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									REGULATORY AND SUPERVISORY REPORT

                                    FIFTH EDITION 2010




                                                         SUPERVISION
index           INDEX

2    Introduction
4    Chairman's Report
6    The Strate Regulatory and Supervisory Committee
9    Head of Legal Report
13   Head of Supervision Report
18   Enforcement
20   Training
21   Appendix A
23   Appendix B
24   Appendix C
26   Appendix D
    c o n s i s t e n c y   i s   k e y




1
introduction                INTRODUCTION


Legal framework under which Strate operates
Strate Limited (Strate) is licensed as a Clearing House as well as South Africa's only Central Securities Depository (CSD) in terms
of the Securities Services Act, 36 of 2004 (SSA). The SSA, inter alia, provides the legal framework for the security services
performed by Strate as the CSD.


Although the SSA sets out a framework of basic principles for market regulation, it leaves much of the detailed substantive
provisions to secondary legislation. Strate is required to regulate the activities of its Participants by making, supervising and
enforcing Rules and Directives that comply with the requirements of the SSA.


Strate's regulatory functions, namely the issuance and amendment of Rules within the framework of the SSA, and the issuance,
amendment and rescinding of Directives result from these provisions and are performed by Strate's Legal Division. The SSA
further imposes supervisory and enforcement responsibilities on Strate. The Supervision Division is responsible for discharging
these responsibilities. The legislation enables a co-regulatory regime of supervision with the Financial Services Board (FSB).


Strate is accountable to the FSB, in terms of its license, for ensuring that the objectives of the SSA are met by Strate in performing
its function as a self-regulatory organisation (SRO).


Governance
The Strate Board, as the Controlling Body, is responsible for compliance with the above legal framework. It has delegated this
responsibility to the Strate Regulatory and Supervisory Committee (the Committee). This independent Committee of the Board
is specifically tasked with overseeing the regulatory and supervisory function. In particular the Committee ensures that the activities
of Strate operating as a CSD, can be appropriately separated from the activities of Strate operating as a SRO. This self-regulatory
function has the potential for conflicts of interest to exist, or be perceived to exist, between the supervisory function and the other
activities performed by Strate. As a result, appropriate Chinese walls have been established between these two (2) functions.


Strate's Legal and Supervision Divisions report to the Committee on their respective regulatory and supervisory activities.


The Committee's Terms of Reference are set out at Appendix A.




                                                                                                                                          2
                                                                                   vision   sees   possibility
    Mr Rob Barrow is a Chartered Accountant by profession and has spent 22
    years in the accounting and auditing industry. He served as the FSB's Deputy
    Executive Officer, responsible for the supervision of Capital Markets and
    Collective Investment Schemes, from 1997 to 2005. He was then appointed
    as Executive Officer between 2005 and 2008.


    Before joining the FSB, he headed up the Surveillance Division of the JSE,
    and before that he was a partner in the auditing firm Coopers & Lybrand
    (now PricewaterhouseCoopers) for 16 years.




3
chairman’s                  REPORT




At the end of June 2009 Strate and the Committee bid a very fond farewell to Mr Rick Cottrell who retired as a member of the
Strate Controlling Body and Chairman of the Committee. Rick, a past registrar, played an instrumental role in developing not only
the Committee but the formation of the Supervision Division since his appointment in 2000. His invaluable contribution was evident
in the success and achievements that both the Committee and Supervision and Legal Divisions have had over the past nine (9)
years.


After serving as a member of the Committee for six (6) months, taking over the reins of Chairman in July 2009 has been a relatively
smooth transition but certainly not one without its challenges. Several supervisory and enforcement actions were being
handled by the Committee at the time of this change in chairmanship and these issues, together with other investigative and
enforcement actions, were effectively resolved during the year. These matters did however highlight the custody and
record-keeping risk that Participants are exposed to and which requires continuous high-intensity monitoring and oversight.


The Committee has many responsibilities and roles in both the regulatory and supervisory arenas. These activities are highlighted
in this report. During the past year the Committee became actively involved in three (3) main enforcement cases. It further
remained focused on monitoring the progress being made in debating and agreeing changes in the legislative framework that
underpins Strate, both in its role as a CSD and a SRO, as required by the SSA.


The Legal Division has participated actively in the working committees for the redrafting of the Companies Act and SSA and the
promulgation of the revised legislation. The subsequent alignment of the Strate Rules, which will be required during 2010, will
be closely monitored by the Committee in the coming months.


South Africa has not been immune to the global financial crisis and this meant that, during the past year, the Committee became
more aware of the systemic risk of a financial failure. Good progress was made in the finalisation of the Participant Failure Manual.
The JSE Limited and Strate, as project sponsors, are looking forward to obtaining support for the proposed failure procedures
and solutions ahead of the legislative changes being promulgated.


