress. “Greater compliance by all FMIs with the Principles will benefit the global financial markets. By incorporating these Principles into the legislative, governance and risk management frameworks that guide the way that Strate operates allows us to further foster the safety, efficiency and resilience of the country’s FMIs,” says Dale Connock, Strate’s Head of Risk.

CSD Rules Amended to Align to Financial Markets Act

Strate’s regulator, the Financial Services Board (FSB), has approved the amendments to the Central Securities Depository (CSD) Rules to have them aligned to new legislation.

“Following the implementation of the Financial Markets Act, 2012 (FMA), the CSD Rules had to be adjusted to align to the new legislation as well as to the National Payment System Act and the Insolvency Act,” explains Maria Vermaas, the Head of Strate’s Legal & Regulatory Division.


She explained that the section relating to Duties of Participants (within Section 5) had to be revised to include additional clauses, while the Accounts section (Section 6) was also modified to provide further clarity on the irrevocability of settlement instructions.

New sections have been added to the amended CSD Rules (Sections 15 and 16 respectively) for Complaints Procedures and Procedures for Management of Participant’s Insolvency Proceeding. While the amended CSD Rules became effective the day they were published in the official Government Gazette, being 14 February 2014, there are a number of clauses that will only take effect on 13 May 2014. These are clauses 5.1.6, 5.1.8, 5.7.1 and 5.7.3.

The revised CSD Rules are available on the Regulatory Environment section of Strate’s website. Click here
to view the CSD Rules.

Companies’ share register information is not restricted by new laws

While the Protection of Personal Information Bill (PoPI) and the Financial Markets Act 2012 (FMA) will have an influence on the manner in which companies and Strate respectively deal with personal information, access to the companies’ share registers by the shareholders and the public in terms of the Companies Act will not be affected by these new laws.

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