Strate: A Pioneer of Exchange-of-Value Settlement Solutions

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.

 

Strate is responsible for the electronic settlement of securities in SA and safely keeping these ownership records. Equities, bonds or money market instruments are bought and sold through a stock exchange, or in direct transactions between buyers and sellers. Strate owns the technology to seamlessly transfer the ownership of these securities electronically, delivering them simultaneously as payment is received. This is done in conjunction with its member financial institutions, the South African Reserve Bank and key market players.

 

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.

 

monica-singerMonica Singer was approached in the mid-90s to be the project manager for Strate.

 

“When I was first asked, I thought the people asking me to be the project manager were confused, as I was a chartered accountant with no expertise in project management.

 

“However, when I was told how badly SA was rated, I took the job because I wanted to make a difference. I had a great mentor in Bobby Johnston (Strate chairman between 2011 and 2016), who is the most knowledgeable person I know in this market. I have him to thank for his support, guidance and for the wealth of information that he has contributed to Strate’s success,” Singer says.

 

She went on to become Strate’s first and only CEO to date.

 

Singer says before Strate, the paper-based settlement of 20 years ago was fraught with risk. Every time a share certificate was amended, it needed to be done manually. The payment for shares, by cheque, and the actual share certificates, would be exchanged by hand, which typically happened by people riding scooters.

 

All too often, these were lost, damaged or stolen during the exchange process. In the paper-based environment, some transactions remained unsettled for months, which is unlike the daily rolling settlement in today’s electronic environment where investors can enjoy the benefits of electronic transfer of ownership within three business days after a trade is concluded.

 

“As an investor, the risks associated with paper-based settlement caused havoc, as share registers were not updated timeously due to delays in the reconciliation process and dividends were incorrectly paid, resulting in a corporate actions market claims process that cost the industry a lot of money.

 

“The dividends paid to investors did not justify the onerous process it took to actually be paid and investment started to dry up,” Singer says.

 

Against this backdrop the importance of a country’s CSD cannot be underestimated. She says the advanced technology of these modern systems, which also facilitate the efficient processing of corporate actions, among other services, can be attractive to investors. Not only does this promote economic growth, it supports the overall stability of the financial system as well as the implementation of monetary policy.

 

“Technology changed this industry, and today we are proud to have one of the best ranked countries in the world for financial market development – as reported by the World Economic Forum’s Global Competitiveness Index – and an  ‘AA-‘ rating by Thomas Murray.

 

“Today, Strate is ranked in the top 10 central securities depositories globally offering electronic settlement for bonds, equities and money market securities. There are no market claims that result from out-of-date share registers,” Singer says.

 

Strate’s pioneering and innovative solutions to deliver reliable exchange-of-value settlement systems are built on a 20-year foundation of trust. Strate is dedicated to supporting and promoting the safety and efficiency of the financial markets and its technology is one that South Africa can be proud of.

 

“At Strate, we have always regarded ourselves as innovative; even before it became a buzzword.

 

“When we told the industry that we wanted to help SA evolve by dematerialising the country’s financial markets, the initial reaction was one of scepticism.  We convinced the market and worked with them to move to a paperless system,” Singer says.

 

The latest rankings in the financial market development pillar of the World Economic Forum’s (WEF) Global Competitiveness Index (GCI) are indicative of how much the country has changed over the past decade.

 

The WEF introduced the financial market development pillar after 2007/2008, where SA was ranked 24th out of more than 130 international economies. During the financial crisis, SA continued to show its resilience while other CSDs across global markets failed to settle, or their stock exchanges closed.

 

These events may well underpin the year-on-year jump in rankings for SA from 24th to 5th, in the WEF GCI 2009/2010 Report. Since then, South Africa’s financial market development has continued to rank highly in the report.

 

Singer says that increasing demands are placed on local market infrastructure to meet the wave of regulatory, technological and operational changes required to restore confidence in the system.

 

“In our role as a central securities depository and a key financial market Infrastructure, Strate’s core purpose is to mitigate risk and bring efficiencies to the post-trade environment.

 

“We aim to inspire confidence in SA’s financial system by providing a world-class infrastructure to both local and international markets,” Singer says.

 

Embracing Technology to add Serious Value to Financial Markets

With its finger on the pulse of financial technology and innovation, Strate continues to look at opportunities for SA’s financial markets.

 

The pursuit of technological innovation and sustainability is already starting to transform the financial market and the advent of disruptive technologies, such as blockchain, have created a paradigm shift across global financial markets. Blockchain is essentially a distributed shared ledger of transactions that is cryptographically secure and cannot be altered retrospectively, allowing asset ownership and transfer to be recorded without the need for an independent third party.

 

Monica Singer, CEO of Strate, says in the same way that the Internet has transformed the way in which people exchange information, blockchain and distributed ledger technology are transforming the way people will exchange assets. Should companies ignore the change, they will be left behind.

 

“Since its inception, Strate has added significant value to financial markets. So if there is a new technology that adds further value, Strate embraces it and will work with its stakeholders to improve SA’s financial markets. Strate is working with a financial market working group, to look at blockchain use cases, such as proxy voting,” Singer says.