This year we welcomed Eskom Holdings Limited as the first Corporate Participant in Strate as well as congratulated the seven
(7) existing Full Participants in all successfully obtaining approval to operate in the electronic Money Market. The Committee
recognises the dynamic nature of developing a new electronic market and reconsidered all the Money Market Directives ahead
of the initial implementation. Whilst some Money Market securities were already issued and traded during the latter part of 2009,
from March 2010 we will see a significant increase in volumes. The market will then fully recognise the benefits that this
new settlement and custody platform will have on the South African markets.


The Committee continued to function well during the year and I thank the members for their contribution to the work
of the Committee. The support and dedication of the Supervision and Legal teams remained exemplary.



Rob Barrow
March 2010




                                                                                                                                        4
    freedom within boundaries




5
the strate regulatory       AND SUPERVISORY COMMITTEE


The overall objective of the Committee is to assist the Board of Directors in the exercising of its rights and the discharging of its
obligations in terms of the SSA and the Strate Rules.


Committee Members
The following changes to the Committee took place during 2009:
• Mr Rick Cottrell - resigned on 30 June 2009.
• Mr Murray Stocks - joined with effect from 1 January 2009.
• Mr Rob Barrow - joined with effect from 1 January 2009 and was appointed Chairman with effect from 1 July 2009.


The other members of the Committee include:
• Mr Bobby Johnston
• Mr Nigel Payne
• Ms Annamarie van der Merwe
• Ms Sindi Zilwa


Observers
Representatives of the:
• FSB                                  Ms Kamcilla Naidoo and Ms Anna Manganyi
• JSE                                  Mr Shaun Davies
• BESA                                 Mr Jacob Shayi (Alternate Mr Garth Greubel*)
• CEO of Strate                        Ms Monica Singer


Due to the merger of the JSE and BESA, two (2) observers from the JSE attend Committee meetings - Mr Davies attends and
participates for Equities Market matters, whilst Mr Shayi participates for Bond Market matters.


*Mr Greubel resigned from the JSE and as an observer on the Committee during October 2009.


As observers on this Committee, the CEO of Strate as well as Committee members who are employed by Participants recuse
themselves when a matter discussed involves confidential information on a Participant or any other conflict of interest.


The Committee met ten (10) times during 2009 of which six (6) were special purpose meetings. Details of members' and observers'
attendance at meetings are set out at Appendix B.




                                                                                                                                        6
    Work of the Committee during 2009
    The more important supervisory matters considered by the Committee included:


    • recommending to the Board the approval of eight (8) Participants to operate in the electronic Money Market;
    • approving one (1) Nominee application to open Securities Accounts with Participants;
    • considering the findings of on-site reviews and the follow up actions where necessary. Several special purpose meetings were
     held during the year to consider breaches of the Rules relating to the processing of debit balances of securities or unresolved
     imbalances of securities. In all instances the Committee met with the Participants concerned and any issues of concern were
     amicably resolved with no impact to the CSD, Participant or their clients;
    • debating the introduction of a separate “supervisory levy”. This was first considered by Strate in 2001 and following renewed
     research, the decision not to impose a supervisory levy on Strate regulated entities remains the decision of the Committee and
     Controlling Body;
    • seeking to eliminate any opportunity of arbitrage between the different regulatory structures. This includes monitoring that the
     Legal and Supervision teams continue to establish strong co-regulatory relationships with the SARB, FSB and JSE as well as
     global institutions. Effective local and international co-operation between securities stakeholders represents a crucial element
     of a healthy market structure;
    • considering the quarterly results of the Participant Performance Monitoring Model (PPMM). The model continues to provide
     feedback on adherence to the SSA, Rules and Directives and in certain instances is a pro-active indicator of weaknesses within
     Participants that has been the catalyst for heightened supervision;
    • considering the Supervision Division's risk profile (dashboard) on a quarterly basis; and
    • monitoring of adherence to the Chinese walls created between Strate's role as a CSD and SRO.


    The regulatory matters considered by the Committee are detailed under the Head of Legal section which follows.


    Committee Training Programme 2009
    In addition to numerous training initiatives provided to the Committee during previous years, the Committee received training on
    the following topics during 2009:


    • Presentation on the Participant Failure Manual.
    • An overview of the Supervision Risk Matrix.
    • The main responses of securities regulators and the G20 to the financial turmoil.
    • Presentation on the changes in the Companies Act affecting, or in relation to, uncertificated securities.




7
r u l e s   s e t   d i r e c t i o n




                                    8
    head of                     LEGAL REPORT


    It gives me great pleasure to present the 2009 regulatory results.


