South Africa
21 March 2012
Africa’s most westernised economy has opened up its markets and is reaping the benefits
Image: Shutterstock
From being a fairly insular economy, the South African government and regulators have decided to open up somewhat in the past couple of years. Of course, part of the reason for the country’s relative immunity to the international economic downturn was its existing regulation, which meant that domestic investors tended to invest domestically, while international players were not in the market enough to spread the contagion.
But there is an understanding that if the country is to compete on the international stage - and to improve the lives of its citizens, particularly those at the bottom of the ladder - South Africa must become more internationalist.
In October 2008, foreign exchange controls were relaxed, meaning foreign capital allowance for residents, which was last adjusted in 2006, would be increased from ZAR2 million to ZAR4 million, while the single discretionary allowance would be increased from ZAR500,000 to ZARR750,000.
The Government also raised the limit on the amount institutional investors can take offshore by five percentage points. The limit will be between 25 per cent and 35 per cent for investors, depending on both the type of investor and the type of investment.
“Previously, the foreign exchange controls placed obvious constraints on the industry and the available assets to service in the local market,” says one custody leader.
“These constraints have now been eradicated and investors can now look further at greater investments into sub-Saharan regions, as just one example,” who adds that foreign investment into the region will now become more appetising, and the expansion of domestic investors’ footprints in Africa will now be more attainable. From a securities services provider perspective, the future looks very promising.
The South African government has also announced a review of the prudential framework for foreign investment by private and public pension funds. This will include the Government Employees Pension Fund. A prospective review date is yet to be announced.
It’s not just the Government that is looking to bring in the changes. The Johannesberg Stock Exchange has invested heavily in technology and infrastructure and is now looking to bring the settlement timeframe more in line with modern standards. Currently at T+5 settlement, many in the industry have voiced concern that as volumes grow, the potential for reducing liquidity and efficiency and increasing risk also grows. As a result, the exchange is looking to move to T+3 as soon as possible.
Interest
Saxo Capital Markets South Africa has just launched in the region, offering local investors a far wider range of investment opportunities.
The firm provides a suite of online trading platforms to enable efficient and reliable trading solutions to both private investors and institutional clients. Through Saxo Capital Markets SA clients can access a diverse range of financial instruments; from FX, CFDs and ETFs, to stocks, futures and options. Clients can trade over 13,000 stocks in more than 30 international markets and exchanges. Clients will also be able to access value-added services such as live prices and real-time conversations with professional traders.
Saxo Capital Markets SA will be managed by joint country managers, Brett McLaren and Richard North.
“Saxo Capital Markets SA will meet the growing trading demands in South Africa for multi-asset online trading as the needs of investors in South Africa continue to diversify in tandem with the changing market dynamics in the region,” says McLaren. “Never before has it been easier for South African investors to access global liquidity in a wide variety of asset classes and markets than it is now.
“Market uncertainties over the past three years have also created upsides in non-equity asset classes including forex and commodities. We are seeing a trend for South Africa’s investors, who have traditionally traded equities and warrants, moving towards multi-asset investing.
“Saxo Capital Markets’ launch in South Africa is aligned with its strategic roadmap in the region, and we intend to add resources as the business grows,” McLaren concluded.
New funds have entered the market, while many of the existing participants have expanded their offerings. This is combined with the country’s position at the forefront of a continent that is increasingly open for business. The risks of investing in many newer markets, however, means that many firms prefer to base themselves in the relatively safe environment in the south while looking for opportunities elsewhere.
In 2009, HSBC launched its SA synthetic DMA platform and expanded its Market Access product to a number of neighbouring countries, including Nigeria, targeting an increasing number of investors with an interest in this part of the world.
“We have high hopes for many of these markets,” says a spokesman for one South African bank. “We have given ourselves the opportunity to kickstart the market here - as they become more sophisticated and more funds look to invest in this area of the world, we are going to be able to service the investment that comes in. We don’t expect there to be enormous growth straight away, but there will be business and we are in a prime position to take advantage of that.”