 

It is Strate’s collaboration with key market players and experts that lead to the successful implementation of its projects. In recent years, Strate introduced a collateral management service offering to address the market’s growing liquidity needs, working with international central securities depository Clearstream to achieve this. It also worked with the local market and the South African Reserve Bank (SARB) to introduce a new and more efficient corporate action payments solution, and is currently undergoing a major market initiative to move the different settlement infrastructures of its current technology systems to one single technology platform.

 

She says as the organisation innovates its business services, it works to remain relevant. Just a few months ago, for instance, Strate launched its new brand and accompanying logos, reflecting the evolution of the company and its new strategy that embraces the continuous evolution of Strate’s core business and disruptive technologies.

 

strates-brand-houseThe re-branding followed Strate’s announcement that it created two divisions within the company: CSD Operations and Fractal Solutions.

 

“It has always been my intention to make a difference in SA in collaboration with the market, providing pioneering solutions that truly bring benefits to the players in the financial markets. Strate has always sought technology that can bring development and growth, which is why the tagline of ‘Always Discovering’ could not be more fitting.

 

“In these fast-paced times of change, staying abreast of regulatory reforms, technological changes and market developments, and ensuring their implementation, can be a challenge for any market.

 

“Strate’s success has been built on collaboration and key strategic partnerships. It has been through partnering with global market experts, that Strate and the South African financial markets have been able to position themselves as leaders today,” Singer says.

 

Historically, the central securities depository industry has been known to be a collaborative one with an active number of international forums and regional associations. These forums have been broadly used to share and gain knowledge of other markets, including operating models, future initiatives and trends. Strate has been no stranger to these and the organisation has been an active member of various associations, including the Americas Central Securities Depositories Association, the Africa and Middle East Depository Association, and is also a member (and former Secretariat) of the World Forum of Central Securities Depositories (WFC).

Commitment to Giving Back to the Community

In addition to its sound business imperatives, Strate is also known for giving back to society and it is in its DNA to live beyond a bottom-line approach, leading to the implementation of numerous initiatives that have changed many lives over the years.

 

The company and its employees embrace giving back to the community because they understand how one small act can make a big difference.

 

Monica Singer, CEO of Strate, says: “We have continued to support worthy causes, charities and financial literacy by spending 1% of net profit after tax annually on identified initiatives.

 

“In addition, we have a fund called the Special Purpose Reserve Fund, which was created to give back to the financial markets through education.

 

“This fund contributed to the creation of an award-winning online training application called e-Tutor, which can be accessed by anyone on the Internet. It provides educational material, podcasts, videos, articles and handbooks to study for the Strate exams.

 

“These exams are often written by individuals who aspire to become compliance officers in the financial market, but are open to anyone who wants to write them,” Singer says.

 

During 2016, Strate was awarded the Gold Standard Award for Innovation for e-Tutor by UK-based publication, Financial Services Research (FSR).

 

Youth education also tops Strate’s agenda, which is why it has partnered with initiatives such as the Finance and Investment Management Olympiad with the University of Johannesburg to create awareness of the financial markets at grass-root level.

 

Strate, together with some market players, additionally created an independent non-profit organisation and charity donation programme called Strate Charity Shares (SCS) to address the long-standing problem of investors holding small and unwanted shares or bonds.

 

“To date, SCS has distributed in excess of R4m to a number of worthy causes, many of which focus on children. To encourage participation in SCS, the South African Revenue Service has agreed that the value of any securities donated may be deducted from taxable income, as the scheme is registered under section 18A of the Income Tax Act,” Singer says.

 

One of the organisation’s other initiatives, iValue – an entrepreneurship programme launched in 2014 – has been giving high school learners a firm foundation of business management and entrepreneurship. This programme is Strate’s flagship Corporate Social Investment initiative.

 

“These are just some examples of how Strate has created a sustainable business.

“In a nutshell, Strate’s genetic code has proven that it has created a sustainable business, one which is agile, forward-thinking and continuously evolving to serve its community and stakeholders in an ever-changing environment,” Singer says.

 

In achieving the excellence for which Strate has become renowned, Singer pinpoints investing in staff as an essential part of Strate’s business.

 

“We have a high performance culture and staff are incentivised in various ways, such as a training budget to further develop their knowledge and skills each year, mentorship programmes and the opportunity to attend events that enable the individual and the business to grow through leadership,” Singer says.

 

Consequently, Strate has won numerous accolades as it empowers its employees to grow personally and professionally. Staff are given the necessary resources within the business to enhance their knowledge and contribute to the strategic performance of the business and benefit from its successes, while simultaneously balancing this with their personal wellbeing.

 

“We have a number of initiatives to show care for our people, including offering them time off on their child’s birthday to spend time with them, having breakfast with the CEO in their birthday month, flexi-working hours and the chance to spend time with their local communities/charities.

 

“We consider ourselves a large happy family where we get to know each other on a personal level.

 

“There are many initiatives we are spearheading with the market that are on the horizon that we cannot wait to implement. These are going to benefit investors and boost SA’s investment profile. I enjoy being part of a team that’s making a difference, continuously discovering better ways to change tomorrow for the better,” Singer says.

 

As a company led by a visionary, Strate has adopted a pioneering spirit and commitment to excellence, to make a difference in a world driven by the need for trusted, reliable exchange-of-value settlement systems.

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