Seasons Greetings

Seasons Greetings.

 

Wishing You Peace and Joy over the Festive Season and a Prosperous 2015.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Video Tribute to Nelson Mandela

Strate has created an online version of a book that is in dedication to the loving memory of a nation’s hero – Nelson Mandela. You will be missed Tata, but are in our hearts forever.

 

Click on Mandela Tribute to view the video on YouTube.

 

 

Bonds now Accepted as Strate Charity Shares Donations

Strate Charity Shares (SCS), which was created as an independent non-profit organisation and charity donation programme that focuses on charities dedicated to feeding, raising and educating children, has now expanded its  list of eligible securities to include odd lots of bonds as well.

 

Investors who have wanted to dispose of odd lots of securities (such as bonds and equities) to neaten up their portfolios have been deterred by the cost of selling them. As a result, thousands of rands are tied up in forgotten assets that cost more to sell than they are worth, and portfolios are left in an untidy state.

 

Today, company securities registers are filled with these odd lot securities. To trade these, the paper securities also needed to be dematerialised by the investors, who seldom chose to convert their securities into electronic form and would rather store the paper certificate at their homes. A solution is for clients to give their securities  to charity by contacting Strate Charity Shares, either directly, or through their broker, to donate their securities.

 

SCS has been a highly effective vehicle for getting rid of small holdings of shares that are too costly to sell through a stockbroker. Not only do shareholders incur no cost if they donate their securities to charity through SCS, they also receive a tax benefit for doing so.

 

“With investors now able to donate both bonds and equities towards SCS, they are able to help children in need, while also receiving the added benefit of tidying up their portfolios. These portfolios are littered with little holdings of securities that can’t really be sold, as the cost is too high to do so,” says Tanya Knowles, SCS Director and Strate’s Head of Project Innovation and Business Services.

 

“Also, when investors donate their securities to SCS, they are issued a receipt that can be claimed against their taxation liability, as per Section 18(A) of the Income Tax Act,” she adds. For individuals donating their equities to SCS, there are added cost-saving benefits for issuers and brokers too, given that issuers will have less of these odd-lot share holdings to maintain in their registered portfolios if they are donated to charities via SCS. The costs of producing annual reports will decrease, as these publications need to be produced and for these small share lots as well. Often, the paper to print these reports, or the administration required to pay out dividends, is significantly higher than what the securities are worth.

 

Since 2002, SCS has paid more than R3.9 million to charities dedicated to helping children, with R1.1 million donated in 2014 alone. 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 African Childrens’ Feeding Scheme; Salesian Life Choices; The Bethany House Trust; Child Welfare Tshwane; Topsy Foundation and Cotlands.

 

If you have any queries regarding obtaining or completing the forms, please call the Strate Charity Shares’ toll-free helpline on 0800 202 363 or +27 (0)11 870 8207 if you are phoning from outside South Africa. Alternatively, you can email charityshares@computershare.co.za.

 

 

A New Olympiad for Learners Exploring the Finance Industry as a Career Path

In an effort to promote financial literacy and drive South Africa’s economic powerhouse, the University of Johannesburg (UJ) in collaboration with Strate (Pty) Ltd is launching a Finance and Investment Management Olympiad (FIMO) in 2015.

 

The Olympiad will be open to Grade 11-12 learners in Gauteng with an interest in accountancy, business management principles, economics and finance, to better prepare them for careers in the finance field. So we’re calling on all future finance gurus to hone your skills and show us what you’re made of.

 

The Department of Finance and Investment Management at UJ believes that this Olympiad, which will focus on day-to-day financial problems that people have to deal with and knowledge of financial industry terminology and concepts, will significantly develop essential analytical and problem-solving skills and improve the knowledge of learners about the finance industry as a whole. This is also a great way to help the learners explore and discover career opportunities in the industry.

 

The 2015 FIMO will consist of two rounds. Learners will also receive learning material to prepare them for the Olympiad.

 

Anyone who wants learners to take part in this exciting new prospect, please contact the organisers at fimo@uj.ac.za.

 

Invest in yourself, think finance!

 

Strate e-Tutor Training App Launched

To improve access to education for the financial markets, which includes both the local and the international community, Strate launched an online training portal, called Strate e-Tutor, on 29 October 2014.

“Education is one of the most important investments that can be made to secure a brighter future for a country  and its people. Similarly, an investment in people who want to learn about the financial markets provides numerous benefits for the economy, as it transfers knowledge and critical skills which contribute positively towards society,” says Leigh Bevis, Strate’s Head of Stakeholder Relations.