It’s not straightforward, though, as head of business development at Finsettle Ted Hampson explains: “Common challenges are faced by the different exchanges across Africa, which include liquidity in the markets, standard or similar governance and reporting principles, effective and standard settlement cycles at T+?, effective use and/ or adaptation of technology, movement to electronic trading systems, the need to increase bandwidth, education of companies towards listing as a capital raising alternative, and consumer education related to investing in a stock exchange. Also important are effective available research, education and training of market participants, customer management systems and techniques, and navigating the needs of different exchanges, countries and regions as further trust is fostered for all to take advantage of the future opportunities. These common challenges present business opportunities for those with vision.”
Players
When it comes to the back office, the big global names are out in force in South Africa, with Societe Generale, State Street, J.P. Morgan and others leading the way. Domestically, Standard Bank has a reputation for quality of service at a low cost, while other African banks - in particular those from Nigeria - have a small but growing footprint.
All of this is designed to offer clients access to markets across the whole continent - or at the least those countries in central and southern Africa. Last year, Standard Chartered Bank set down a marker in Africa after buying Barclays Bank’s one remaining foothold in the business.
This month, Standard Chartered Bank announced the launch of Securities Services in South Africa, expanding the bank’s existing regional securities services to the largest economy on the continent.
South Africa is the fifth new market in which Standard Chartered has launched securities services since the bank’s acquisition of Barclay’s Africa custody business in 2010. This expansion aligns with Standard Chartered’s ambition to be the preferred provider for investors and intermediaries across Africa.
With South Africa, the bank will now offer securities services in 11 African markets (Botswana, Ghana, Kenya, Mauritius, Nigeria, Tanzania, Uganda, Zambia, Zimbabwe, Cote d’Ivoire, South Africa) with indirect capabilities in a further 6 markets through an integrated network of agent banks (Egypt, Malawi, Morocco, Namibia, Tunisia and Rwanda).
In line with regulatory requirements, the Bank’s license to operate as a Central Securities Depository (CSD) Participant was approved by the Controlling Body of Strate Ltd, South Africa’s authorised CSD and the Financial Services Board. Monica Singer, chief executive officer of Strate comments, “We are pleased to add another international bank to our list of approved securities service providers in South Africa, providing investors with a further reputable service provider in the securities arena.”
“With South Africa’s regional and multi-national companies increasing at a rapid rate, Standard Chartered’s launch of Securities Services will bring added value and choice to new and existing investor clients. This product launch compliments our regional capabilities and centres of expertise already based in Johannesburg,” adds Ebenezer Essoka, chief executive officer and area general manager of Southern Africa.
Derick De Zilva, head of transaction banking for Southern Africa adds, “Standard Chartered’s global Securities Services exceeds USD800 billion in assets under management, and spans across three continents. With Africa’s trade and investment corridors playing a pivotal role in spurring growth and development across the continent, securities services is another safe and reputable vehicle for the Bank to channel integral investment into key growth markets, and ensure we remain aligned to our brand promise of being here for good.”
Meanwhile, Citigroup’s Global Transaction Services business has begun to provide Direct Custody and Clearing (DCC) services to its clients in South Africa. This new offering expands Citi’s proprietary DCC network to 60 markets globally and 34 markets across EMEA.
Lee Waite, global head of direct custody and clearing at Citi Global Transaction Services, said: “This new milestone demonstrates the strength of our unrivalled network and our commitment to provide our clients with global solutions while delivering consistently high-quality standard of service, technology and support.”
Donna Oosthuyse, Citi country officer for South Africa, said: “We are delighted to offer direct custody and clearing services in South Africa, the leading economy and largest securities exchange in Africa. Citi has a long-standing presence in the country and we look forward to leveraging our local expertise and proactive engagement with customers, regulators as well as market infrastructures to generate new growth opportunities for our clients.”
Citi’s application to operate as a Central Securities Depository (CSD) Participant was approved by the Controlling Body of Strate. Monica Singer explains, “Citi has a long established relationship with Strate as one of the founding shareholders back in 1998. We are pleased to welcome them as a new CSD Participant in South Africa, providing custody and settlement services across all three of our markets, namely for equities, bonds and money market securities.”
It’s this sort of operation that international funds are increasingly sourcing. And as South Africa matures, many experts believe it will pull its neighbours up behind it. “We’re confident in South Africa and have a lot of investment there,” says a representative of one fund management company.
