Equity Corporate Action Payments in Central Bank Funds

Strate performs a critical role in overseeing the distribution of funds in respect of corporate events (such as dividend and interest payments) for the equities, bonds and money market environments. This involves the efficient processing of multiple events throughout the year.

 

Statistically, in the equities environment alone, this equates to approximately 160 events with an average cumulative value of more than R20 billion a month. In terms of the current processing model, the funds due in respect of a particular event are paid, by the relevant issuer, into a Strate trust account used exclusively for this purpose. Once confirmation has been received from Strate’s banker that the necessary funds have been received and cleared, Strate authorises its banker to distribute the funds to the various CSD Participants for onward same day value to all the underlying shareholders.

 

This process has worked successfully for a number of years but, in the interests of further risk mitigation, this process has now been revised.

 

Under the new Equities Corporate Actions payment model, Strate will facilitate the creation of a settlement group involving all CSD Participants who are holding shares in that particular International Securities Identification Number (ISIN). The group is given a unique identification number and, on payment date, a payment instruction will be sent by Strate to the issuer’s appointed settling bank using that number.

 

That bank will fund a designated account at the central bank with the appropriate amount (again using the unique number provided to them). On receipt, these funds will be distributed by the central bank directly to the various CSD Participants for the onward transmission to their underlying clients. It is the issuer’s obligation to ensure that there are sufficient funds in their bank account by 09h00 on payment date. Should the issuer’s bank account fail to be funded by 14h30 on payment date, then the corporate action payment instruction will be formally cancelled. The payment date for the corporate action event will then be “rolled over” to the next business day or for a date announced by the issuer.

 

Very little change is required by issuers although it is important to note that the onus will be on each issuer to ensure that sufficient funds are available in their bank account prior to payment date, to allow their banker to make the payment timeously.
The issuer is requested to provide their Banker with a debit authority in respect of Equity Corporate Action event payments. Strate will be responsible for obtaining mandates from issuers for their bankers to accept and act on instructions received from Strate. It is therefore imperative for all Issuers to advise Strate of the following details:

 

  • Bank Name
  • Account Name
  • Account Number

The above requested details can be e-mailed to gregoryn@strate.co.za or nitad@strate.co.za.
The deadline date to provide the above information is 30 August 2014.
The implementation timeline for the new the Equities Corporate Actions payments model is as follows:

 

  • Scripted Market Testing 16 February – 20 March 2015
  • Implementation Weekend 27 March – 29 March 2015
  • Live in Production 30 March 2015

Enactus Competition Contributes to a Sustainable South Africa

During July, Strate CEO Monica Singer was one of the judges of the 2014 Enactus SA National Competition at the Sandton Convention Centre, which was attended by over 1000 students and business leaders. Enactus is a non-profit organisation bringing together student, academics & business leaders committed to using entrepreneurial action to improve lives.

 

“The message of empowerment through community outreach projects is a great one for all the people of South Africa. It is with these investments in building our community, promoting entrepreneurship and uplifting skills that we create ripples of positive change in our society. We all want a brighter future and a better South Africa. It is through powerful initiatives, such as that of all the competing teams in the Enactus Competition, that we are building a nation that can successfully and sustainably contribute to the economy and provide for their families,” says Singer.

 

The Enactus University of Fort Hare Team was crowned as National Champions after presenting two of five of their outreach projects executed during this academic year. In rural settlements around Alice in the Eastern Cape, the team developed a biomass plant and biogas digester as a cleaner source of energy, as opposed to traditional fossil fuels, and helped equip 16 villagers from the Melani and Fort Cox communities with the knowledge and skills to construct and operate the biomass plant. Through this, energy is generated to service the community bakery in Melani, which now sells 2 600 loaves on average per week.

 

In Fort Cox, the biogas system supplies a community kitchen with energy to prepare an average of 200 fast food meals per week. Through the Khanyisa Project, a fresh and dried processed vegetables and soups venture, the team created 22 jobs for the residents of Alice. Both the fresh and dried processed vegetables are packaged and sold. The drying process is powered by solar panels ensuring that the agro-processing remains carbon neutral. The nutritious Sishebo soup from the dried vegetables is utilized by the High School feeding program in the Eastern Cape. The Khanyisa Vegetable Juice has been successfully marketed and introduced to schools, clinics, hospitals and major supermarkets in Alice.

