Technological Disruptor Blockchain Dominates Sibos 2015

The financial markets are evolving and the next exciting catalyst for change is Blockchain, and while in its infancy, it has the industry talking.

 

Born out of the crypto currency Bitcoin, the Blockchain technology is an efficient and transparent cryptographic ledger system – or a chronological order of all Bitcoin transactions recorded in a public ledger. The technology has been called “the future for financial services infrastructure”.

 

Now, almost every financial market player is exploring how this innovative technological disruptor is going to transform their business and many companies see the significant potential that Blockchain has to offer. This was largely evident at the most recent SWIFT Sibos seminar, which took place at the Sands Expo and Convention Centre, Marina Bay Sands, Singapore, from 12 to 15 October 2015.

 

A recent Oliver Wyman report shows that Blockchain technology could cut banks’ infrastructure costs for securities trading, regulatory compliance and cross-border payments by up to R286 billion ($20bn) over the next seven years. While banks are looking at its potential in the payments environment, the post-trade players are asking whether it could also be used to streamline securities services as well. According to Strate CEO, Monica Singer, the main appeal of the technology to the securities services industry is that it can act as a system of record. “It’s reliable, granular and irreversible – which completely aligns to our objectives of transparency, risk mitigation and to our delivery versus payment model that is final and irrevocable.”

 

While Financial Market Infrastructures (FMIs), such as CSDs, have historically been labelled as the resilient and conservative companies that kept financial markets robust during the Global Financial Crisis, Singer believes the window of opportunity to innovate has presented itself. “Yes, the Financial Crisis has created regulatory pressures that has prompted CSDs globally to develop further solutions to enhance the safety and robustness of the financial system. I encourage CSDs to continue focussing on their core and provide these solutions. However, I question the consequences that we may face if we ignore disruptive technologies and the opportunities that they bring,” Singer explains.

 

In principle, sources note that Blockchain technologies could lead to significant reductions in the costs and risks of securities settlement and asset-servicing processes. They could also diminish systemic risk. Singer says that CSDs globally are already looking at aspects of Blockchain for their business, with two large European CSDs already investigating the potential of distributed ledger technology for asset settlement and reference data applications.

 

“While such initiatives are being explored, we have to recognise that much research needs to be done before we can apply it to the securities settlement landscape,” says Singer, adding that operational and regulatory aspects have to be considered. Blockchain would need to undergo several enhancements in order to evolve and be tailored to the securities environment and its regulatory landscape.

 

 

“We cannot afford to sit on the side lines and ignore the potential impact that disruptive technologies could have for South Africa. Both Strate and its peers internationally are investigating the potential that it offers and I can only imagine that Sibos 2016 is going to provide significant insight into the future of the financial markets,” she concludes

 

Sibos 2016 is set to take place at the Palexpo in Geneva, Switzerland, from 26-29 September. For more information, click here.

 

SA’s Financial Market Development Continues to Rank in Top 20

The 2015-2016 Global Competitiveness Index (GCI) report published by the World Economic Forum (WEF) continues to show South Africa placed amongst the top 20 countries globally in terms of financial market development.

 

After studying 140 countries, South Africa was ranked 12th in terms of financial market development. New Zealand and Singapore were first and second respectively, while Hong Kong was listed in the third position.

 

For South Africa, the key contributors to this pillar were its performance in terms of the financing through the local equity market (ranked first out of all the countries), the regulation of securities exchanges (ranked second), availability of financial services (ranked sixth), as well as the soundness of banks (ranked 8th).

 

The Financial Services Board (FSB) regulates South Africa’s securities exchange, the JSE, as well as CSDs such as Strate.

 

In the overall GCI country rating, South Africa was ranked at 49 out of 140 countries. According to the WEF Report, South Africa climbed seven places, reversing its four-year downward trend thanks largely to increased uptake of ICTs — especially higher Internet bandwidth — and improvements in innovation (up by five places to 38th), which establish the economy as the region’s most innovative. South Africa also hosts the continent’s most efficient financial market (12th).

 

The GCI takes into account 12 pillars or drivers: institutions, infrastructure, macro-economic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication and innovation.

 

 

Inaugural Finance and Investment Management Olympiad a Success

The first annual Finance and Investment Management Olympiad (FIMO) kicked off this year with 825 students, most of whom came from public schools.

 

The initiative, sponsored as a consumer education project by Strate, was run out of the Finance and Investment Management Department at the University of Johannesburg (UJ) and focused on Grade 11 and 12 learners in Gauteng.

 

According to Leigh Bevis, Strate’s Head of Stakeholder Relations, the participation by students played an important role in developing critical financial skills and educating the youth, with the ultimate intention of growing South Africa’s investment base. “South Africa’s economic growth is dependent on its investment profile. By nurturing students’ finance and investment skills, we’re empowering them to be educated so that they can contribute to the future success of our economy.”

 

Looking ahead, the national roll-out of FIMO to Grade 11 and 12 learners is being considered following the success of Olympiad in Gauteng.

 

The first round of the Olympiad was written on 6 May 2015, and the final round on 12 August 2015. The 2015 winners were:

 

 

Public Schools   Private Schools
First Place: Tie between T Sethshedi from Sutherland High School and S Bhana from King Edward VII School First Place: RI Trusler from Redhill High School
Second Place: N Ambrose from Zakariyya Park Combined School Second Place: VT Rakgotho from Vuleka Secondary School
Third Place: GJ Dreyer from Pretoria Boys High School Third Place: LGN Novello from Redhill High School
Fourth Place: NT Nemaungani from Sutherland High School Fourth Place: KK Mosupyoe from Princess Park College
Fifth Place: AC Mkhontwana from Cosmo City Secondary School Fifth Place: Dylan Nlzetich from Reddam House

 

 

Strate would like to congratulate the winners, as well as all students who participated in the 2015 FIMO. It also wishes to express its gratitude to the educators at the University of Johannesburg as well as to the organiser, Proverto.

