Fees relating to SA's electronic settlement environment are to rise after Strate was forced to review the underlying assumptions on which its charges were based.
Beginning on 1 June, on market settlements will cost R12 per contract note, versus the current R8. Off market settlement fees rise from R20 to R50, pay-money-only/receive-money-only transactions will fall from R8 to R6, while the charge on contract notes - currently a flat R6 - will depend on their value.
For those under R200 000, a R10 charge will be levied. For those between R200 000 and R1 million, a charge of 0.005% will apply, and a charge of R50 will be levied for those above R1 million.
The current fee structure was determined when Strate - the central securities depository and electronic settlement service - expected to settle 19 000 trades a day.
Strate CEO Monica Singer, who says Strate loses up to R6 million a month under the current fee structure, says the reality is that 15 000 trades are settled per day.
The efficiency of the system's netting model has also counted against it. "Owing to the efficiency of our netting model, only 40% of trades result in settlement, a far cry from the 67% that we had projected. And since our current fee structure is based on settlement volumes, revenues have fallen short of projections while costs have remained constant."
Costs were also affected by the fact that Strate had to migrate from the SA Reserve Bank's technology infrastructure. Costs of at least R22 million a year for its own infrastructure were not included in original forecasts.
Strate also did not anticipate the costs associated with being a regulator.
Singer says the increase in costs to the market arising from the new fee structure is more than offset by the savings achieved through electronic settlement.
"Back office overheads are in the process of being substantially reduced. Brokers and custodial operators have already managed to cut back or eliminate many of their operating expenses. Delivery, telephone and postage costs have dropped dramatically, along with the interest burden formerly required to bridge delayed settlements.
"Further, there is the unquantifiable benefit of settlement certainty under Strate, a benefit that accrues to every market participant, not least the investor. Not a single on-market trade has failed under Strate and all claims on corporate actions have been eliminated."
JSE CEO Russell Loubser says the JSE fully appreciates the unforeseen circumstances Strate has encountered in recovering its costs.
"The new fee structure is essential to ensure Strate's viability," he says. "I am confident that the market will understand the huge importance of Strate being placed in a position to continue providing assurance of settlement and regulatory functions. The old settlement system had unacceptable risks and inefficiencies inherent to it.
"Consequently SA was for years rated either last or second last in emerging markets when it came to settlement risk. The new system changes all that forever, but this comes at a cost. This is a cost that SA must bear if it is at all serious about retaining and developing its financial markets."
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