“Nearby, we would be happy to work in Botswana and, to a lesser extent Kenya and Tanzania. We’re hoping that more as more countries come on stream, we will have more opportunities to operate outside Johannesberg.
But there is an understanding that if the country is to compete on the international stage - and to improve the lives of its citizens, particularly those at the bottom of the ladder - South Africa must become more internationalist.
In October 2008, foreign exchange controls were relaxed, meaning foreign capital allowance for residents, which was last adjusted in 2006, would be increased from ZAR2 million to ZAR4 million, while the single discretionary allowance would be increased from ZAR500,000 to ZARR750,000.
The Government also raised the limit on the amount institutional investors can take offshore by five percentage points. The limit will be between 25 per cent and 35 per cent for investors, depending on both the type of investor and the type of investment.
“Previously, the foreign exchange controls placed obvious constraints on the industry and the available assets to service in the local market,” says one custody leader.
“These constraints have now been eradicated and investors can now look further at greater investments into sub-Saharan regions, as just one example,” who adds that foreign investment into the region will now become more appetising, and the expansion of domestic investors’ footprints in Africa will now be more attainable. From a securities services provider perspective, the future looks very promising.
The South African government has also announced a review of the prudential framework for foreign investment by private and public pension funds. This will include the Government Employees Pension Fund. A prospective review date is yet to be announced.
It’s not just the Government that is looking to bring in the changes. The Johannesberg Stock Exchange has invested heavily in technology and infrastructure and is now looking to bring the settlement timeframe more in line with modern standards. Currently at T+5 settlement, many in the industry have voiced concern that as volumes grow, the potential for reducing liquidity and efficiency and increasing risk also grows. As a result, the exchange is looking to move to T+3 as soon as possible.
Interest
Saxo Capital Markets South Africa has just launched in the region, offering local investors a far wider range of investment opportunities.
The firm provides a suite of online trading platforms to enable efficient and reliable trading solutions to both private investors and institutional clients. Through Saxo Capital Markets SA clients can access a diverse range of financial instruments; from FX, CFDs and ETFs, to stocks, futures and options. Clients can trade over 13,000 stocks in more than 30 international markets and exchanges. Clients will also be able to access value-added services such as live prices and real-time conversations with professional traders.
Saxo Capital Markets SA will be managed by joint country managers, Brett McLaren and Richard North.
“Saxo Capital Markets SA will meet the growing trading demands in South Africa for multi-asset online trading as the needs of investors in South Africa continue to diversify in tandem with the changing market dynamics in the region,” says McLaren. “Never before has it been easier for South African investors to access global liquidity in a wide variety of asset classes and markets than it is now.
“Market uncertainties over the past three years have also created upsides in non-equity asset classes including forex and commodities. We are seeing a trend for South Africa’s investors, who have traditionally traded equities and warrants, moving towards multi-asset investing.
“Saxo Capital Markets’ launch in South Africa is aligned with its strategic roadmap in the region, and we intend to add resources as the business grows,” McLaren concluded.
New funds have entered the market, while many of the existing participants have expanded their offerings. This is combined with the country’s position at the forefront of a continent that is increasingly open for business. The risks of investing in many newer markets, however, means that many firms prefer to base themselves in the relatively safe environment in the south while looking for opportunities elsewhere.
In 2009, HSBC launched its SA synthetic DMA platform and expanded its Market Access product to a number of neighbouring countries, including Nigeria, targeting an increasing number of investors with an interest in this part of the world.
“We have high hopes for many of these markets,” says a spokesman for one South African bank. “We have given ourselves the opportunity to kickstart the market here - as they become more sophisticated and more funds look to invest in this area of the world, we are going to be able to service the investment that comes in. We don’t expect there to be enormous growth straight away, but there will be business and we are in a prime position to take advantage of that.”
It’s not straightforward, though, as head of business development at Finsettle Ted Hampson explains: “Common challenges are faced by the different exchanges across Africa, which include liquidity in the markets, standard or similar governance and reporting principles, effective and standard settlement cycles at T+?, effective use and/ or adaptation of technology, movement to electronic trading systems, the need to increase bandwidth, education of companies towards listing as a capital raising alternative, and consumer education related to investing in a stock exchange. Also important are effective available research, education and training of market participants, customer management systems and techniques, and navigating the needs of different exchanges, countries and regions as further trust is fostered for all to take advantage of the future opportunities. These common challenges present business opportunities for those with vision.”
