South Africa
31 October 2012
A move to Strate changed the South African post-trade landscape. Are other countries on the continent learning from its success? AST finds out
Image: Shutterstock
Strate, the licensed central securities depository (CSD) in South Africa, has cemented its position as an African CSD that sought to break barriers beyond its continent.
The depository settles close to 30 million transactions per year, with assets under custody in excess of 6.4 trillion South African rand (€6.4 billion), and provides settlement for securities and derivative products such as exchange-traded funds and retail notes.
All fairly typical for a CSD, but Strate has sought to move beyond its continent. It is the first non-European member of Link Up Markets, which is a joint venture between CSDs that was created in 2008 to improve efficiency and reduce costs of post-trade processing of cross-border securities transactions.
With the incorporation of South Africa, Link Up Markets expanded its geographical reach to encompass nine CSDs: Clearstream (Germany), the Cyprus Stock Exchange (Cyprus), the Hellenic Exchanges (Greece), Iberclear (Spain), Oesterreichische Kontrollbank (Austria), SIX (Switzerland), VP Securities (Denmark), VPS (Norway), and Strate.
At the time, Strate’s CEO, Monica Singer, said that the opportunity would provide both local and international investors with a unified basis for post trade processing that will facilitate cross-border settlement between South African members and the members of Link Up Markets.
Two years later, in November 2011, Citigroup announced that its global transaction services business had begun providing direct custody and clearing to its clients in South Africa, and applied to operate as a participant in Strate. The move was approved, particularly as Citi was a founding shareholder of Strate in 1998.
Over a year later, Standard Chartered Bank caught on, launching in Joannesburg—its fifth new market since the acquisition of the Barclay’s Africa custody business in 2010. The purchase was particularly important for Asian investors looking for returns in the African market, and an expansion into South Africa aligned with the bank’s ambition to be the preferred provider for investors and intermediaries across Africa.
The move met with Strate’s approval too, with Singer commenting that Standard Chartered would provide investors with a “further reputable service provider in the securities arena”.
Most recently, automated payments clearing house BankservAfrica, through its BSVA Integrated Services business, is to use Strate’s SWIFT infrastructure to allow it to send and receive messages over the SWIFT network.
In a speech detailing the changing role of the South African custodian, Adam Bateman, director of business development, Standard Bank South Africa Investor Services, explained that pre-Strate, the operating environment was an entirely different beast. Physical certificates, Tuesday settlements, an average 40 percent failure rate, lots of paper and reconciliation nightmares, and significant staffing requirements, were all par for the course.
After Strate was introduced, everything looked a little sunnier, with Bateman pointing to a dematerialised environment, irrevocable settlement on T+5, trade fails becoming non-existent and significant technology spends as proof that efficiency was being enhanced and greater scalability was in reach.
“With the introduction of Strate, for the first time ever South African custodians were in a position to expand their product offerings to develop service solutions for pension funds. These new solutions moved the South African custodians well beyond the traditional roles of settlement and safekeeping,” said Bateman.
Following Strate’s success, Uganda sat up and took notice, launching its SCD (securities central depository) on the Uganda Securities Exchange (USE). The move was intended to prepare the USE for electronic trading of shares, and was another step towards link-up in the regional markets, including the more advanced Nairobi Stock Exchange. But the SCD was not a full transformation, and it was stated that both new paper certificates and electronic accounts will be issued until the USE adopts electronic record keeping and trading.
Peter Okoed, a senior portfolio planner at stockbroker Dyer & Blair, said that the SCD will make the exchange attractive to foreign investors that are usually put off by the communication that it takes for them to receive their share certificates. With the new system, investors will only trade their shares after getting electronic accounts.
There is room for African CSDs to play a bigger role in African securities markets. Dynamic growth in the industry, alongside intensified capital flows and progress towards regionalisation, is coming from increasing demands of international and domestic client bases.
New technologies and global operating standards are seeing rapid adoption due to a lack of legacy systems, and global regulatory change in G10 nations is limiting foreign competition of global custodians creating a footpath for participants such as CSDs to enter as securities markets service providers.
