On Monday 11 July 2016, history was made. The JSE’s equities market, which used to run on a five business day settlement cycle for the past few decades, moved to a new three business day settlement cycle (T+3). This formed part of a project spearheaded by the JSE.Continue reading
In February, Strate launched a new system for the settlement of money markets securities. The new system was selected for being a world-class CSD solution for the electronic settlement of securities.
The implementation of money markets was the first project to be launched that forms part of a wider programme where Strate will replace its IT infrastructure for all asset classes. The Bonds and Equities asset classes 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 system utilises the Market Infrastructure solution from the TCS BaNCS product suite by Tata Consultancy Services (TCS).
Strate has embarked on the next phase in which a new Debt Instrument System (DIS) for the bond market will be introduced. The project is a significant development for the South African market as it is not only a replacement of the current technology, but also the implementation of a new bond clearing, settlement and asset servicing model utilising a Securities Ownership Register (SOR).
The new bond technology aims to:
- Reduce business risk;
- Provide operational flexibility to configure and control various business processes;
- Support current and new CSD Participants and the broader market’s growing needs;
- Be flexible to settle all three Bank for International Settlements’ (BIS) settlement models;
- Cater for international links with other Central Securities Depositories;
- Have multiple settlement runs to minimise failure; and
- Provide the ready support for Segregated Depository Accounts (SDAs) and Securities Ownership Register (SOR).
The implementation of this new system and market practice will be in Q1 2017. The new advanced technology for the bonds clearing and settlement system will take the entire market forward using global best practice and standards.
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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.
The JSE’s move to a T+3 settlement cycle for the equity market is moving swiftly ahead this year, with the aim of aligning with global best practice, boosting efficiency and reducing risk. Change is inevitable. This has been a long time coming,” says the JSE’s Leila Fourie, Director of Post-Trade and Information Services. “The JSE is adamant that it would like to move and align with the rest of the world…and it’s coming together well.”Continue reading