    Rules
    The Strate CSD Rules were amended in 2009 to mainly review the provisions on the Urgent Issues Committee. This Committee
    considers whether a Participant is conducting its business in such a manner that there is imminent danger that such Participant
    may be unable to meet its commitments, or that its actions may be detrimental to the market as a whole or individual players in
    the market.


    Directives
    The following Directives were amended during 2009:
    • SAF - Strate Fees - Equities
    • SAN - Requirements imposed by the Controlling Body of the CSD for Nominees to operate in the Strate environment
    • SBA - Dematerialisation Business Model
    • SCC - Operational Market Windows - Equities
    • SCP 1 - Fines Schedule 1
    • SCP 2 - Fines Schedule 2
    • SCV - Best Practices for Off-market Transactions - Equities
    • SDB - Beneficiary Download File Layout Equities and Bonds
    • SDJ - Processing of Corporate Actions - Equities
    • SDK - Proxy Voting Procedure in Respect of Foreign Incorporated Companies
    • SFC - Strate Fees - Bonds
    • SGA - Operational Market Windows - Money Market Securities
    • SGB - Master File Administration - Money Market Securities
    • SGC - Trade Reporting, Matching, Clearing, Commitment and Settlement - Money Market Securities
    • SGD - Processing of Capital Events - Money Market Securities
    • SGF - Issuing of Money Market Securities


    A full list of current Directives is available from www.strate.co.za


    The Amendments of the Securities Services Act, 2004
    The FSB and National Treasury embarked on a process in 2009 to amend the Securities Services Act, 2004 five (5) years after
    its implementation. Strate has consistently requested and motivated the need for certain amendments to the SSA for the last
    three (3) years and consulted with the FSB and National Treasury in this regard. We are therefore grateful for the opportunity
    to align the SSA with international developments such as the UNIDROIT Convention (see below) and to address certain
    other key aspects. Strate submitted submissions and proposed draft wording on the following specific topics:


    • Insolvency - Strate is of the view that the SSA does not adequately deal with the legal way in which the account holder's
      protection is guaranteed in insolvency or Participant failure circumstances. The submission pointed out that it is essential that
      the SSA be amended to provide for protective and other measures in the event of insolvency circumstances, and that
      the provisions of the SSA relating to insolvency should take precedence over any other legislation or law.




9
• Good faith transferee - The legal framework of guaranteeing good title to the good faith transferee for value of uncertificated
  securities is internationally recognised in sophisticated securities systems. However, the South African legislation does not
  adequately provide protection to all good faith transferees. Strate submitted that it is essential that the SSA be amended to
  include a harmonised rule protecting the crediting of an account or flagging of uncertificated securities or of an account against
  reversal. The protection against reversal should only be given to the good faith transferee or “pledgee” who did not know or
  ought to have known that the account should not have been credited or that the flagging should not have been made.
• Priority rule - Under the SSA it is possible for an investor to grant more than one limited or other interest against the same
 uncertificated securities. However, the SSA does not provide or set rules on the ranking of competing interests against the
 same uncertificated securities. Strate made a submission that the SSA be amended to set out the rule for ranking of competing
 interests against the same securities.
• Attachment - The current wording in the SSA allows attachments by entry on an account, including an upper-tier omnibus
  account, although the rule is not known to be applied in practice. Strate submitted that the SSA be amended to ensure that
  an attachment of securities will only freeze the securities of the person against whom the warrant was issued.
• Finality of settlement - Strate submitted that the SSA should be amended to specifically state that the CSD may, in its CSD
  Rules, designate a point in time beyond which instructions are deemed to have entered irrevocably into its system, and debits,
  credits or other entries cannot be revoked. The SSA should also be amended to enable the CSD to make, in co-operation with
  the Exchanges, default rules entitling it to cancel and terminate the unfulfilled settlement obligations of a market participant,
  as envisioned in section 35A of the Insolvency Act. The SSA, as the primary legislation regulating the clearing, settlement and
  custody of uncertificated securities, should specifically cater for this because revocation of instructions may occur for reasons
  other than insolvency, for example fraud, death or Participant failure.
• Pledge and “Out-and-out” Cession - There has recently been some market confusion over the interpretation of sections 42 and
  43 of the SSA, dealing with pledge and cession. Some stakeholders have suggested that the phrasing of the section means
  that the “out-and-out” cession to secure a debt is no longer available when dealing with uncertificated securities. Strate submitted
  that the relevant clauses of the SSA should be re-written to bring legal certainty, since the intention of the legislature was
  not to remove well established principles of common law that are in everyday use in our financial markets.


