STRATE LtdSTRATE Ltd

Bev BrazierHead : CSDP Supervision

Peru November 2002

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•Public unlisted company•Appointed settlement system

of the JSE Securities Exchange•Settles listed equities and

warrants electronically•Appointed Self-Regulatory

Organization

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ABSANedcorStandard BankFirst RandCitibank

Participation

JSE

50% 50%

CSDP BCSDP A CSDP C

STRATE Ltd

Ownership

STRATE - The Company

IOSCO Recommendation 13 Governance

Governance arrangements for CSDs should be designed to fulfil public interest requirements and to promote the objectives of owners and users.

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STRATE - Management

• Chairman - Mr Mervin King• Board of Directors / Controlling Body• Audit Committee• Regulatory Committee• Remunerations Committee• CEO : Monica Singer• Departmental Heads

IOSCO Recommendation 6

CSDs

Securities should be immobilised or dematerialised and transferred by book entry in CSD’s to the greatest extent possible.

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Dematerialisation to date ...

No. of shares dematerialised as a % of the total no. of issued shares of the dematerialised

counters

26%

74%

Certificated

Dematerialised

IOSCO Recommendation 1 Legal Framework

Securities settlement systems should have a well founded, clear and transparent legal basis in the relevant jurisdictions.

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Companies Act

• Section 91A• - allows for both paper and electronic

transfer of ownership• - change reflected in the CSDP sub-

register• - sub-register deemed to be the

register

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JSE Trading Stock Exchanges Control Act• Securities must be dematerialised in

order to be traded on the JSE Securities Exchange

• Trade matching• SETS = Stock Exchange Electronic

Trading Service• Brokers use SETS to trade listed

equities and warrants.

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Custody and Administration of Securities Act 1992• Registration as a CSD - entry criteria• Rules for the CSD• Powers of the CSD• Regulate CSDPs• Registration of CSD Participants.

IOSCO Recommendation 18 Regulation and

Oversight

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Regulatory Environment

JSESARB

STRATE

FSB

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STRATE as an SRO• FSB appointment• emphasis on self-regulation• expertise• “must regulate any entity that

introduces risk to the CSD”• Rule 3.1.1.1 is binding on CSD, CSDPs

and any other person utilizing the services of the CSD or a CSDP.” (brokers, Issuers, clients)

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Core objectives of securities regulation

• Protection of investors

• Ensuring markets are fair, efficient and transparent

• Reduction of systemic risk

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STRATE Regulatory Approach

• Risk based• Mutual consent then enforcement• Direct on-going supervision• Reports• SWATs• Fines and Penalties• Restrictions on participation

IOSCO Recommendation 14 Access

CSDs should have objective and publicly disclosed criteria for participation that permit fair and open access.

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CSD Rule 4.1“Participation eligibility”.• depository institution• managed by trained / experienced persons• of good repute• documentation• DR and BRS facilities• financial resources & insurance• adequate systems, procedures, personnel,

facilities and technical capacity.

IOSCO Recommendation 12 Protection of customer’s

securities.

Entities holding securities in custody should employ accounting practises and safekeeping procedures that fully protect customer’s securities. It is essential that customer’s securities be protected against the claims of a custodian’s creditors.

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Section 6 CSD Rules ACCOUNTS• Deposit STRATE eligible securities only• dematerialisation• one or more SCAs• Section 91A of the Companies Act• segregation of assets• client mandate• daily balancing• no debit balances

IOSCO Recommendations

2 - Trade Confirmation3 - Settlement Cycles5 - Securities Lending7 - Delivery VS Payment8 - Timing of settlement finality10 - Cash settlement assets11 - Operational reliability15 - Efficiency16 - Communication procedures & standards

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STRATE Settlement

• Rolling T+5 basis• Guaranteed settlement• JSE Settlement Authority• Final DvP• Transfer of Ownership (SAFIRES)• Transfer of Value (SAMOS)• SWIFT ISO 15022 standards

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Settlement of transactions in uncertificated securities.• Directive SCC - Operational Windows

• Directive SCE - Same Day Settlement

• Directive SCV - Best Practice for Off Market Trades.

IOSCO Recommendation 9 CSD Risk Controls

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Role of the Compliance Officer• Compliance Officers Forum• CO Examination• Reporting of CSDP Breaches• Daily monitoring, controlling and

reconciling• Daily balancing agrees with CSD• Effectiveness of internal controls

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Report requirements

• Rule 7.1.3/4 Annual Directors Report

• Rule 7.1.6.1 Annual External Audit Report

• Rule 7.6.2.4 Bi-Annual CO Report

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Section 8 - Disputes

• Investor Panel–facilitates–reporting–makes recommendations–court of law

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Section 9 - Disciplinary Procedure

• Surveillance• Investigation• Referral• Definitions of Improper Conduct• Disciplinary Committee• Suspension• Termination

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• Urgent Issues Committee• Interim Manager• Disciplinary Tribunal• Fines and Penalties

IOSCO Recommendation 4

Central Counterparties

IOSCO Recommendation 19 Risks in cross-border

links

QUESTIONS ?