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Page last updated
February 15, 2003




STRATE, Share TRAnsactions Totally Electronic


STRATE will bring South Africa and the Johannesburg Stock Exchange (JSE) onto a par with international settlement norms. It will significantly enhance the security of settlement in the equities market, while increasing the efficiency of settlement and reducing the incumbent risks.

The settlement mechanism currently employed by the JSE is a weekly account period. This means that trades are entered into for a full calendar week, at the end of which, the trades are netted and adjusted to the common ruling price at the close of market on Friday. Settlements take place from Tuesday of the following week, and any deals not settled by the Friday of that week are added to those of the new trading week and carried over to the following settlement week.

STRATE is moving from this unwieldy process, to rolling and contractual settlement. Contractual settlement is a market convention, embodied in the rules of the JSE, which imposes a contractual obligation for a trade to be settled on settlement day. Rolling settlement refers to a settlement environment in which securities and funds become due for settlement a set number of business days after trade date. As every day is a trading day so every day will be a settlement day. Five business days after the trade has taken place (T+5), settlement takes place. Both methodologies will serve to ensure greater security and increased efficiency.

The STRATE system will be facilitated through the dematerialisation of equity scrip in the records of Central Securities Depository Participants (CSDPs) or brokers and the subsequent creation of an electronic entry in SAFIRES (Southern African Financial Instruments Real-time Electronic Settlement system), the system underlying STRATE. On settlement day, settlement of cash and transfer of ownership take place simultaneously via electronic book entries in the sub-registers of the various CSDPs. The SAFIRES system was bought from Switzerland's CSD, Sega Intersettle. It was developed and implemented by a highly-experienced team from Tata Consul- tancy Services of India, the world's largest organisation of its kind. The switch to an advanced, state-of-the-art settlement system is imperative for the future of the JSE for various reasons: The JSE aims to ensure that most of the trade in South African shares takes place in Johannesburg (rather than in London or New York) where the trade in South African shares has more than doubled over the past four years. STRATE will enable the JSE to compete more effectively with other markets, particularly the emerging markets, for the attention of global fund managers. To this end, a secure and efficient settlement system is imperative. The JSE's paper-based system has failed to cope with the increase in trade volume that has taken place over the past four years. The risk of fraud inherent in a paper-based system inhibits foreign trade on the JSE whereas tainted scrip will be eliminated in the STRATE environment. The non-contractual, one-week settlement account period, with its long settlement delays, contains additional settlement or replacement risk to investors. The Group of Thirty (G30), a private group of prominent financial industry participants in 1989 proposed nine standards for improving the world securities industry's efficiency and reducing settlement risks. The G30 standards are recognised by financial market regulators world-wide and have been incorporated into STRATE’s objectives. Thus, contractual, rolling, real-time electronic settlement has now been achieved, with transfer of ownership taking place via the simultaneous, final and irrevocable payment of funds and delivery of shares.

Where are we now?
In fact, the first trades in STRATE were settled electronically on 1 November 1999. Although the Johannesburg Stock Exchange has long operated an electronic trading system, electronic settlement in South Africa necessitated a long preparation time because of the desire to create that which, once implemented in its final form, would be one of the world's most sophisticated settlement environments.

STRATE is being implemented by means of a phased approach, partly with a view to ironing out the teething problems that inevitably arise when a new system is implemented.

Phase One has been restricted to settlement in the shares of one low-volume, high valuestock, i.e. Harmony Gold Mining. In the first month, an average of 80 trades a day were settled every day on a real-time, true, simultaneous, final and irrevocable delivery-versus-payment in Central Bank funds.

Phase Two will commence in the second quarter of 2000, when trades in additional counters will be settled via STRATE. It is anticipated that all the JSE's 700+ listed companies will have been moved for settlement onto the STRATE system by not later than March 2001.

Where are we headed?
The ability to seamlessly process millions of daily transactions without manual intervention is a major goal of the global securities industry. This goal is important as the industry is constantly striving towards shorter settlement cycles.

We have positioned STRATE in line with the best CSDs in the world. But how?