 

Monica Singer speaking at the awards ceremony

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Monica Singer and UJ Faculty Dean, Professor Amanda Dempsey, with students and representatives from FIMO.

 

 

 

 

Strate wins Integrated Reporting Award

South African Central Securities Depository (CSD), Strate, has won the category for unlisted companies in the Integrated Reporting awards hosted by Institute for Chartered Secretaries Southern Africa in partnership with the JSE Limited. The 2015 ceremony took place on 11 November 2015 at Montecasino in Fourways, Johannesburg.

 

According to Strate’s Chief Financial Officer, Hannes van Eeden, the accolade re-enforces Strate strategic objectives and values. “Strate prides itself on benchmarking its activities against international best practice. The reports from all entrants were judged across a broad range of criteria based on the International Integrated Reporting Council’s Framework, proving that Strate is once again a proudly South African company that operates at the highest levels of governance, standards and excellence,” van Eeden explains.

 

The International Integrated Reporting Council has stated that there is a “growing realisation that investors need better quality information” from businesses. Van Eeden adds, “Having a more transparent disclosure and communication with all stakeholders allows companies to evolve from the traditional reports on financial statements to holistic informative reporting and communication. Strate will continue to approach its Integrated Reports with the view to build on the previous editions and benchmark future reports against best practice.”

 

Strate would like to congratulate the winners of all other categories, as well as all companies that tell their integrated story by thinking holistically about their strategy and plans, building investor and stakeholder confidence.

 

The Annual Report Awards have been rewarding excellence in corporate reporting since 1956.  The Institute pioneered these types of awards, which have become more widespread in recent years. The primary objective of the Awards is to encourage accurate and transparent financial reporting and full disclosure of all relevant information to stakeholders.

 

The following categories applied to the 2015 CSSA and JSE Integrated Reporting awards:

 

Categories for awards:

JSE categories:

  • Top 40
  • Mid Cap;
  • Small Cap;
  • Fledgling; and
  • Alt-X.

Non-JSE entries:

  • Regional Companies (i.e. outside South Africa);
  • State-owned Companies;
  • Public Sector;
  • NGOs; and
  • Unlisted.

To view more information, click here.

 

 

The Liquidity Alliance Now Able to Extend Collateral Management Services to Buy-side via 360T

The Liquidity Alliance is Now Able to Extend Collateral Management Services to Buy-side via 360T: The

  • Service enables the buy-side to trade triparty repos with banks on 360T platform as collateralised alternative to unsecured cash deposits.
  • Service already offered by Clearstream and 360T, will be made available to all members of The Liquidity Alliance
  • The collateral management of the triparty repos is done in a fully automated, white-labelled manner by The Liquidity Alliance.
  • The availability of the service in the markets of The Liquidity Alliance members will be subject to local regulatory conditions and demand from the buy-side.

 

The buy-side and non-financial institutions are increasingly seeking collateralised alternatives to unsecured cash deposits as they have a heightened counterparty and concentration risk awareness following the financial crisis. The current low interest rate environment is also making cash deposits less attractive.

 

Triparty repos are a safer alternative to unsecured cash deposits. An additional advantage of triparty repos for the buy-side is that they will be able to re-use the securities they received as collateral for other purposes such as central counterparty margining.

 

The Liquidity Alliance, including ASX (Australia), Cetip (Brazil), Clearstream (Luxemburg), Iberclear (Spain) and Strate (South Africa), will be able to meet this demand by giving the buy-side an option to collateralise triparty repos with banks through 360T, a platform for foreign exchange and money markets trading.

 

Buy-side customers will be able to trade triparty repos via the same 360T frontend they use for FX and other money market trades. After confirmation on the platform, all relevant data will automatically be routed straight through to the collateral service of the local member of The Liquidity Alliance, hence minimising the back-office burden and operational risks.

 

Mathew Kuppe, Managing Director, 360T Asia Pacific, commented: “360T already has buy-side customers in all domestic markets of members of The Liquidity Alliance. The Liquidity Alliance will now have the option to offer these customers the benefit of collateralised trading which was previously only available to financial institutions, via an integrated front end.”

 

360T has been in a partnership with Clearstream to offer triparty repo trading for banks and the buy-side via the Global Liquidity Hub since 2013. The acquisition of 360T in October 2015 by Deutsche Börse Group, of which Clearstream is a member, now enables Clearstream to extend its joint services with 360T to all members of The Liquidity Alliance in a white-labelled manner. The Liquidity Alliance members will independently review local regulatory conditions and demand from the buy-side for the service.

 

About The Liquidity Alliance

 

The Liquidity Alliance was formed in 2013 by five market infrastructures:

 

  • ASX, a financial infrastructure in Australia;
  • Cetip, a central securities depository specialising in OTC derivatives, in Brazil;
  • Clearstream, the German central securities depository and Luxembourg-based international central securities depository;
  • Iberclear, the central securities depository in Spain;
  • Strate, the central securities depository in South Africa.

 

Associated members of the Liquidity Alliance:

 

  • CDS, the central securities depository in Canada;
  • SGX, a financial infrastructure in Singapore;
  • VPS, the central securities depository in Norway.

 

The Liquidity Alliance is made up of financial market infrastructures which share and develop common collateral management solutions to address the growing global need for more collateral. They collaborate to create opportunities for their customers and for the wider industry while promoting best practices in liquidity and collateral management. The Liquidity Alliance encourages greater pan-industry cooperation through the promotion of expert insight and research as well as though conferences and events.

 

 

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.

 

 

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.