The necessary submissions were made to the FSB in the beginning of 2009. A working committee was established by the FSB
during the course of the year to consider all amendments and proposals. A first draft was prepared by the FSB at the end of 2009
and is currently under review by the members of the working committee. During these discussions, various other general,
consequential or other UNIDROIT-based amendments were also tabled by Strate. We look forward to a new improved SSA in
the near future.


Companies Act 2008
During April 2009, the President of the Republic signed into law the Companies Act, 2008. The Act will come into legal force on
a specific date in 2010 through a proclamation to be issued by the President. Interestingly, since then, certain errors that require
rectification before the implementation of the Act have been identified. The issues relate to incompleteness, grammatical, technical
and incorrect cross references which may give rise to different interpretations of the provisions concerned. The Department of
Trade and Industry identified these errors in December 2009 in a Notice in the Government Gazette and the public were invited
to comment on these by 22 January 2010. At the same time, the Companies Regulations, 2010 were published for public comment
with effect from date of publication to 1 March 2010.


The new Act no longer creates artificial preferences for a specific transfer and holding model of uncertificated securities, such
as the subregister model of the old Act. It enables the CSD Rules to spell out the specific settlement model to be used after due
process has been followed.




                                                                                                                                         10
     The Act has furthermore extended the protection of a good faith transferee of uncertificated securities to insolvency. This protection
     rule forms the cornerstone of the integrity of the market and makes the electronic register sacrosanct. This is reflected in the
     wording that the change of ownership is effective notwithstanding illegality, fraud or insolvency, provided that the transferee acts
     without notice.


     The Companies Regulations, 2010 contain amended wording for the conversion of certificated securities into uncertificated
     securities, and for the requirements for keeping uncertificated securities registers.


     The International Institute for the Unification of Private Law (UNIDROIT)
     On 9 October 2009, the second and final session of a diplomatic conference hosted by the government of Switzerland adopted
     a final text of the UNIDROIT Convention on substantive Rules for Intermediated Securities. The Convention will be known by
     its shorter name, the Geneva Securities Convention on Intermediated Securities. South Africa is a signatory of the Convention.


     The Convention provides an important legal framework for intermediated securities holding systems with special significance for
     cross-border transactions. It is the first internationally negotiated set of private law rules or principles for securities being held in
     the holding systems. The Convention addresses matters such as:
     • the rights of securities account holders;
     • duties of intermediaries;
     • the effectiveness of interests in intermediated securities as against third parties and in insolvency proceedings;
     • innocent acquisition of intermediated securities; and
     • priorities of conflicting claims.


     It is clear that the Convention will have a major impact on South Africa's reform in domestic legislation that can only benefit the
     country at large.


     American Central Securities Depository Association (ACSDA)
     Within the spirit of cost savings in light of the 2009 financial crisis, no ACSDA Legal Working Committee meetings were held.
     However, the members of the Committee continued research on various topics, including the effect of the UNIDROIT Convention
     provisions on national laws and circulated working papers amongst each other.


     The possible legal impact of the financial crisis has encouraged everyone in the Strate Legal team to give new attention to old
     rules and to drive legislative changes where necessary and possible. As a result, the year has become extremely busy with many
     initiatives from the regulatory side. The enthusiasm and dedication of all involved did not go unnoticed. I am grateful for the input
     of all my Strate colleagues and the Strate Regulatory and Supervisory Committee. I wish to extend my gratitude also to the FSB
     and National Treasury in this regard.



     Maria Vermaas
     Head: Strate Legal Services
     March 2010




11
supervision supports consistency




                               12
     head of                      SUPERVISION REPORT

     In this section we report on the supervisory functions and main activities during 2009.


     Scope of Supervision
     In terms of the SSA, Strate is required to establish structures which will support its responsibilities to monitor and supervise
     compliance by Participants. The STRATE Supervision Division fulfils this function.


     Participants
     A Participant is defined in the SSA as “a person that holds in custody and administers securities or an interest in securities and
     that has been accepted in terms of section 34 by a central securities depository as a participant in that central securities depository”.


     The Participants that hold Equities, Bonds and/or Money Market securities in the CSD are:


     • Absa Bank Limited
     • Computershare Limited
     • Eskom Holdings Limited
     • FirstRand Bank Limited
     • Nedbank Limited
     • The Standard Bank of South Africa Limited
     • Société Générale Johannesburg Branch
     • South African Reserve Bank


     The following Participants were either approved during 2009 or granted extended approval to operate in additional Strate
     environments.



                   Participant Full Name          Equities       Bonds                         Money Market


                     Absa Bank Limited                                        Approved as a Full Participant in the electronic
                                                                              Money Market on 10 September 2009.

                                                                              Approved as a Full Participant in the electronic
                     Computershare                                            Money Market on 02 April 2009 and
                     Limited                                                  10 September 2009.