Strate Training is committed to educating individuals working in the capital markets and financial services industry by constantly keeping them up-to-date with legislative developments and market best practices. It is this commitment that has led to the introduction of Strate’s customised training programmes and the continuous development of its seminars. 

“Now with the launch of Strate e-Tutor, stakeholders have their training requirements at their fingertips, bringing up-to-date educational content straight to you via your computer, tablet or smartphone, 24/7,” explains Bevis.

The training tool will benefit people wanting to learn about the industry, providing them with information from the basic understanding of how it operates to more advanced content for those wanting to become compliance officers. To access the portal, visit https://www.training.strate.co.za/.

Should you wish to contact the team, email Strate-training@strate.co.za.

Collateral 101

Collateral Management is increasingly becoming a topic of interest. Not only has the volume of collateral exchanged rapidly grown over the past decade, but regulatory reforms and international recommendations are also expected to place additional pressure on the need for collateral in global financial markets.

 

Many financial institutions have only just begun to fully appreciate the high cost of inefficient Collateral Management and the importance of using systems to more effectively manage their collateral.

 

Here, Strate features Collateral Management 101. If you have any further questions, email: collateral@strate.co.za.

 

Some Questions Answered

 

1. What is collateral?
Collateral is typically an asset (such as cash or securities, the latter of which is made of equities, bonds and money market instruments) that is used by borrowers to offer lenders as security over a loan.

 

The collateral serves as protection for the lender against the borrower in the event that the borrower defaults. Should the borrower not be able to pay back the loan, then the lender has the right to sell the collateral (asset) to recoup potential losses that are owed to them.

 

2. So is collateral a type of financial insurance?
In some ways it is. Collateral acts as partial insurance to cover the credit exposure or credit risk, i.e. which is the loss to the lender, in the case of the borrower defaulting on his payment.

a. What is a bilateral transaction?
This is a transaction that takes place between two parties, which are called counterparties. The agreement between these two counterparties comes with its own criteria specific to the deal and have been negotiated beforehand, where both parties promise to carry out the terms of their agreement. Counterparties can include banks, broker-dealers, hedge funds and corporates.

 

3. Placed collateral versus received collateral 

When you are the counterparty that is lending cash/an asset to a counterparty, then you receive collateral from that party as your insurance against the credit risk of that transaction. However, if you are the borrower that lends from another counterparty, then you have to give/place/pledge collateral with that party to provide them with security over that transaction in the case that you default on the payment.

 

4. Collateral Management

Collateral management is the continuous process of providing, taking and evaluating collateral to cover against the credit risk you may be faced with relating to your counterparty credit exposures.

 

The allocation of collateral is a complex process that involves defining which collateral is eligible to be received or placed and valuation mechanisms, both pre-agreed by counterparties. Efficient collateral management assists counterparties to mitigate credit risk, by identifying and allocating a similar valued asset in return for the loan/assets/cash that were lent.

 

Based on the changes in the market value, the collateral value to be allocated is continually adjusted, and margin calls will be made. Margin calls are calls from the lender of funds to invoke the borrower to provide additional funds, when there is a decrease in market value of the collateral. These calls are made to minimise the credit risk, so that in case of a default by the borrower, there are sufficient assets as collateral.

 

Efficient collateral management should be able to rebalance the exposures by either requesting for more collateral from, or returning collateral to counterparties when market prices of the collateral change.

 

For example, if you need shares as collateral to cover an exposure of R1000, and those share prices move on a daily basis, there may be times that the share price drops and you are exposed to counterparty credit risk. Depending on certain criteria in your agreement, as well as various calculations that determine the credit risk, you can call on more collateral to cover this risk.

 

5. Re-use/Rehypothecation of Collateral

When hedge funds, pension funds and insurers place collateral with large financial institutions, these banks can potentially re-use the collateral that has been placed with them in the bank’s name, to generate a return for themselves. This means that a single source of collateral can be recycled by a number of parties in the financial market, helping to lubricate the financial system. Therefore, collateral has multiple uses.

 

6. Collateral optimisation
Collateral optimisation is the process that determines the most efficient manner to identify and allocate collateral, keeping all parameters set out by the lender and borrower in mind.

