Page 18 - The Corporate Report Pack

Where to next for South Africa’s nancial markets?
Monica Singer
ere is no doubt that the past several years have taken the wind from the global market’s sails as it entered uncharted rough seas, yet locally, the South African nancial market has shown its relative resilience and sophistication.
As South Africa’s licensed Central Securities Depository (CSD), Strate has gained international recognition for revolutionising the post-trade environment in South Africa It is an honour to be at the helm of Strate and to have collaborated with the industry to create innovative and responsive services in the interest of achieving a common goal: to enhance the stability and sustainability of our nancial system
From a business perspective, I am proud of the initiatives and technological advancements that Strate has brought to the markets, but even more excited about what the future holds As we move forward, Strate will be looking to adopt further pioneering projects that will change – for the better – the South African electronic post-trade environment and risk management landscape
But rst, it is worth exploring the role of a CSD A CSD is an organisation tasked with keeping the records of ownership for nancial instruments (which are currently shares or equities, bonds, warrants and money market investments) ese records are safely kept in electronic form by Strate and this allows the daily transfer of ownership from seller to buyer to take place easily and e ciently is process is broadly referred to as settlement
A CSD is a trusted and independent third party that operates a centralised IT platform for the direct bene t of the market or markets it serves It enables the transfer of ownership of securities by book entry, either via free payment or against payment When transfer of ownership is against payment, this is referred to as delivery versus
payment (so-called DvP), where the delivery of the securities occurs if, and only if, payment occurs
e enhanced form of DvP, described as ‘simultaneous, nal and irrevocable delivery vs payment’ (or SFIDvP) provides the assurance that once a transaction has settled, it cannot be overturned in any way Oversight of the DvP process places a speci c obligation on the overseer to ensure that both parties are in a position to perform before the settlement takes place and it is for this reason that the independence of the CSD is of paramount importance It cannot have a vested interest in any of the transactions it is called upon to process and must make sure that it is, in its own right, able to verify the authenticity and accuracy of both parts of a transaction prior to initiating the settlement process By interfacing with the CSD function, it is able to obtain necessary assurance regarding the availability of the securities
With Strate interfacing directly with the Real Time Gross Settlement (RTGS) system operated by the South African Reserve Bank (SARB), SFIDvP becomes one of the cornerstones of the South African market Commercial banks perform multiple roles in the market (such as taking deposits and granting credit to their clients) and this exposes them to credit and liquidity risks e South African Reserve Bank, on the other hand, has the lowest possible credit risk exposure in any given market
Historically, organised securities markets have for hundreds of years operated in a similar fashion Investors would place orders through brokerage rms, who in turn would handle the exchange of securities
26 The Corporate Report