                     Eskom Holdings                                           Approved as a Corporate Participant in the
                     Limited                                                  electronic Money Market on 01 December 2009.

                                                                              Approved as a Full Participant in the electronic
                     FirstRand Bank
                     Limited                                                  Money Market on 24 November 2008 and
                                                                              10 September 2009.

                                                                              Approved as a Full Participant in the electronic
                     Nedbank Limited
                                                                              Money Market on 02 February 2010.

                     The Standard Bank                                        Approved as a Full Participant in the electronic
                     of South Africa                                          Money Market on 24 November 2008 and
                     Limited                                                  29 October 2009.
                     Société Générale
                     Johannesburg                                             Approved as a Full Participant in the electronic
                     Branch                                                   Money Market on 14 September 2009.

                                                                              Approved as a Full Participant in the electronic
                     South African
                     Reserve Bank                                             Money Market on 14 September 2009.




13
The values of dematerialised securities under custody as at 31 December 2009 were:


                                      2009                   2008                     2007                    2006

            Equities         R 4, 043, 510, 554, 456 R 3, 042, 061, 927, 236 R 4, 323, 953, 036, 178 R 3, 074, 213, 540, 920

            Bonds            R    972, 256, 891, 556 R   842, 630, 547, 133 R     808,149, 419, 221 R     679, 825, 081, 235

            Money Market     R         10, 000, 000 R            1, 000, 000



Divisional Composition
The staff compliment of the division remained unchanged during 2009. Balanced Score Cards, Strate's chosen performance
management tool, are in place for the division itself as well as all members of the division. The Supervision staff are bound by
very stringent confidentiality and code of conduct clauses in terms of their employment contracts. In addition, staff signs an annual
declaration as confirmation of their understanding and adherence to the Chinese walls policies and procedures adopted by Strate.


Risk Identification and Management
Strate is a risk-averse institution. Fulfilment of its CSD and SRO roles can be seriously jeopardised if its risks are not effectively
managed. Responsibility for the management of risk rests with staff and line management in all Strate divisions. Those accountable
for the management of risks are also accountable for ensuring that the necessary controls remain in place and are effective at
all times.

The Supervision Division performs its risk management procedures in a co-ordinated, comprehensive and systematic
manner that is consistent with Strate's Enterprise Wide Risk Management standards and guidelines. The Committee monitors
and reviews the Supervision Division's risk management programmes, system and performance, and reports this to the
Strate Audit and Risk Committee on a continual basis. No risk exposures or discrepancies were noted during the year.


Supervisory activities of 2009
Approved Participants are subject to continuous, ongoing monitoring of their adherence to the SSA, Rules and Directives.
The Supervision Division has continued to monitor Participants in terms of their unique client mix, concentration in specific
market segments, technological solutions and business models. The division continues to make it a point to be fully aware
of what is going on inside a Participant without seeking to, or appearing to, micro-manage the regulated entity.

The key activities of the Supervision Division during 2009 included:


i Debit Balances of Securities versus Imbalances of Securities
The Strate Informa article released during August 2009 highlighted the difference between debit balances and imbalances of
securities. Whilst both are transgressions in terms of the Strate Rules, these breaches have significantly different risk exposures
for the Participant and affected clients. The key focus of the 2009 On-Site Review Programme was the review of internal controls
and risk management procedures relating to balancing of Securities Accounts. Where debit balances or unresolved securities
imbalances were identified, these matters were brought to the attention of the Committee, fully investigated and the appropriate
enforcement and disciplinary action was taken against the transgressing Participant. In all instances, the enforcement matters
were effectively resolved and improved controls and procedures have been implemented.


ii Participant Technical Difficulties and System Implementations
The majority of the existing Strate Participants have been operating in the electronic environment since 1999 and so it is not
surprising that during 2009 several Participants took the decision to either upgrade or replace their core custody and
settlement systems. Strate Limited has provided testing support to affected Participants and the Supervision Division has closely
monitored the implementation of new system functionality and the migration of clients to the new technology solution. In all
cases, the affected Participants have managed these internal system related projects and associated project risks well.

The Supervision Division maintains detailed statistics and databases of all instances where a Participant experiences any form
of technical/system disruption or difficulty. Technology and systems risk remains the highest weighted risk in the Strate
environment. All Participants have met the Strate Rule requirements pertaining to Disaster Recovery and Business Continuity
facilities, procedures and testing during 2009.




