STRATE will not stop at its current function of settling trades in equities and share warrants electronically.
Monica Singer, CEO of STRATE Ltd, told guests at a Dealmakers function last night (Wednesday) that STRATE aimed to provide a global and diversified variety of electronic services to the users of the South African financial markets, “where the benefits that STRATE brings are enjoyed by all”.
STRATE also looked forward to achieving the one of the highest ratings in terms of settlement and operational risk among the leading emerging markets.
Singer said that until recently South Africa had ranked 20th out of 20 in terms of settlement risk and operational risk in the area of clearing and settlement of its equity transactions, according to a quarterly survey by UK-based GSCS Benchmarks.
The other 19 countries were all emerging markets that for some time had been implementing electronic settlement for the trades on their stock exchanges.
Because STRATE was now fully operational (from end January 2002 all listed companies on the JSE were settling their trades on STRATE.), by the fourth quarter of 2001, the survey had shown a 41% improvement in South Africa’s rankings.
And, Singer noted, that was before all listed counters had moved into STRATE. “We now expect to improve our ratings every quarter and in due course we should be ranked with the best.”
Pointing out that STRATE’s key objective was to manage risks, she said that the problem with risks was that people did not like to quantify them until something went horribly wrong.
“When the market players quantified their costs in the paper based environment they only saw the tip of the iceberg.
“Global custodians and their clients that were fully aware of the risks did not want to come into this market until the risks were properly managed. The risk-return ratio before STRATE was introduced gave unacceptable results.
“As South Africa competes with the rest of the emerging markets, unless our risk rating improves we have no chance to attract the foreign capital looking for a return on their investment in emerging markets.”
Singer cited the prime elements of risk mitigation that STRATE has brought as:
STRATE provided a secure and reliable electronic record of ownership. The risk of lost, stolen or fraudulent share certificates had been eliminated.
In STRATE all on market trades settled five days after the trade had been entered into. To date no settlement failure had ever occurred. Prior to STRATE there had been settlement delays of weeks.
The delivery and the payment of the transaction took place simultaneously in Central Bank funds, which was fully guaranteed.