Corporate Actions Payments can Now be Processed through the South African Reserve Bank

On 5 October 2015, Strate implemented a new solution to process corporate action payments via the South African Reserve Bank (SARB). Strate has been working closely with issuers, local banks and the SARB to implement this new solution.

 

Strate is pleased to report that during the week of 12 October 2015, five corporate actions payments valued at R1.2 billion were processed seamlessly via the SARB.

 

The processing of payments via central bank funds improves liquidity management, mitigates certain risks in the market and provides numerous benefits. These include:

  • Improved cash flows through the elimination of unnecessary intermediate steps and the costs associated with this;
  • Greater stability within the financial market, as payments using central bank funds rather than commercial bank funds carry a much lower risk profile; and
  • Efficiencies within the payment process. Once the funds have been released into the SARB’s South African Multiple Option Settlement (SAMOS) system, there will no longer be timing differences in respect of the receipt of funds by each of the CSD Participants.

 

Strate would like to thank the issuers, banks, SARB and all other parties involved for making this milestone for the South African markets a huge success. Both the traditional and new processes will continue to be offered for the foreseeable future. Issuers are, however, encouraged to approach the Strate relationship team to explore the benefits that this new solution offers them.

 

Relationship Team Contacts:

Carol Otto Thato Moja Thembeka Khumalo
+27 (0)11 759 5325 +27 (0)11 759 5465 +27(0)11 759 5455
carolo@strate.co.za thatom@strate.co.za thembekak@strate.co.za 

 

Tri-Party Repo: Future-Proofing Risk and Cost for Corporate Treasurers

As a Tri-Party Collateral agent in the South African Market, Strate’s Collateral Management Services (SCMS) is well positioned to manage all of these new challenges for corporate treasurers, with its proven world-class systems and service, facilitating both cash and non-cash collateral for collateralised loans as well as Tri-Party repos.

 

Tri-Party repos are becoming an increasingly more attractive mechanism for corporates to replace cash deposits to mitigate against credit counterparty risk. However, this concept needs to be sold to management.” This was the common theme noted by over 80% of delegates in two separate conferences held during 2015 by Strate, in conjunction with the Association of Corporate Treasurers of Southern Africa (ACTSA), and Strate’s global Tri-Party collateral partner, Clearstream Banking S.A. (a subsidiary of the Deutsche Borse Group).

 

Under Basel III regulations, banks receive a capital benefit by placing collateral against short-term deposits from a corporate counterpart. Moreover, under Tri-Party repo arrangements, cash deposits will no longer have to be spread across multiple banks to mitigate credit counterparty risk, as larger deposits can now be placed with a single bank, secured by non-cash collateral.

 

It is no surprise then that the local market sentiment is in line with global trends and corporate treasurers acknowledge that accepting and placing collateral is future best practice.

The delegates provided some interesting industry insights, such as:

 

  • Over 60% of respondents believed cash was not always invested properly;
  • Over 96% of respondents would prefer to secure cash deposits with collateral to generate a higher yield;
  • Over 90% of respondents believed that the costs of financing trades will increase with new regulations in the banking and insurance sectors; and
  • Collateral requirements for financing trades will increase and over 60% believed that non-cash collateral will play a key role over the expensive use of cash collateral.

 

Future challenges for corporate treasurers:  

 

 

Considering the flexibility, control and security that a repo transaction provides, and the growth of the Tri-Party repo market for corporates in Europe, sentiments are that “repos are here to stay.”

 

SCMS provides an online platform for corporates to use, which seamlessly integrates to underlying systems if need be. Daily mark-to-market, automated valuations, automatic margin calls and reporting are some of the many key features that come standard with the SCMS offering.

 

SCMS is able to efficiently manage collateral in this ever-changing market, and more importantly, is well equipped to ensure that the right collateral is used to cover the right exposure at the right time at the right place.

 

The services are free for receivers of non-cash collateral, such as corporates for term deposits, and Strate’s dedicated support desk is available to resolve any collateral-related queries. For more information contact us on collateral@strate.co.za or visit the Strate website at www.strate.co.za.

 

 

Beneficial Download (BND) Reporting – What You Need to Know

In accordance with current legislation, disclosure of beneficial ownership details are required to be made available to issuers on a monthly basis, or where required upon request. However, in terms of market practice, the equity dematerialised share register, known as the Beneficiary Download (BND), is produced and made available to the issuers or their agents weekly. The Central Securities Depository (CSD) Participants’ accounts are recognised as a sub-register within the recognised share register.

 

This BND data report is produced by Strate on a weekly basis for equities, monthly for bonds and real-time for money market securities. Ad-hoc BNDs, which may be required to fulfil the terms of a corporate event, are available to individual issuers upon request. Strate are currently planning to introduce weekly bond reporting in due course.

 

Strate produces the relative BND reports by collating the shareholder positions that are supplied by the CSD Participants, the JSE on behalf of the brokers and the FSB-approved nominees as at the close of books every Friday for equities and as at the last business day of the month for bonds. Upon receipt of the files from the various market participants, a rigorous validation and reconciliation process is undertaken. In instances where there is a variance, this is communicated to the relevant custodian immediately who must then provide an amended file or a suitable explanation.

 

It is important to note that although beneficial disclosure is provided in respect of all recognised local nominees, foreign nominees/omnibus account holders are do not required to provide this level of disclosure. Issuers or share register analysts will therefore only be able to view the total number of shares held by each foreign nominee on the register.

 

The monthly BND report is also utilised by third parties to conduct market analysis, however, this information is limited to data which is deemed to be in the public domain. In line with changing legislation the data provided has been restricted to the ISIN, registered account number, full name, address, country code and number of shares. Strate will restrict these data fields even further should legislation require this.