                                                                                                                                         14
     iii Penalty Research
     Since November 2007, the Supervision Division has, at various intervals, conducted research into the penalty structures adopted
     by other Central Securities Depositories and securities regulators. The main purpose of the research has been to investigate
     additional mechanisms which may achieve a reduction of settlement and operational risk within Participants. During 2008, the
     division met with several Participants and market stakeholders to understand the circumstances which give rise to parties attracting
     fines, the impact of operational timelines on their trading or settlement activities and the alternative mechanisms which could
     be introduced to deter undesirable settlement behaviour.

     In addition to the continuous research conducted during 2009, the division analysed the fine statistics over a three (3) year period
     and considered this against market settlement volumes. It was evident from the statistics that:

     • South African market volumes (both On and Off-market) have fluctuated significantly since 2007.
       When comparing the number of fines imposed in relation to market volumes, it was interesting to note that:
          - the number of fines imposed in respect of Equities transgressions for the period January 2007 to December 2009, only
            amounted to 0.05% of the (Off-market) total number of settlements for this particular market.
          - the number of fines imposed in respect of Bonds transgressions for the period January 2007 to December 2009 only
            amounted to 0.29% of the (Off-market/OTS) total number of settlements for this particular market.
            (Please note that the number of fines referred to above includes those incurred by clients as well as Participants.)

     • The number of fines imposed by the Supervision Division has decreased significantly since 2007.
          - A 19% decrease in Equities related fines was evident between 2007 and 2008 whilst a further 53% decrease in fines
            occurred between 2008 and 2009.
          - A 34% decrease in Bonds related fines was evident between 2007 and 2008 whilst a further 34% decrease in fines
            occurred between 2008 and 2009.
     • The transgressions that continue to attract the most fines relate to:
          - Equities - late reporting and late committing of transactions, as well as the reporting of Same Day transactions (without
            permission).
          - Bonds - late reporting of transactions.

     The research figures clearly indicated that the market has reached a level of maturity and that fines imposed to date have been
     set at a sufficiently high enough level to act as an effective deterrent and to curb undesirable behaviour/practices.

     In light of the above, the Supervision Division proposed numerous amendments to the main Strate Fine Schedules and during
     November 2009, the Committee accepted the division's proposals relating to amended fine categories and quantums. These
     proposals will be incorporated into the Fine Schedules and will be presented as amended Directives to the Committee during
     2010 for approval and implementation.


     iv Participant Failure Project
     The development of the Participant Failure Manual has been a market initiative that has evolved to the point where the proposed
     procedures accurately capture the various impacts of a Participant failure from all perspectives.

     Following a period of market consultation and the circulation of Version 2 of the Manual at the end of 2008, the Project Stakeholders
     spent most of Q1 and Q2 2009 reviewing the variety of comments which had been submitted by various market stakeholders.
     The Strate Custody and Settlement Services Division also provided several comments to Version 2 of the Manual.

     During Q3 2009 the following amendments to the Manual were included:
     • Update the Manual to record the merger of the JSE and BESA;
     • Add process flows and decision trees for On-market PMO/RMO type settlement transactions;
     • Add the JSE Report-Only transactions process flows and decision trees;
     • SARB Reverse Repo transactions - these types of Bond transactions previously settled outside the Strate systems but during
       2009 they were incorporated into the Strate settlement realm therefore a new failure scenario had to be added;
     • The Bonds “CD Transfer” process was incorrect and therefore the decision trees and Bonds processes had to be amended;
     • BESA report requirements to manage a failure event had not been included and had to be added;
     • Money Market settlement procedures in respect of a Full Bank Participant were incorrect and had to be updated; and
     • 2007 statistics had to be replaced with 2008 and 2009 statistics.

     A workshop with the JSE in September 2009 and internal review during October 2009 lead to the ultimate release of Version 3
     at the end of October 2009.


     Meetings with the FSB and SARB during November 2009 paved the way for these key stakeholders to consider giving
     support to the proposed failure procedures documented in the Manual, pending legislative changes in South Africa.

15
v On-Site Reviews
Routine on-site visits were conducted during 2009. These focused on the following main areas:
• Verifying and assessing whether or not recommendations and findings from the 2008 on-site reviews have been
  implemented/rectified;
• Reviewing balancing and reconciliation of client Securities Accounts procedures and controls, with special focus on investigating
  incidents of Participants giving effect to a debit balance of securities on a client's Securities Account resulting in unauthorised
  securities lending and borrowing; and
• Determining the level of the segregation of duties and the implementation of internal controls and risk management
  procedures.


vi Nominees
During 2009 the following Nominee was approved in terms of Directive SAN:


               Holding Company                    Nominee                 Market              Date of Approval

             Automated Outsourcing         Investors Independent         Equities                23 June 2009
             Services (Pty) Ltd            Custodian (Pty) Ltd



vii Complaints
We are pleased to confirm that no complaints were received against any Participant during the period under review.


viii Chinese Walls
Strate's clients are Participants who in some cases are also shareholders. Strate's business is to provide security services to
these clients (referred to as the CSD function). Under the SSA, Strate also operates as a regulatory organisation which involves
supervising Participants including enforcement (known as the SRO function). Chinese walls have therefore been established
between the two (2) functions to avoid confidential information obtained as a result of its statutory powers as a SRO being used,
or being seen to be used, to provide Strate's CSD activities with an unfair advantage. It is confidential information obtained while
performing the SRO function by the Supervision Division which needs to be protected by Chinese walls from reaching staff
involved in the CSD function or any other third party.