Players
When it comes to the back office, the big global names are out in force in South Africa, with Societe Generale, State Street, J.P. Morgan and others leading the way. Domestically, Standard Bank has a reputation for quality of service at a low cost, while other African banks - in particular those from Nigeria - have a small but growing footprint.
All of this is designed to offer clients access to markets across the whole continent - or at the least those countries in central and southern Africa. Last year, Standard Chartered Bank set down a marker in Africa after buying Barclays Bank’s one remaining foothold in the business.
This month, Standard Chartered Bank announced the launch of Securities Services in South Africa, expanding the bank’s existing regional securities services to the largest economy on the continent.
South Africa is the fifth new market in which Standard Chartered has launched securities services since the bank’s acquisition of Barclay’s Africa custody business in 2010. This expansion aligns with Standard Chartered’s ambition to be the preferred provider for investors and intermediaries across Africa.
With South Africa, the bank will now offer securities services in 11 African markets (Botswana, Ghana, Kenya, Mauritius, Nigeria, Tanzania, Uganda, Zambia, Zimbabwe, Cote d’Ivoire, South Africa) with indirect capabilities in a further 6 markets through an integrated network of agent banks (Egypt, Malawi, Morocco, Namibia, Tunisia and Rwanda).
In line with regulatory requirements, the Bank’s license to operate as a Central Securities Depository (CSD) Participant was approved by the Controlling Body of Strate Ltd, South Africa’s authorised CSD and the Financial Services Board. Monica Singer, chief executive officer of Strate comments, “We are pleased to add another international bank to our list of approved securities service providers in South Africa, providing investors with a further reputable service provider in the securities arena.”
“With South Africa’s regional and multi-national companies increasing at a rapid rate, Standard Chartered’s launch of Securities Services will bring added value and choice to new and existing investor clients. This product launch compliments our regional capabilities and centres of expertise already based in Johannesburg,” adds Ebenezer Essoka, chief executive officer and area general manager of Southern Africa.
Derick De Zilva, head of transaction banking for Southern Africa adds, “Standard Chartered’s global Securities Services exceeds USD800 billion in assets under management, and spans across three continents. With Africa’s trade and investment corridors playing a pivotal role in spurring growth and development across the continent, securities services is another safe and reputable vehicle for the Bank to channel integral investment into key growth markets, and ensure we remain aligned to our brand promise of being here for good.”
Meanwhile, Citigroup’s Global Transaction Services business has begun to provide Direct Custody and Clearing (DCC) services to its clients in South Africa. This new offering expands Citi’s proprietary DCC network to 60 markets globally and 34 markets across EMEA.
Lee Waite, global head of direct custody and clearing at Citi Global Transaction Services, said: “This new milestone demonstrates the strength of our unrivalled network and our commitment to provide our clients with global solutions while delivering consistently high-quality standard of service, technology and support.”
Donna Oosthuyse, Citi country officer for South Africa, said: “We are delighted to offer direct custody and clearing services in South Africa, the leading economy and largest securities exchange in Africa. Citi has a long-standing presence in the country and we look forward to leveraging our local expertise and proactive engagement with customers, regulators as well as market infrastructures to generate new growth opportunities for our clients.”
Citi’s application to operate as a Central Securities Depository (CSD) Participant was approved by the Controlling Body of Strate. Monica Singer explains, “Citi has a long established relationship with Strate as one of the founding shareholders back in 1998. We are pleased to welcome them as a new CSD Participant in South Africa, providing custody and settlement services across all three of our markets, namely for equities, bonds and money market securities.”
It’s this sort of operation that international funds are increasingly sourcing. And as South Africa matures, many experts believe it will pull its neighbours up behind it. “We’re confident in South Africa and have a lot of investment there,” says a representative of one fund management company.
“Nearby, we would be happy to work in Botswana and, to a lesser extent Kenya and Tanzania. We’re hoping that more as more countries come on stream, we will have more opportunities to operate outside Johannesberg.
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