 

“We wish The Enactus University of Fort Hare Team the best of luck, as they will represent South Africa at the 2014 Enactus World Cup in Beijing, China, where they will compete against winning teams from 35 countries,” concludes Singer.

 

For more information, visit: https://www.enactusza.org.

 

 

Investor Strategy News Article: Tri-party Collateral Management the Right Direction

As published in the Investor Strategy News on 20 July 2014
Author: Penny Pryor

The ASX’s tri-party collateral management service, ASX Collateral, has reached $500 million in balances in fixed income assets and expects that figure to reach $2 billion by the end of the month. ASX Collateral started with fixed income in July last year, in partnership with Clearstream Banking, and plans to launch equity capabilities next year. 

 

Andrew White, general manager, settlement services for the Australian Securities Exchange, told delegates at the Global Investor/ISF Masterclass Conference last week that their service is unique, because ASX Collateral retains the assets within Australia at the central securities depository. 

 

“You can make a choice about whether you move your assets yourself,” White said. “You’re not handing those assets over to another tri-party provider and therefore running a risk that tri-party,” he says. 

 

After the equities capability is launched next year, ASX Collateral will examine what it can do globally via the arrangement with Clearstream. Tri-party collateral management is a relatively small market in Australia but Kieran Buckley, executive director at Morgan Stanley, expects the local trend will match that of the US, where growth has been rapid. 

 

“[It’s] definitely the future of the equity repo side in Australia as well,” he said at the conference. “Tri-party is a number one goal in our view for Australia. We want to move away from bilateral agreements.” Another trend will be a movement away from cash to high-quality liquid assets. “Certainly in Australia most of our collateralisation today is in the form of cash,” White said. “They’ll need to use non-cash to meet the increased collateral demand.” 

 

While obviously advantageous to service providers and custodians, tri-party can also aid risk mitigation, through both geographically and client-type diversification. “Hopefully tri-party will broaden the client base that will participate in this product,” Buckley said. 

 

Meanwhile, David Beatrix, senior business developer at BNP Paribas Securities Services in Paris, said on a recent visit to Australia: “Industry players expect a surge in collateral management requirements as a result.” He said the number of margin calls was expected to increase five to ten times what here were at present. “New regulations across the globe are increasing the need for collateral for all OTC (over the counter) derivatives, whether cleared or non-cleared. The G20 countries have implemented strict measures to regulate OTC derivatives by passing several laws, and in particular the Dodd Frank Act in the US and EMIR in Europe.” 

 

The new liquidity standards of Basel III will also affect future demand for high quality liquid assets. This may be exacerbated in countries such as Australia where there is a lower level of government issued debt than other countries. Beatrix said: “As a result, there is a lot of discussion as to exactly how much collateral will be needed under new regulations, whether it will lead to a collateral squeeze, and how financial institutions will be able to manage collateral in the quickest and most cost effective way.

 

“Providing a solution to mitigate counterparty risk remains at the heart of investors’ requirements. It is an end-to-end discussion beyond the core question of the collateral itself – what asset type, how to select, how to settle and safe keep, what timing, who has the obligation, what regulations apply. It also crystalises for our clients the core question of ‘where are my assets?’ “As such, optimisation and protection of collateral are becoming critical decision factors; clients want to be able to maximise the use of their assets. Those in need of collateral must best allocate their limited resources or effectively source eligible assets.

 
“The sheer volume of collateral that managers will need to monitor going forward is about to grow exponentially. Collateral management will become a complex challenge. Keeping track of margining requirements through the lifecycle of every derivative portfolio will be a daunting task.”

 

 

Mobilisation of Collateral to the Right Exposure, at the Right Place and at the Right Time

The global financial industry is in the midst of a period of unprecedented change, as it navigates the aftershocks of the 2007-2008 banking crisis. Adapting to these changes is the biggest challenge that financial institutions have faced for a long time.

Counterparty credit risk, asset safety and transparency rose to the fore following the financial collapse of many large institutions.