The operation of the Chinese wall structures, procedures and processes are periodically subjected to audit procedures carried
out by external auditors, to provide assurance to the Committee on whether or not they are working effectively. During June 2008,
PricewaterhouseCoopers (PwC) performed an agreed-upon procedures audit with respect to validating limitation of access to
the Supervision Division Sharepoint* site and confidential documents therein. The review was extended to include an assessment
of annual confidentiality agreements.

No material findings were highlighted in the PwC report.

*Sharepoint is a data and document repository system operated by Strate Limited. A specific, separate segment is isolated for
exclusive use by the Supervision Division.


Outlook for 2010
The key objectives outlined for the Supervision Division for 2010 have been defined for the Equities, Bonds and Money Market
environments. The past supervisory and enforcement strategies adopted by the Supervision Division for the Equities and Bonds
markets continue to work well and there appears to be no immediate need to alter the approach to monitoring compliance by
Participants. With the full implementation of the Money Market project during February 2010 we anticipate that the specific Money
Market monitoring tools will be fully developed and implemented during the first half of 2010. The daily review of settlement
exception reports and the maintenance of various databases and statistics for all three (3) markets will at this stage remain
unchanged - any amendments will be need driven.

The 2010 initiatives and objectives are based on our existing knowledge of the Equities, Bonds and Money Market environments,
the current performance of Participants (including monitoring of known weaknesses) and scheduled activities (including on-site
reviews and financial year end audits). The extent to which, inter alia, functionality changes, Participant transgressions and levels
of assurance decline, may precipitate a change during the next twelve (12) months in the defined objectives and/or initiatives.


Bev Furman
Head: STRATE Supervision
March 2010



                                                                                                                                        16
     a u t h o r i t y   s e t s   l i m i t s




17
enforcement                  ENFORCEMENT


The definition of “penalties” in section 61 (10) of the SSA includes:
• a reprimand;
• censure;
• a fine not exceeding R 5 million;
• suspension or cancellation of the right to be a Participant;
• a restriction on the manner in which a Participant may conduct business or utilize an officer, employee or agent; and
• the payment of compensation to clients prejudiced by the contravention or failure.


The only sanctions imposed on Participants in 2009 were monetary fines. A summary of the transgressions and associated fines
is set out at Appendix C.


The enforcement issues escalated to the Committee and FSB during 2009, included:


Rule Enforcement
The main enforcement issues escalated to the Committee during 2009, included instances where debit balances and unresolved
imbalances of securities were either reported by the Strate Compliance Officer, or were identified during the routine on-site reviews
conducted by the Supervision Division or the Participants' appointed external, registered auditor. Six (6) special purpose Committee
meetings were held during 2009 to resolve these matters. The cause of these transgressions was either as a result of system
weaknesses, a break-down in internal controls and/or errors made by operational staff.


Directive Enforcement
Directive SDB was amended and the new requirements were implemented by Special Gazette on 27 November 2009. Due to
system implications, three (3) Participants were not able to comply with the automated BND file requirements. The FSB has
granted an enforcement dispensation until end February 2010 for these three (3) Participants.


Transgressions
The transgressions viewed most seriously by the Supervision Division and the Committee relates to:
• Improper Conduct - as defined in Section 11.5 of the Strate Rules;
• Overdue orders - instances where Participants have committed to transactions where there was insufficient securities available
  for settlement;
• Late Funding on settlement day;
• Same Day transactions without prior approval - this relates specifically to the Equities environment; and
• Imbalances or debit balances of securities.


We are pleased to report that the appropriate corrective action was taken in all cases of non-compliance detected by the supervisory
process.


Special Purpose Reserve
This Reserve is funded by fines imposed by the Supervision Division as part of its supervisory obligation to monitor compliance
by Participants. The Reserve will be used to fund or subsidise special projects or market training initiatives and will require the
prior approval of the Strate Audit and Risk Committee.


The decision supporting the above was ratified by Strate's Controlling Body on 31 March 2009. It was based on the principle that
Strate Limited will not economically benefit from monetary fines imposed on regulated entities as part of its SRO function.


