ARTICLE Business Report, 3 August 2006 Securities ownership register would further reduce SA markets’ systemic risk By Monica Singer South Africa’s Securities Services Act states that one of its primary objectives is to ensure that securities services are provided in an efficient manner. A Central Securities Depository (CSD) plays an integral role in ensuring the objectives of the Act are achieved. This search for efficiencies in market processing has resulted in a comprehensive review of the current settlement processes and the identification of a number of areas of potential improvement. As South Africa’s appointed CSD, STRATE has therefore begun to research the implementation of an Alternative Settlement Model (ASM) for this market, one component of which is the introduction of a Securities Ownership Register (SOR) at the CSD. The concept of a centralized SOR is not new and although the principles were debated at the time STRATE was first implemented, the market elected to adopt the sub-register concept that is still with us in the equities and bond markets today. A host of meaningful efficiencies will be introduced to the market in the wake of a SOR, not least of which is a further reduction in the systemic risk that has already been dramatically reduced by electronic settlement and custodianship. A SOR will generate two conspicuous benefits: • The investor will have access, via the Internet, to his statement of account, no matter which central securities depository participant (CSDP) he uses. With password-secure access to the central database, the investor could access the information he seeks on a real time technology-enabled basis any time of the day and night. Currently he is reliant on his CSDP for this information, usually on no more than a once-a-month basis. • The listed company will enjoy real-time access to changes in its own shareholding – a remarkable advantage in a takeover scenario. Currently, listed companies receive little more than a beneficiary download once a month, with a more frequent feed only available on special request. International research reveals that there isn’t really an accepted standard as to the level of information or the structure of the information to be kept in the CSD. Internationally, the trend is towards disclosure with a large focus on anti-terrorism legislation and the prevention of money laundering as well as the provision of more meaningful information to the authorized issuers. This need for this disclosure has seen CSDs looking to evolve from the sub register concept towards a SOR concept. The information provided to the CSD, which is not part of the public domain, would remain confidential, and will only be accessible to authorised stakeholders. The licensed CSDPs would continue to be responsible for client information and account maintenance. The relationship between the custodian and the client would also remain, with services to clients continuing to be provided via CSDPs. The CSD, as the trusted third party, would not disclose any information that would jeopardize its license and put it in a position of Reputational risk. Concerns around the impact of participant failure, and the associated protection of the Investor, have also plagued most (if not all) depositories around the world and the need to provide measures which could effectively mitigate against the systemic risk which could / would be generated through such a failure provide additional incentives to consolidate available information so as to try and ensure market continuity in such circumstances. As a result, the efficiencies and risk mitigation associated with the introduction of an SOR in South Africa, has encouraged STRATE to continue its pursuit of such a project in the market. For further information please contact: Tanya Knowles, Head of Marketing and HR Telephone: +27 (0)11 759 5317, E-mail: firstname.lastname@example.org Strate is the authorised Central Securities Depository (CSD) for the electronic settlement of all financial instruments in South Africa. Strate’s core purpose is to mitigate risk, bring efficiencies to the market and improve South Africa’s profile as an investment destination. Currently Strate handles the settlement of equities, warrants and bonds for the JSE Ltd and the Bond Exchange of South Africa. Strate is a provider of a growing number of products, data and services in line with markets demands and trends.