While there may be chatter around the expanding role of the CSD, regulatory and market forces may limit their ambitions. It is likely that they will begin to offer additional services such as administration, reporting, corporate actions, and other registrar and transfer responsibilities, but as far as Africa is concerned, there is a long road to travel
The depository settles close to 30 million transactions per year, with assets under custody in excess of 6.4 trillion South African rand (€6.4 billion), and provides settlement for securities and derivative products such as exchange-traded funds and retail notes.
All fairly typical for a CSD, but Strate has sought to move beyond its continent. It is the first non-European member of Link Up Markets, which is a joint venture between CSDs that was created in 2008 to improve efficiency and reduce costs of post-trade processing of cross-border securities transactions.
With the incorporation of South Africa, Link Up Markets expanded its geographical reach to encompass nine CSDs: Clearstream (Germany), the Cyprus Stock Exchange (Cyprus), the Hellenic Exchanges (Greece), Iberclear (Spain), Oesterreichische Kontrollbank (Austria), SIX (Switzerland), VP Securities (Denmark), VPS (Norway), and Strate.
At the time, Strate’s CEO, Monica Singer, said that the opportunity would provide both local and international investors with a unified basis for post trade processing that will facilitate cross-border settlement between South African members and the members of Link Up Markets.
Two years later, in November 2011, Citigroup announced that its global transaction services business had begun providing direct custody and clearing to its clients in South Africa, and applied to operate as a participant in Strate. The move was approved, particularly as Citi was a founding shareholder of Strate in 1998.
Over a year later, Standard Chartered Bank caught on, launching in Joannesburg—its fifth new market since the acquisition of the Barclay’s Africa custody business in 2010. The purchase was particularly important for Asian investors looking for returns in the African market, and an expansion into South Africa aligned with the bank’s ambition to be the preferred provider for investors and intermediaries across Africa.
The move met with Strate’s approval too, with Singer commenting that Standard Chartered would provide investors with a “further reputable service provider in the securities arena”.
Most recently, automated payments clearing house BankservAfrica, through its BSVA Integrated Services business, is to use Strate’s SWIFT infrastructure to allow it to send and receive messages over the SWIFT network.
In a speech detailing the changing role of the South African custodian, Adam Bateman, director of business development, Standard Bank South Africa Investor Services, explained that pre-Strate, the operating environment was an entirely different beast. Physical certificates, Tuesday settlements, an average 40 percent failure rate, lots of paper and reconciliation nightmares, and significant staffing requirements, were all par for the course.
After Strate was introduced, everything looked a little sunnier, with Bateman pointing to a dematerialised environment, irrevocable settlement on T+5, trade fails becoming non-existent and significant technology spends as proof that efficiency was being enhanced and greater scalability was in reach.
“With the introduction of Strate, for the first time ever South African custodians were in a position to expand their product offerings to develop service solutions for pension funds. These new solutions moved the South African custodians well beyond the traditional roles of settlement and safekeeping,” said Bateman.
Following Strate’s success, Uganda sat up and took notice, launching its SCD (securities central depository) on the Uganda Securities Exchange (USE). The move was intended to prepare the USE for electronic trading of shares, and was another step towards link-up in the regional markets, including the more advanced Nairobi Stock Exchange. But the SCD was not a full transformation, and it was stated that both new paper certificates and electronic accounts will be issued until the USE adopts electronic record keeping and trading.
Peter Okoed, a senior portfolio planner at stockbroker Dyer & Blair, said that the SCD will make the exchange attractive to foreign investors that are usually put off by the communication that it takes for them to receive their share certificates. With the new system, investors will only trade their shares after getting electronic accounts.
There is room for African CSDs to play a bigger role in African securities markets. Dynamic growth in the industry, alongside intensified capital flows and progress towards regionalisation, is coming from increasing demands of international and domestic client bases.
New technologies and global operating standards are seeing rapid adoption due to a lack of legacy systems, and global regulatory change in G10 nations is limiting foreign competition of global custodians creating a footpath for participants such as CSDs to enter as securities markets service providers.
While there may be chatter around the expanding role of the CSD, regulatory and market forces may limit their ambitions. It is likely that they will begin to offer additional services such as administration, reporting, corporate actions, and other registrar and transfer responsibilities, but as far as Africa is concerned, there is a long road to travel
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