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Bonds Settlement Services
On-Exchange and Off-Exchange Trades
- On-exchange Trades (BMA)
On-exchange trades are also referred to as BMA trades. All ordinary and
Member-settled client trades in bond securities reported to the BESA trade
reporting system (known as BTB), are referred to as on-exchange trades and
settle on a nett basis. All such trades must be reported to the BTB system
within 30 minutes of the trade being concluded. BESA regulates all on-exchange
transactions.
- Off-exchange Trades (OTS)
Off-exchange trades are also referred to as OTS trades (off-shore trade
settlement). An OTS trade means an OTC (over the counter) trade concluded
between clients resident off-shore and which is reported via Participants into
the Strate Bonds System for settlement.
All OTS bond settlements are regulated by Strate. Combining an OTC market, which
settles on a gross trade-by-trade basis, with a formalised Exchange with nett
settlement, creates numerous challenges and requires formal procedures to be
followed to minimise the risk of settlement problems arising. BESA and Strate,
together with the individual Participants have agreed on the “Best Practises for
Bond OTS trades” – Directive SFA. The document clearly explains the procedures
to be followed and the pertinent times.
Principles
T+3
In order to align South African settlement practices with international best
practice, BESA adopted the G30 recommendations on clearing and settlement
systems. In November 1997 BESA introduced T+3 continuous, rolling settlement.
A standard trade means a trade that is to be settled on the third business day
after trade date. This is also referred to as a “Spot” trade.
A non-standard trade means a trade which is to be settled less than three
business days after trade date. Same day settlement (T+0) is permitted in the
bonds environment.
A forward-dated trade means a trade that is to be settled at a future date more
than three business days after trade date.
SFIDvP
In 2001 BESA achieved full Simultaneous Final Irrevocable Delivery versus
Payment (SFIDvP).
A delivery instruction is generated in parallel with the payment instruction.
The delivery instruction will ensure that the required securities are available
and reserved in the CSD. The payment instructions are submitted to the Central
Bank on an individual Participant basis. Once all payment instructions are
received, a settlement confirmation is sent out by the Central Bank. Upon
receipt by Strate of the settlement confirmation, transfer of ownership
(securities) will be affected in the CSD. The funds will be simultaneously
transferred, thereby completing settlement in one step. The settlement can not
be reversed.
Netting
In 1990 BESA adopted the G30 standard of trade netting for the settlement of
most types of transactions concluded on the Exchange. This netting procedure,
which was implemented in 1995, dramatically reduces settlement risk and
simplifies the settlement process.
For each Member registered with the Exchange, the Bond Exchange system
determines the netted funds and securities movements for a particular settlement
day by summing individual trades to be settled on the same day. This nett
position, rather than the individual trades, is settled via the appointed
Participants.
In the netting process, the Bond Exchange system calculates the amount of
securities to be delivered or received by each buyer and seller as well as the
amount of money to be exchanged across -
- Settlement Date
- Security
- Member who reported trade
- Principal
- Participants
- Settlement Account
Nett Settlement Schedule
The nett settlement schedule can be downloaded by Participants from the Strate
Bonds System at any time during a trading day for both Member and client
transactions. The schedule shows all the settlement positions, for every future
settlement day. Given that these schedules can be requested daily, a Participant
has from the morning following a trade being reported until the settlement day
to prepare for the actual settlement. In other words, in a T+3 environment, the
position at the end of a trading day will be the position to be settled three
business days later, on the assumption that there are no further trades
concluded on the intervening days and which will be settled, by agreement, on
that settlement day.
As the settlement day approaches, the settlement positions reflected on the
settlement schedule may change: settlement instructions may be changed or new
trades may be struck. The settlement schedule contains not only the settlement
positions, but also all of the settlement instructions from which the position
is derived.
Having reference to the settlement schedule and depending on the arrangements
with the client, the Participant may wish to confirm the settlement position, or
he may simply ensure that the client is holding sufficient funds or securities
to cover the position. The Participant may request some special arrangements
prior to settlement day so that the Participant can commit (for example: the
immobilisation of securities in the CSD or the depositing of funds with the
Participant). BESA strongly recommends that securities be immobilised in the CSD
prior to trading and left there permanently.
At the end of the last trading day before settlement day, all settlement
positions are frozen (except for those special circumstances, which apply in
respect of the rectifying of settlement shortages). The settlement schedule
drawn at the close of business then represents the settlements that are expected
for each Member or client.
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