 

To remain compliant with changing legislation and new market developments, Strate has successfully enhanced the communication channels to conform to the distribution of the BND in an encrypted manner.

 

For further information or assistance, please contact Strate’s Issuer Relationship Manager, Carol Otto, on carolo@strate.co.za or on +27 (0)11 759 5325.

 

 

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.

South Africa Hosts Nigerian Central Securities Depository and signs MoU

Strate, and key representatives from South Africa’s financial markets, hosted the board of the Nigerian Central Securities Depository (CSD), CSCS Nigeria, during July 2015.

 

The intention was to forge closer relationships between the two countries and to understand the various roles and responsibilities performed by key organisations in the South African financial markets. This included the technologies used, strategies and policies followed, approaches to governance and the products and services available.

 

This relationship was further entrenched by the signing of a Memorandum of Understanding (MoU) with CSCS at the Sibos event held in Singapore during October 2015, which allows both parties to explore opportunities for mutual cooperation in the post-trade settlement arena to the benefit of their respective financial markets.

 

 

 

 

 

 

 

 

The agreement includes:

  • Regular meetings between senior management to increase mutual understanding of business developments;
  • The exploration of solutions that are of mutual benefit to both CSDs; as well as
  • Mutual consultation aimed at improving co-operation between their respective securities depository and settlement systems, or at strengthening the co-ordination between the securities depository infrastructures of both countries.

 

Strate looks forward to developing this long-standing and valuable relationship with CSCS and the possibilities that this MoU brings to the financial markets of Africa’s two largest economies.

 

 

 

Representatives from Strate and CSCS Nigeria at Strate’s Offices in Illovo, Johannesburg.

 

Back Row (From left to right): Dale Connock, Rudi Steenkamp, Sola Adeeyo, Obinna Nwosu, Haruna Jalo-Waziri, Hannes van Eeden, Ariyo Olushekun, Iann Seymour-Smith, Charles I. Ojo, Emeka Madubuike, Obianuju Okeke.

 

Front Row (From left to right): Leigh Bevis, Tanya Knowles, Oscar Onyema, Monica Singer, Kyari Bukar, Ifueko Omoigui, Maria Vermaas.

 

 

 

 

Strate’s SAFE and MMFE applications to be Replaced by a New Centralised Messaging Front End

Strate has embarked on a project to replace its Southern African Financial Instruments Real Time Electronic Settlement System (SAFIRES) Front End, or SAFE, and Money Markets Front End (MMFE) applications with a Centralised Messaging Front End (CMFE). The application, which will be accessible via Strate’s Web Portal, will have an exciting look and feel that is easy to navigate and includes all the current SAFE and MMFE functionality, yet provides new enhanced message management and reduces SWIFT and Gateway message traffic.

 

Currently, SAFE or MMFE is hosted by clients and maintenance and upgrades take place at the clients’ premises. Given that CMFE is a web-based solution that requires a URL to access by approved users, clients will no longer have to run expensive maintenance and updates themselves, as this will only be done on Strate’s end. Clients may only be requested to test the service from time-to-time.

 

Strate considers client security to be of utmost importance, which is why it has incorporated technology into CMFE that only allows approved users to access the system as well as the content that they are authorised to view. Users need to be approved and need to have valid log-in credentials in order to proceed.

 

SAFE and MMFE are expected to be decommissioned by the second quarter of 2016 and it will be replaced by CMFE.

First Bonds Donated to Strate Charity Shares

Strate Charity Shares (SCS), a registered non-profit organisation and charity donation programme, has received its first bond donations that will go towards supporting charities across South Africa that are dedicated to feeding, raising and educating children.

 

SCS was created over thirteen years ago to address the long-standing problem of investors holding small amounts of unwanted shares. Investors who want to dispose of these unwanted shares to neaten up their portfolios have previously been deterred by the cost of selling them. As a result, thousands of rands are tied up in assets that cost more to sell than they are worth, and portfolios are left in an untidy state.

 

While investors have been donating their shares to SCS, either directly, or through their broker, they are now able to include bond donations as well, and receive a tax benefit for doing so. In terms of Section 18(A) of the Income Tax Act, when investors donate to SCS, they are issued a receipt that can be claimed against their tax liability.

 

Since 2002, SCS has paid more than R3.5 million to charities dedicated to helping children. The people and companies involved in SCS all give their time and labour free of charge. Charities that have historically been the recipients of these donations are the African Children Feeding Scheme; Bethany House Trust; Child Welfare Tshwane; Cotlands; Guild Cottage; Nazareth House; Salesian Life Choices; Topsy Foundation and Zisize Educational Trust.

 

For more information regarding SCS, visit https://www.strate.co.za/people-culture-community/strate-charity-shares.

 

If you wish to donate your equities and bonds to SCS, please call the toll-free helpline on 0800 202 363, or +27 (0)11 870 8207 if you are phoning outside South Africa. Alternatively, you can email charityshares@computershare.co.za.

 

 

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.

 

 

An Update on the iValue Entrepreneurship Programme

During early 2014, Valued Citizens Initiative launched iValue, an entrepreneurship programme that has been giving a group of learners from Kwena Molapo High School near Lanseria a foundation of business management and entrepreneurship. This programme is Strate’s flagship Corporate Social Investment initiative.

 

During 2015, learners used their newly-developed entrepreneurship and life skills to present their business plans, where the winning teams received a small amount of start-up capital to operate their businesses.

 

The programme continues to support the learners with corrective measures and interventions, such as fortnightly monitoring of the learners’ progress on communication, business plan implementation and accountability.

 

The iValue Entrepreneurship Programme has, so far, proven to engage our youth as young entrepreneurs building their confidence, exposing them to the world of work and developing their skills to run a business. A number of the winning teams are currently operating successful businesses.