STRATE Ltd
Dr Maria Vermaas
Head of Legal Services
1
Introduction by JSE Securities
Exchange
Elbi J van Vuuren
Legal Counsel
Introduction
Relationship between JSE and STRATE
Importance of legislation to the JSE
World-class settlement integrity introduced by
STRATE
2
Settlement Risk amongst
20 Emerging Markets 1998 to 2003
WORST
1998
1999
2000
2001
2002
2003
India
18.76
41.48
71.42
80.66
91.77
92.71
Indonesia
74.11
56.61
67.22
77.32
96.95
99.41
South Africa
(1.28)
0.14
36.41
58.48
98.13
97.62
Venezuela
60.41
53.08
46.31
53.11
65.12
64.61
Source = GSCS Benchmarks
Settlement risk includes factors such as : Interest rate and overall cost of failed trades
3
Settlement Risk Ratings in 2004 for
South Africa
Settlement
Safekeeping
SA
98.56
94.86
UK
96.58
92.51
US
95.71
93.64
4
What is STRATE?

Electronic settlement of equity, bonds and
money market instruments (Late 2005)

The CSD for financial instruments in South
Africa

Electronic transfer of ownership within
SAFIRES

Transfer of value via the Central Bank (SARB)
5
STRATE Ltd Corporate Structure
ABSA
Nedcor
Standard Bank
First Rand
Citibank
Ownership
JSE
41%
59%
STRATE Ltd
CSDP A
CSDP B
CSDP C
Participation
6
Board Members
•
•
•
Chairman:
– Mervyn King
Jse Securities Exchange:
– Russell Loubser
– Leanne Parsons
– Des Davidson
– Bobby Johnston
Banks:
– Johan Geldenhuys (ABSA)
– Angela Hardwick (FirstRand)
– Vernon Heunis (Nedcor)
– Simon Ridley (Standard Bank)
•
Listed Companies:
– Annamarie van der Merve
•
Executive Director:
– Monica Singer – CEO
– Erna Solomon – COO
•
Independent Non-executives:
– Nigel Payne*
– Rick Cottrell**
•
* Chairman of Audit & Risk Committee
** Chairman of Regulatory Committee
Other:
– Tom Lawless (BESA)
– Stephan Malherbe
– Trevor Cross
– Arthur Cousins
7
Regulation
Financial Services Board
JSE
STRATE
SECA
CASA
Listing
Requirements
Rules
Directives
Companies
Act
8
Background to STRATE
• October 1996-project begins
• May 1998-contract for system implementation signed with TCS and SARB
goes live with SAMOS
• 1999-Legislation amendments approved by Parliament
• November 1999-system live with Harmony Gold Mine
• July 2000-2001 - 12 more companies into STRATE
• March 2001- schedule for all companies to move into STRATE approved
• January 2002-all listed companies settling in STRATE
• August 2003-merger with Unexcor and CD Ltd approved
9
Benefits of STRATE

Contractual settlement; guaranteed by the JSE

Rolling 5 day settlement= settlement certainty

Optimum use of liquidity - cash and shares

Electronic record vs paper

Complete Shareholders’ Register

Transparency of ownership- Beneficial Owner Download

Simultaneous, Final, Irrevocable, Delivery versus Payment
10
Benefits of STRATE

Reserve Bank connectivity and payment in Central Bank funds

Electronic execution of corporate actions with no claims

Automated functionality for securities lending and borrowing

Electronic pledging

S.W.I.F.T. messaging and ISO 15022

Discipline through increased level of regulation

G30 compliance and beyond
Worst settlement risk amongst emerging markets replaced with “the most
sophisticated” (Global Custody Review, 2003)
11
What is dematerialisation?
Dematerialisation is the process of exchanging scrip
(physical certificates and certified deeds) for an electronic
record of ownership.
12
Equities by Value- Dematerialisation
Value of the dematerialised shares as a % of the market capital
5.22%
dematerialised in
STRATE
held by investors in
certificated form
outside of STRATE
94.78%
13
Transfer of shares
• Change of ownership linked to debiting and
crediting (S 91A(4)(a))
• Change of ownership effective provided that
transferee acts without notice (S 91A(4)(c))
14
Rights of recourse
• Actio ad exhibendum
– Action for damages to owner against thief or other
mala fide possessor
• Criminal claim against perpetrators of fraud
• Action on negligence
15
Rights of recourse (cont.)
• Claims under S 91A(8)
– Taking of unlawful action
– Which causes removal/omission of name from
register
– Gives rise to liability for direct loss / damage
arising out of such action
16
Loss of dividend?
• Loss by depriving true owner of dividend
• S 91A has not changed this position in any
way
• Include losses in a rights issue or unbundling
or any other distribution
• Registry entry and ownership more closely
linked than before
17
Dispossessed Members Fidelity Fund
• Creation of fund
• Claims lodged and accepted
• Fund paid compensation to claimant where
claimant has waived further actions, including
S115
18
Legislative protection to
dematerialised shareholders
• S 91A enables SFIDVP
• No longer claim against someone who
became owner in good faith
• Uncertainty of certificated transfers
addressed (Oakland Nominees v Gelria)
• S115 must be seen in context of practically
insurmountable evidentiary difficulties
• DMF – limited duration
• Matter only to be resolved by legislation
19
Legislative protection to
dematerialised shareholders
•
•
•
•
Amendment to disapply S115 partially
Essential safeguard to integrity of markets
Internationally accepted principle
Important to know that once shares are
dematerialised, they will be clean
20
Questions
www.strate.co.za
THANK
YOU!
The South African Central
Securities Depository
21
Glossary of terms
BDA
-
Broker Deal Accounting System
(back-office system of brokers)
CSD
-
Central Securities Depository
CSDP
-
Central Securities Depository Participant
FSB
-
Financial Services Board
JET
-
Johannesburg Equities Trading System
JSE
-
JSE - Securities Exchange South Africa
JSE SETS -
JSE Trading System (Same as London Stock Exchange)
22
Glossary of terms
SAMOS
-
South African Multiple Options System
(SARB’s system for RTGS of cash)
SECOM
-
Swiss settlement system
SARB
-
South African Reserve Bank (Central Bank)
SFI DvP -
Simultaneous, Final, Irrevocable
Delivery versus Payment
SAFIRES -
Southern African Financial Instruments
Real Time Electronic Settlement System
(Strate’s system)
STP
Straight Through Processing
-
23