 

Lessons from the crisis have culminated in regulatory changes to ensure greater financial stability, as well as the mitigation of  systemic risk through the collateralisation of financial exposures and debt obligations. These changes will result in greater pressure on the financial markets to collateralise exposures (securities lending, interbank repurchase agreements, over-the-counter derivatives, collateralised loans) with High-Quality Liquid Assets (HQLA).

 

Market players need to be able to effectively mobilise these assets to the right exposure, at the right place and time. Strate will be the country’s first independent tri-party collateral agent. Strate’s Collateral Management Services can assist to ensure the efficient and seamless management of the collateral process through automation of the collateral mobilisation and return function, while also mitigating the operational risk and effort around the arduous administrative tasks required to select, book, reconcile, substitute and withdraw collateral. This includes the mobilisation of cash and non-cash collateral (such as bonds, equities and money markets) through the:

  • Automatic selection (cheapest to deliver) of collateral, substitutions, collateral calls and withdrawals;
  • Integration with existing bilateral collateral management software;
  • Detailed and customised eligibility criteria (inclusive of concentration risk) between counterparts;
  • Continuous monitoring of the value of the collateral received for the duration of the exposure;
  • Perfecting of pledged securities;
  • Full tracking of reused collateral received through a cession;
  • Full management of corporate actions and capital events; and
  • Market-wide collateral optimisation.

 

Strate also ensures appropriate asset segregation and safety, settlement and reporting. For more information on this service, please contact collateral@strate.co.za.

 

Strate Celebrates Mandela Day

For Mandela Day this year, Strate employees were given the challenge to take a Selfie of themselves doing a good deed for others.

 

One of the good deeds included a relay of Strate employees baking, decorating and packaging over 300 cupcakes within 67 minutes for charity. More than 500 cupcakes were done in the time provided, which were delivered to Thembalami Care Centre, Tarentaal Retirement Home and Deansgate Retirement Village.

 

Here are some wonderful memories from the day’s event:

 

 

    

 

 

 

 

 

 

      

 

Welcoming Nedbank Investor Services to Their New Home

During May, Nedbank Investor Services moved its relationship, operations and client services teams to one of the bank’s new green-star rated buildings at Lakeview Campus in Constantia, Roodepoort.

 
As a housewarming gift to show our support, Strate sent Nedbank employees 110 cupcakes with green icing that resembled the bank’s corporate colours.

Their new address is 16 Constantia Boulevard, Constantia Kloof, Roodepoort 1709.
Their new contact numbers are:

 

Louise Currie
Tel: + 27 (0)11 534 6548

 

Anke Frankland
Tel: + 27 (0)11 534 6553
Fax Number:
+27 (0)11 495 8339

 

 

 

 

 

 

 

Transnational Securities Law Publication Now Available

The first book to provide a comprehensive analysis of securities law at the transnational level has been published.
The book, titled ‘Transnational Securities Law’, identifies best-practice solutions that practitioners can apply pending formal harmonisation. It analyses the Geneva and Hague Securities Conventions highlighting gaps in the current legislation and identifying where improvements should be made.
The book focuses on private law, including substantive and conflict-of-law issues, as well as looking at recent regulatory developments. Each chapter assesses the current state of the law, and, for issues that have not yet been harmonised, presents possible ways to achieve greater synchronisation.
The Head of Strate’s Legal and Regulatory Division, Maria Vermaas, is one of many globally renowned academics and expert practitioners in the field to have contributed to the book. Transnational Securities Law will benefit practitioners in the field of securities law (including commercial and central bankers, custodians, their legal advisors and other financial market participants) who are interested in the current status of the law.

 

The book will also be of interest to policy makers and academics interested in both the current status of the law and future developments.
Should you be interested in purchasing a copy, the promotional code is 001 009 677 863 when purchasing it via Oxford University Press Southern Africa. This will offer will only be available to customers who buy directly from SA (not online or via booksellers) at the following:

 

Oxford University Press Southern Africa
PO Box 12119
N1 City
Cape Town 7463
Tel: (021) 596-2300
Fax: (021) 596-1222

The Requirement to Disclose Email Addresses in the Securities Register (BND)

During 2013, the disclosure of shareholder information became a topical subject for the market following changes to legislation, receiving quite a lot of attention from the South African financial media. The legislative changes resulted in a number of questions being raised about the electronic securities register, which is why we  have taken the opportunity to clarify some of the confusion regarding the requirement to disclose a shareholder’s email address in the beneficiary download (BND).