We would like to introduce to the market all the sophisticated functionality available in the system that we bought from the Swiss CSD - Sega Intersettle (SIS) such as corporate actions and securities lending and borrowing

We would like to settle all financial instruments to achieve economies of scale and optimum management of risk and utilisation of collateral

We are already settling real-time on a trade-by-trade basis with Central Bank funds as recommended by the European Central Bank in its September 1998 report

We want to offer our system to the rest of the Southern African Development Community (and to this end are already in discussions with Namibia)

We have open architecture and, with the use of S.W.I.F.T. (Society for World-wide Inter-bank Financial Telecommunication), are able to settle any trade from anywhere at any time

We are one of the first countries in the world to have implemented the ISO 15022 messaging standards that will become compulsory for the rest of the world by 2002.

South Africa can finally boast a sophisticated, efficient, electronic settlement mechanism for all JSE and off-market transactions, including trades in South African shares conducted on other stock exchanges world-wide but settled in Johannesburg.

System integration and co-operation
Because South Africa is a relatively small market with comparatively low volumes of payments and financial market transactions, it was necessary to do something exceptional to differentiate ourselves and compete effectively with the cost efficiencies achieved in competing market infrastructures.

In 1998, the South African Reserve Bank (SARB) granted the Johannesburg Stock Exchange permission to use its computing infrastructure, SAMOS (South African Multiple Options System), as the development platform for SAFIRES. The main benefit that SAMOS brought to the South African financial markets was that it provided for final and irrevocable payment settlement. Similarly, STRATE provides the investor with contractual settlement and finality of ownership transfer.

By chance rather than design, South Africa's payment settlement and equity settlement applications use the exact same architecture and operating environment. This therefore represented a unique opportunity to share expensive and specialised resources to the benefit of the financial markets, the banking industry and the South African economy in general. By synchronising scrip ownership transfer through STRATE with the payment thereof through SAMOS, the equity market is able to provide local and international investors with simultaneous, final, irrevocable delivery versus payment. SAMOS provides for final and irrevocable payment settlement, while STRATE provides the investor with real-time settlement and finality of ownership transfer. By making the SAMOS settlement infrastructure available for the settlement of financial market transactions, the Reserve Bank has greatly boosted the capability and competitiveness of the South African financial markets. The interdependence of these two systems is in line with the world-wide drive towards consolidation and the resultant economies of scale.

S.W.I.F.T., in its capacity as a global message carrier, also plays a vital role in both the National Payment System as well as the STRATE system. The world-wide acceptance of S.W.I.F.T. as a message carrier has resulted in a widespread dependence on its systems and architecture.

The settlement message exchange mechanism, SARB-Link, created by the Reserve Bank to enable banks, payment clearing houses and trade clearing houses to exchange payment messages with the SAMOS system, has also proven to be a highly efficient and reliable national message switching facility. The benefits of using SARB-Link to link the various CSDs to the SAFIRES system during the initial implementation period has provided numerous advantages to the project and the participating banks. SARB-Link now plays a critical role in the financial system of South Africa in that it is the only domestic message switch available for the transmission of high-value payment instructions between South African banks.

Indeed, if countries had the opportunity to redesign their total financial market and payments system infrastructure in the way South Africa has done over the past few years, it would not be surprising to find that they might emulate the model being utilised in South Africa.

STRATE is in the process of negotiating with other African exchanges to arrange for the sharing of its infrastructure with other countries in the region.

As the implementation of the SAFIRES system extends to more company shares and other financial instruments, and as participants in the SAMOS and SAFIRES systems implement automated straight-through-processing, the volume of trading on the JSE is expected to increase. Furthermore, the principal characteristics of the South African settlement system are based on world-class architecture that has proven to be efficient, reliable, secure and easily accessible by all authorised participants.

In short, South Africa stands on the threshold of: Achieving a significant saving in payment and equity settlement transaction costs, Having one of the world’s most integrated real-time payment settlement and scrip ownership transfer systems, Having a manageable, scaleable and high quality settlement environment for its financial markets.

Expanding the use of the capability that was created as part of the SAMOS system to its full benefit in the interest of the financial system in South Africa.

The road ahead is a long and challenging one for all concerned. But we are confident that by positioning STRATE in line with the world's leading CSDs, we have created a sound platform, from where we can continue to progress in line with global trends in the securities industry, enhancing our ability to provide investors with a secure and efficient equity settlement environment.


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