Central securities depository and electronic settlement company Strate has reached a milestone in its drive to globalise SA's securities market by achieving true simultaneous, final, irrevocable delivery-versus-payment in central bank funds.
"The ultimate aim of all securities settlement authorities worldwide is to achieve true simultaneous, final, irrevocable delivery-versus-payment in central bank funds," Strate says.
"Such an achievement is a crucial building block in the globalisation of a nation's securities markets."
The company says it has achieved this goal via the SA Reserve Bank (SARB) national payment system's concurrent batch processing line (CBPL).
"With the new CBPL functionality, settlement instructions are settled as a group. This means that all paying custodians must have funded their South African Multiple Options System accounts before the settlement run can be completed.
"As a result of Strate's adoption, at an early stage of its evolution, of a netting rather than gross electronic settlement model, settlement within Strate has been optimised through the netting of scrip at safe custody account level and funds at central securities depository participant (CSDP) level."
Strate says the various steps in the process take place as follows:
On settlement day, Strate reserves the securities for the net positions.
As part of the CSD rules, a delivery instruction will be generated in parallel with the payment instruction. The delivery instruction will ensure that the required securities are available and reserved.
The payment instructions are submitted to the Reserve Bank on an individual basis.
However, upon receipt, each instruction is left on "hold" status until the final instruction is received. The principle applied is similar to netting, with settlement unable to progress until all instructions are received.
Once all payment instructions are received, a settlement confirmation is sent out by the Reserve Bank. The funds cannot be removed from the CBPL, thereby guaranteeing settlement.
Upon receipt of the settlement confirmation, transfer of ownership will be effected.
Strate will unreserve the securities for the reserved positions and complete the securities movements.
The funds will be simultaneously transferred, completing settlement in one step. The settlement cannot be reversed. The general rule is that irrevocable finality of payment follows settlement finality.
Once transfer of ownership within the Strate system has been completed, an instruction is sent to the CSDPs and the JSE on behalf of the brokers so that the entry is reflected in the custodial systems. In terms of the CSD rules, this entry must take place by no later than the end of day of settlement of the trade.
A reconciliation process of all records within the CSDPs and brokers is performed daily to ensure that the records are in balance.
According to the Custody and Administration of Securities Act, in the event of any discrepancy, the records of Strate will prevail.
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