 

The Companies Act 71 of 2008 (section 50) and the Companies Regulations of 2011 (section 32) prescribe the minimum information that must be entered into the BND of a company. In terms of section 50(3) of the Companies Act, other information may also be prescribed by the CSD Rules. It is important to note that in terms of section 50(3) of the Companies Act, a record of uncertificated securities ‘must be administered and maintained by a participant or central securities depository in the prescribed form’.

 
The statement ‘in the prescribed form’ places a duty on the Participant or CSD to ensure that the prescribed information (as required by the Companies Act, the Companies Regulations, CSD Rules and Directives, etc.) is entered into the BND. In terms of section 32(2)(a)(ii) of the Companies Regulations, the securities register must, among other things, contain:
‘The person’s email address, if available, unless the person has declined to provide an email address’.  It appears that this statement can be misinterpreted to suggest that a shareholder’s consent is required before an email address is entered into the BND. Seeking a shareholder’s consent would seem to be an impractical exercise and ought not to be the intended legislative result. It is important to take note of one of the objectives of the Companies Act, being ‘to define the relationships between the companies and their respective shareholders or members …’.

 

It is evident from the Companies Act that communication between the company and its shareholder is of significant importance in the establishment and maintenance of this relationship, for example the duty of the company to send financial statements to the shareholders (section 31); send notices of shareholders’ meeting to the shareholders (section 62); publish a record date to the shareholders (section 59); send resolutions for voting by the shareholders (section 60 and 65(2)) etc. As such, this objective of the Companies Act must be considered when interpreting this requirement for email addresses to be provided. The intention of the lawmakers with this statement is to promote communication between the company and its shareholders.

 
The first part of the statement (‘the person’s email address if available, …’) makes it compulsory for an email address to be entered into the BND, if the shareholder has one. The second part of the statement (‘… unless the person has declined to provide an email address’), merely gives the shareholder an option to refuse to provide an email address. Therefore, based on the first part of the statement (‘the person’s email address if available …’), an email address of a shareholder, by default, must always be entered in the BND if the shareholder has an email address. A shareholder’s consent is not required. Seeking a shareholder’s consent seems impractical and does not support the objectives of the Companies Act.

 
A practical step would be to request email addresses from the shareholders or clients and enter into the BND those email addresses as may be provided. In instances where a shareholder has already provided an email address, it must as a default, be entered into the BND as required by the Companies Regulations.

 
Should you have further queries on this subject, please email Strate’s Legal & Regulatory Division via Strate-
Legal@strate.co.za.

Strate Receives Feedback on the Review of its CPSS-IOSCO Assessment

In December 2012, The Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organisation of Securities Commissions (IOSCO) released a set of 24 Principles for Financial Market Infrastructures (FMIs), as well as an associated Assessment Methodology and Disclosure Framework, to effectively help these organisations address essential aspects of risk management within the financial markets.

 
The adoption of these Principles is being strongly encouraged in most international markets by practitioners and regulators alike.

 
Given that Strate is one of South Africa’s FMIs, it voluntarily completed a self-assessment shortly after the Principles and Assessment Methodology were published by the CPSS-IOSCO. The outcomes of this review were submitted it to its regulator – the Financial Services Board (FSB) – for review during 2013.

 
Having completed its review, the FSB recently published the report on its website (click here to view the report). It confirms that Strate is recognised as “observing” 14 of the Principles and “broadly observing” a further 3. The remaining 7 Principles are not applicable to Strate at this time.

 
The ratings indicate that South Africa is at the forefront of adopting initiatives that ensure its financial markets remain robust and resilient, even during periods of market stress. “Greater compliance by all FMIs with the Principles will benefit the global financial markets. By incorporating these Principles into the legislative, governance and risk management frameworks that guide the way that Strate operates allows us to further foster the safety, efficiency and resilience of the country’s FMIs,” says Dale Connock, Strate’s Head of Risk.