Electronic settlement under the Strate trading environment on the JSE will remove the risk associated with payment by cheque for new issues on allocation, says Strate's head of research and development, Brian Balkind.
In the paper-based environment, investors applying for a new issue of shares were obliged to issue a cheque to accompany their application form. Pending the final allocation of shares, the issuer held the funds and the interest was for the account of the issuer.
In the event of an oversubscription, a refund cheque was issued to the applicant.
Under the new system, the central securities depository participants or the brokers guarantee payment for shares.
Balkind said at the Strate phase two implementation conference in Johannesburg yesterday that one of the advantages of the changes to the procedure is the elimination of the risk associated with payment by cheque.
The payment for allocated shares will also be guaranteed, while no refund cheques will have to be issued in the event of an oversubscription.
Balkind said Strate's procedures governing the payment for new issues on allocation means that investors could earn interest on their cash until payment is due; that payment will be made only for the number of shares allocated; and that investors will retain cash in their name until payment is due.
"All this will be possible because payment for shares is guaranteed by the Central Securities Depository Participants or the brokers."
Balkind said that the same process would apply to any event that required the investor to pay for additional shares.
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