The benefits of collateral optimisation for both the lender and the borrower show that an investment in technology can generate a greater Return On Investment through optimisation related cost-savings.
The benefits include:

  • The efficient management and allocation of collateral;
  • Avoiding over-collateralisation;
  • Easily identify idle surplus collateral;
  • Compliance with regulatory requirements; and
  • Freeing up liquidity, to name a few.

 

7. What is placing more pressure on collateral?
Since the financial crisis, investors want more protection – safer assets and less credit risk. So they want high quality collateral and they want counterparties that can be trusted.

 

Part of that crisis internationally was that banks in the US lent out money recklessly. As credit was given easily, foreign counterparties borrowed from US banks. A lending or credit bubble formed across the world, particularly across the US, Europe and some parts of Asia. When a large number of these counterparties defaulted and went insolvent, they couldn’t pay their debt and needed to get bailouts from the government, as they were not sufficiently collateralised.

 

In an attempt to stop the 2008 financial crisis from happening again, more stringent regulatory requirements are being implemented by Government. Regulators are calling on banks and other financial institutions to have more liquid assets, such as cash, on their balance sheets (with Basel III and Solvency Assessment and Management), which will have an impact on the availability of high-quality liquid assets in the market.

 

Also, the Group of 20 (G-20) Finance Ministers have recommended that all standardised OTC derivatives should be centrally cleared with central counterparties (CCPs), which will require counterparties to place collateral with CCPs, while non-cleared OTC derivatives have to also be collateralised. As a member of the G-20, South Africa also adopts their recommendations, which include the processing of collateral management transactions.

 

8. The curious case of collateral fragmentation and operational silos:
Collateral agreements are more often than not bilateral in nature. This therefore leads to fragmentation of collateral through silos, not only within an institution, but also within the greater market as agreements that exist between counterparts and are not visible to the market.

 

The nature of the current bilateral arrangements within the market bring with it limitations, such as:

  • Inefficient use of and ability to optimise collateral within an organisation operating in silos, as there is often an incomplete overview of available collateral as well as collateral placed and received across an organisation;
  • Inability to optimise market-wide collateral due to the fact that counterparties are unaware of common bilateral relationships that exist with their counterparts, as they can only ‘see’ their collateral as far as their direct counterparts;
  • The uncertainty relating to the location and size of the collateral that has been placed;
  • Lack of an audit trail of reused collateral movements; and
  • Movements of collateral on a T+1 basis or later, which exposes the collateral receiver to credit risk until the collateral is received. 

 

9. What is the solution for South Africa?
Strate has launched its centralised, market-wide integrated tri-party collateral management service to complement current collateral management functions within financial institutions. This service aims to improve the tracking and efficient use of collateral management in South Africa.

 

Strate’s Collateral Management Services can manage bonds, equities, money markets and other eligible asset classes in multi-currencies.

 

This service brings the following benefits to the South African financial markets:

  • Standardisation of collateral operations, message types and timelines across counterparts;
  • Near-time collateral movements of cash (through central bank payments) and securities (by leveraging Strate’s existing position as South Africa’s CSD);
  • The ability to automatically manage bilateral eligibility criteria of collateral regularly on an intra-day basis;
  • Automatically allocate the cheapest way to deliver securities against open exposures;
  • Automatic management of collateral top-ups, returns and cash margin calls;
  • Automatic substitutions within the bilaterally defined eligibility criteria;
  • Internal and market-wide optimisation of collateral;
  • Improved market liquidity;
  • Improved asset safety:
  • Mandatory use of Segregated Depository Accounts (SDAs);
  • Perfecting pledges; 
  • Tracking of all collateral movements – prevention of unauthorised reuse and controlled reuse; and
  • Reduction in operational and settlement risk and the concomitant administrative burden associated with using securities as collateral.

 

10. A global approach to collateral management: The Liquidity Alliance
Strate is one of the initial five members of the Liquidity Alliance, a group of CSDs that have joined forces to collaborate on a global solution for collateral management. The Alliance gives members an opportunity to exchange information, identify common needs and extend global collateral solutions while encouraging the development of informed research. All members of the Alliance operate off the Clearstream platform, which will also pave the way for cross-border collateralisation in the future.

 

  • The initial members of the Alliance are as follows:
  • ASX, Australian Stock Exchange;
  • Cetip, one of the Brazilian CSDs;
  • Clearstream,the German and Luxembourg-based international CSD;
  • Iberclear, the CSD in Spain; and 
  • Strate, South Africa’s CSD.

