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Benefits of Strate
FEATURES AND BENEFITS
The features and benefits of Strate emerge from the variety of advanced,
technological features and business principles incorporated in Strate’s
underlying
software, South African Financial Instruments Real-time Electronic Settlement
system (SAFIRES) for equities, and the Bonds and Money Market System for these
securities respectively. SAFIRES is an adaptation of the Swiss Settlement
system,
SECOM, which has been providing investors with secure and efficient settlement
since 2000.
The features of Strate’s systems are numerous and each provides a very
significant,
risk-reducing benefit to the South African financial market.
ELECTRONIC CUSTODY OF SECURITIES
Shareholding is recorded electronically by each of the Participants and collated
at a
Participant level within Strate for equities and bonds. In the money market
environment the custody of shares occurs in a Securities Ownership Register
(SOR).
These electronic records provide issuers with the register of investors for the
dematerialised portion of their register. The records of the Participant’s are
reconciled daily with the records kept by Strate, where the total balance of
dematerialised securities is kept. Investors receive regular statements
which take the place of share certificates. This is in direct contrast to the
paper
settlement environment where risks of lost, forged or stolen documents abound.
Naturally, the costs associated with the replacement of such documents are also
eliminated under Strate.
SECURITY OF STRATE’S SYSTEMS
The electronic record of shareholding in Strate is subject to extensive
controls. This
is thanks to the sophisticated encryption and authentication in the coding of
the
software where the security of the electronic records has never been
compromised.
Furthermore, Strate utilises the renowned Society for Worldwide Interbank
Financial
Telecommunications (SWIFT) network for the relay of electronic information.
SWIFT
is a network owned by the major banks in the world and therefore the provider of
choice for all major financial institutions, globally. This is one of the most
secure
network in the world with consistent 99% up-time since its inception. As one of
the
highest users of the SWIFT network globally, Strate also provides SWIFT network
services to other financial institutions and large corporates in South Africa.
This
provides a cost effective mechanism for them to utilise the SWIFT network
without
having to contract directly with SWIFT.
ELECTRONIC SETTLEMENT OF TRANSACTIONS
At the point of settlement, the electronic records are updated real-time via
book
entry. Settlement via book entry is both secure and efficient. It is no longer
necessary for the seller to submit his share certificate to his broker for
further
submission to the Transfer Secretary who issues a new certificate in the name of
the
buyer. This manual process was risky, administratively burdensome and time
consuming.
ROLLING SETTLEMENT
Rolling settlement refers to a settlement environment in which transactions
(securities and funds) become due for settlement a set number of business days
after trade. In South Africa, rolling settlement has been introduced on a T+5
basis for
equities, a T+3 basis for bonds and a T+0 basis for money market securities
(where
T= trade date). Rolling settlement represents a significant departure from the
‘account period’ methodology employed in the past by the equities market whereby
trades of any given week were settled from Tuesday of the following week.
Investors
know when their trade will settle and can plan/ budget accordingly.
The ‘account period’ methodology of the paper-based settlement environment
operated on an indefinite basis; some transactions remained unsettled for
months.
As every day is a trading day, under Strate every day is also a settlement day.
CONTRACTUAL SETTLEMENT
Investors obtain the assurance that their transactions settle on the specified
settlement day. The appropriate cash and securities accounts are
debited/credited
on settlement day and the risk of delayed settlement and loss of earnings is
significantly reduced.
SIMULTANEOUS FINAL IRREVOCABLE DELIVERY VERSUS PAYMENT
(SFIDVP)
Strate is proud to be amongst the CSDs to have achieved true Simultaneous,
Final,
Irrevocable, Delivery versus Payment (SFIDvP) in Central Bank funds. This has
been
achieved with the use of the Continuous Batch Processing Line (CBPL)
functionality
for equities, the Continuous Processing Line (CPL) for bonds and the Real-Time
Line
(RTL) for money market securities in the National Payment System at the Central
Bank. In terms thereof, payment obligations must be provided for in the South
African
Multiple Options System (SAMOS) system before the settlement run can be
commenced.
With the implementation of a netting model for on-market equities transactions,
settlement efficiency within Strate has been maximised through netting of
securities
at Safe Custody Account (SCA) level and funds at Participants level. Further efficiencies are provided to the market through a gross settlement model for
bonds
and money market securities.
CONNECTIVITY THROUGH SAMOS
In 1998, the South African Reserve Bank granted Strate permission to integrate
its
settlement processing directly with their own SAMOS system. The main benefit
that
SAMOS brings to the South African financial markets is that it provides for
final and
irrevocable payment. Similarly, Strate provides the investor with contractual
settlement and finality of ownership transfer for all instruments settled.
By synchronising securities ownership transfer through Strate with cash payment
through SAMOS, the market is able to provide local and international investors
with
SFIDvP, as explained above. SAMOS provides for final and irrevocable payment
settlement, while Strate provides the investor with real-time settlement and
finality of
ownership transfer. By making the SAMOS settlement infrastructure available for
the
settlement of financial market transactions, the Reserve Bank has greatly
boosted
the capability and competitiveness of the South African financial markets. The
interdependence of these two systems is in line with the worldwide drive towards
consolidation and the resultant economies of scale.
ACCURACY OF THE REGISTER
The electronic register is updated on a T+5 basis for equities, a T+3 for bonds
and T+0 basis for money market securities when the simultaneous transfer of
securities and funds takes place. This means that all trades are reflected on
the register of investors for dematerialised securities in the Strate
environment as there are no outstanding securities transactions. Listed
companies wishing to obtain an accurate record of their investors find
themselves in a far more efficient position in the Strate environment.
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