Features and Benefits of Strate
The qualities and benefits of Strate emerge from a variety of advanced, technological features
and business principles incorporated in Strate’s underlying technology. The features of Strate’s
systems for equities, bonds and the money market are numerous and each provides significant
risk-reducing benefits to the South African financial market.
Electronic Custody of Securities
Shareholding is recorded electronically by each of the CSD Participants and collated at a
Participant level within Strate for bonds and equities. In the money market environment, the
custody of shares occurs in an SOR. These electronic records provide issuers with the register of
investors for the dematerialised portion of their register. The records of the CSD Participants are
reconciled daily with the records kept by Strate, where the total balance of dematerialised
securities is kept. Investors receive regular statements that take the place of share certificates.
This is in direct contrast to the paper-settlement environment where risks of lost, forged or
stolen documents abound. Naturally, the costs associated with the replacement of such
documents are also eliminated under Strate.
Security of Strate’s Systems
The electronic record of shareholding in Strate is subject to extensive controls, thanks to the
sophisticated encryption and authentication in the coding of the software where the security of
the electronic records has never been compromised.
Furthermore, Strate utilises the renowned Society for Worldwide Interbank Financial
Telecommunications (SWIFT) network for the relay of electronic information. This is one of the
most secure networks in the world with a consistent 99% up-time since its inception. As one of
the highest users of the SWIFT network globally, Strate also provides SWIFT network services to
other financial institutions and large corporates in South Africa. This provides a cost-effective
mechanism for them to utilise the SWIFT network without having to contract directly with SWIFT.
Electronic Settlement of Transactions
At the point of settlement, the electronic records are updated in real-time via book entry.
Settlement via book entry is both secure and efficient. For example, in equities it is no longer
necessary for sellers to submit their share certificate to their brokers for further submission to
the Transfer Secretary who issues a new certificate in the name of the buyer. This manual
process was risky, administratively burdensome and time-consuming.
Rolling Settlement
Rolling settlement refers to a settlement environment in which transactions (securities and
funds) become due for settlement a set number of business days after trade date (T). In South
Africa, rolling settlement has been introduced on a T + 0 basis for money market securities, a T
+ 3 basis for bonds (where settlement for bonds takes place three business days after trade date)
and a T + 5 basis for equities (where settlement for equities takes place five business days after
trade date), the latter of which is currently looking at reducing the settlement cycle further.
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Rolling settlement represents a significant departure from the ‘account period’ methodology
employed in the past (for example, where trades were settled on Tuesday of the following
week). Investors know when their trade will settle and can plan/budget accordingly. The
‘account period’ methodology of the paper-based settlement environment operated on an
indefinite basis; some transactions remained unsettled for months. As every day is a trading day,
under Strate every day is also a settlement day.
Contractual Settlement
Investors obtain the assurance that their transactions settle on the specified settlement day. The
appropriate cash and securities accounts are debited/credited on settlement day and the risk of
delayed settlement and loss of earnings is reduced significantly.
Simultaneous Final Irrevocable Delivery versus Payment
Strate is proud to be among the CSDs that have achieved true Simultaneous, Final, Irrevocable,
Delivery versus Payment (SFIDvP) in central bank funds. This has been achieved with the use of
the Continuous Processing Line (CPL) for bonds, the Continuous Batch Processing Line (CBPL)
functionality for equities and the Real-Time Line (RTL) for money market securities in the
National Payment System (NPS) at the South African Reserve Bank (SARB). In terms thereof,
payment obligations must be provided for in the South African Multiple Options Settlement
(SAMOS) system before the settlement run can commence.
With the implementation of a netting model for on-market equities transactions, settlement
efficiency within Strate has been maximised through netting of securities at Safe Custody
Account (SCA) level and funds at CSD Participant level. Further efficiencies are provided to the
market through a gross settlement model for bonds and money market securities.
Connectivity through SAMOS
In 1998, the SARB granted Strate permission to integrate its settlement processing directly with
its own SAMOS infrastructure. The main benefit that SAMOS brings to the South African financial
markets is the provision for final and irrevocable payment.
Similarly, Strate provides the investor with contractual settlement and finality of ownership
transfer for all instruments settled. By synchronising securities ownership transfer through Strate
with cash payment through SAMOS, the market is able to provide local and international
investors with SFIDvP, as explained above.
The SARB has greatly boosted the capability and competitiveness of the South African financial
markets by making the SAMOS settlement infrastructure available for the settlement of financial
market transactions. The interdependence of these two systems is in line with the global drive
towards consolidation and the resultant economies of scale.
Accuracy of the Register
The electronic register is updated on settlement day when the simultaneous transfer of
securities and funds takes place. All trades are reflected on the register of investors for
dematerialised securities in the Strate environment, as there are no outstanding securities
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transactions. Listed companies wishing to obtain an accurate record of their investors find
themselves in a far more efficient position in the Strate environment.
Segregated Depository Accounts
An international trend has recently developed where clients are increasingly insisting on having
their securities safekeeping accounts opened directly in the books of the CSD to further protect
themselves in the event of Insolvency Proceedings being instituted against their chosen
custodian or CSD Participant in the local market.
In an effort to address these trends, Strate and STRATE Supervision, in conjunction with local
CSD Participants, have created the concept of Segregated Depository Accounts (SDAs) to increase
client and investor protection and manage continuity in the event of Insolvency Proceedings
against one of the CSD Participants.
The key purpose of the SDAs is to provide a safekeeping account structure for investors. Should
their intermediary or custodian collapse, the client's full-legal ownership of securities would
remain undisturbed. SDAs significantly enhance the portability of investors' listed securities,
allowing them to engage with an alternate service provider at short notice. As a result, SDAs are
designed to reduce market, price and operational risk by avoiding a situation where the
investor's securities may be trapped in the books of the failed entity, while the curator or other
administrator endeavours to identify their ownership and return the securities to their rightful
owner.
The implementation of the new Companies Act (2008) provides enabling legislation to allow for
enhanced legal protection for investors. Therefore, Strate has introduced SDAs to take
advantage of this protection for the benefit of investors.
Electronic execution of corporate actions
Strate executes all corporate actions events for the market, many of which are processed
electronically. The benefits of Strate’s corporate actions model cannot be underestimated given
the significant risk reduction and cost savings in the corporate action arena. For example,
interest, dividends and proceeds are credited directly to the CSD Participants who in turn credit
clients' accounts directly with the electronic execution of corporate actions occurring in a quick
and secure manner. Payments are transferred electronically with same-day value, eliminating
the costs and risk associated with cheque payments. Issuers and investors therefore benefit from
a dramatically increased level of efficiency and cost effectiveness, and most importantly, the
elimination of market claims.
Increased market regulation
STRATE Supervision is the regulator of CSD Participants and the JSE regulates members under the
authority of the FSB. The regulation of the market players is significant as CSD Participants and
qualifying brokers act as agents for investors and have a statutory and contractual duty to
protect the records of the investor in the electronic environment. Investors gain the peace-ofmind that all business processes associated with electronic settlement via CSD Participants are
regulated by STRATE Supervision. The key features of electronic settlement contributed to a
significant reduction of risk in the South African market. This increases South Africa’s standing as
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an investment destination for international investors, which undoubtedly provides a significant
boost to both trading and liquidity.
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