 

 

Brotherhood of Hope – a Visual Eulogy to Icons

Throughout history, there have been inspirational leaders that have meant different things to different people. Quite often, they have changed a nation and created a legacy for their country, ideologies of change and a sense of purpose for the people.

 

Some of these leaders are rare, and have become heroes to their nation. When you think of Abraham Lincoln; John F Kennedy; Dr Martin Luther King Jr.; Mahatma Gandhi; Nelson Mandela and Barack Obama – they have become symbols of hope and largely recognised as international icons.

 

This may be the reason why artist Jonathan Brews decided to include these icons in a painting that he created in  2009. The painting, called ‘Brotherhood of Hope’, was recently donated to Strate by John Pickering, an IT Consultant from Incentage.

 

To the artist’s surprise, he said in a note, “The painting had been completed almost five years prior to the death of Nelson Mandela. It was inconceivable at the time that the last living person in my painting would be delivering the eulogy at the passing of the 2nd last living member of the group. As the youngest member in the group, and given President Obama’s deep respect for Madiba, it was in a way a personal triumph insofar that these two global icons should have inadvertently come together on the global stage, in my backyard so to speak.”

 

Brews chose the seven subjects of this painting for reasons that were recorded in the commentary he wrote regarding the painting and its philosophy. At the time of its completion President Obama had just been inaugurated, and along with Nelson Mandela, they were the only two living subjects contained in the painting.

 

“In the most moving and powerful obituary, President Obama paid tribute to Nelson Mandela at the memorial  service held in Johannesburg, South Africa. It was even more surprising that contained in his eulogy, in comparing the magnificent life of Nelson Mandela, he drew example from other revered leaders form history.

Incredibly, President Obama’s speech made reference to: President Abraham Lincoln; President John F Kennedy; Dr Martin Luther King Jr. and, Mahatma Gandhi,” added Brews.

 

He explained how he was watching one of the seven great people contained in his painting, eulogising the only other living person in the painting at the time of its completion. “And in the first three minutes and forty-five seconds of his speech President Obama drew direct reference to four other of the extraordinary men assembled in this work of art.”

 

Below is an image of the painting that can be viewed at Strate’s offices.

 

 

 

Strate Charity Shares Charity Spotlight

The Topsy Foundation empowers families and communities to improve the care and protection of all children made vulnerable by the HIV and AIDS epidemic. It is one of the charities that has been a beneficiary of Strate Charity Shares (SCS), a non-profit company that allows investors to donations of small or large amounts of their odd-lot shares to charity.

 

A number of years back, when clients’ portfolios were unbundled, they were consequently left with little holdings of shares that they couldn’t sell, as the cost was too high to do so. Also, company share registers are filled with these odd-lot share holdings that are costly for issuers to maintain. To trade these shares, the paper securities also needed to be dematerialised by the investors, who seldom chose to convert their shares into electronic form and would rather store the paper certificate at their homes.

 

A solution is for clients to give their shares to charity by contacting Strate Charity Shares, either directly, or through their broker, to donate their shares. They can also receive a tax benefit for doing so. In terms of Section 18(A) of the Income Tax Act, when investors donate their shares to Strate Charity Shares, they are issued a receipt that can be claimed against their taxation liability.

 

The total amount that Strate Charity Shares has distributed since its inception in 2002 is over R3 million, and charities that have historically been included as the recipients of these donations are African Children’s’ Feeding Scheme; Salesian Life Choices; The Bethany House Trust; Child Welfare Tshwane; Topsy Foundation and Cotlands.

 

Charity Spotlight: The Topsy Foundation SCS helps the Topsy Foundation achieve its goals, enabling it to build capacity in community-based projects by empowering families to improve the care and protection of all children made vulnerable by the HIV/AIDS epidemic.

 

The Foundation provides food parcels, school uniforms and other essential items to those in need on a monthly basis. Individual and community vegetable gardens are also established. Academic monitoring and assistance is provided for pre-schools, primary schools and high schools and it strengthens the economy of families through beadwork and sewing skills training.

 

It offers paediatric support groups, adult support groups and individual counselling sessions, while its trained professional nurse and community health care workers assist with home-based care services. The medical officer and other trained medical staff also assist with x-rays, sonars, growth monitoring and HIV counselling and testing. In addition, the organisation provides medical male circumcision services and cervical cancer screening services.

 

SCS is a convenient way to support charities, such as The Topsy Foundation, to carry out the wonderful work within the community. If you wish to donate your shares to SCS, please call the Strate Charity Shares 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.