Monetary fines imposed from January 2009 and all future fines, will be allocated to this Reserve and will be used for approved
market projects or initiatives.


Bev Furman
Head: STRATE Supervision
March 2010
                                                                                                                                        18
     training encourages growth




19
training                    TRAINING


The Supervision Division remained actively involved in the development of new and continued support of existing, Strate training
interventions. During 2009, the Training Division (which fell within the Supervision Division) continued to offer a variety of training
material and seminars. The success of these training aids has yielded a steady increase in the number of candidates who have
registered for and written the Strate examination modules.


Statistics of the Strate examinations are set out at Appendix D.


E-learning
Strate's e-learning, in the form of PC based Knowledge Disks is currently in the process of being extended to include the provision
of audio Knowledge Disks.


Strate Examinations
The partnership with the South African Institute of Financial Markets (SAIFM), who supports Strate's on-line examinations, has
grown from strength to strength during 2009. A total of 207 candidates registered for the Strate examinations during 2009, with
a total of 181 having written these examinations.


Whilst the five (5) Equities and Bonds Modules continue to attract the most registrations, there has been a steady growth in the
number of registrations for Modules 6 and 7 during the latter part of 2009. Module 6 (Money Market One) and Module 7 (Money
Market Two) were successfully implemented in April 2009 and August 2009 respectively.


Strate Handbooks
The Equities and Bonds Handbooks and Money Market Learning Material are updated on a frequent basis and remains
a comprehensive and current record of the applicable Strate related theory for these three (3) markets.


Strate Seminars
A total of 63 candidates participated in Strate seminars during 2009. These classroom-styled learning interventions remained
the most popular training offering during 2009.


The latest version of the Strate Training and Examination Guideline can be obtained from www.strate.co.za or contact
strate-training@strate.co.za


Informa Articles
Below is a list of all STRATE Supervision Informa articles released during 2009. Copies of these articles are available on the
Strate website www.strate.co.za



                 Nr.                                  Topics                                      Release Date


                 1.                Imbalances and Debit balances of securities                   18 August 2009


                                   Penalty/Fine Research, PwC Audit and new
                 2.                                                                             05 October 2009
                                   Compliance Examinations


                                   Directive and Rule setting process, Index of
                 3.                Strate Directives, CSDP Failure Manual and                  26 November 2009
                                   progress report.




                                                                                                                                          20
          appendix a           APPENDIX A


          TERMS OF REFERENCE - REGULATORY AND SUPERVISORY COMMITTEE


       1. Constitution
          The objective of the Regulatory and Supervisory Committee ("Committee") is to assist the Board of Directors (“Board”) in the
          exercising of its rights and the discharging of its obligations in terms of the Securities Services Act, No 36 of 2004 (“SSA”) and
          the CSD Rules issued by Strate ( the “Strate Rules”).


       2. Terms of Reference
          The Committee will assist the Board in the following manner:
      2.1 Consider on an ongoing basis whether the scope of the Strate Rules and Directives provide an adequate framework for the
          regulation and supervision of Participants;
      2.2 Review the process of identifying the risks and exposures that arise from the supervision and enforcement of the Strate Rules
          and Directives;
      2.3 Recommend the approval of new Strate Rules and any subsequent amendments thereto, to the Board for ultimate submission
          to the Financial Services Board (“FSB”);
      2.4 Approve, amend and rescind Directives other than those which are delegated to the Head of Supervision in terms of clause
          8.1.3;
      2.5 Approve and monitor the execution of a programme of supervision and enforcement to determine whether Participants comply
          with the applicable legislation, Strate Rules and Directives;
      2.6 Review the findings of the supervision and enforcement programme, the action taken and the penalties levied for transgressions;
      2.7 Provide guidance when a proposed course of action with respect to a finding arising under 2.6 above, is referred to the Committee
          by the Head of Supervision;
      2.8 Review any matters arising from the liaison with the FSB on Strate's regulatory and supervisory functions and the enforcement
          thereof;
      2.9 Review proposed Memoranda of Understanding (“MOU”) between the STRATE Supervision Division and other regulatory bodies
          and recommend their approval by the Board;
     2.10 Review the nature and extent of the liaison with other regulators and supervisors of Participants on matters of mutual concern
          and the effectiveness of the operation of the MOUs that have been entered into;
     2.11 Recommend to the Board the acceptance and/or expulsion of a person as a Participant in accordance with the Strate Rules;
     2.12 Monitor the supervision by the STRATE Supervision Division, of Participants' compliance with their licencing conditions;
     2.13 Approve Nominees to open accounts with Participants and monitor the supervision by the STRATE Supervision Division, of
          their continued adherence to the Strate Nominee requirements as set out in Directive SAN;
     2.14 Withdraw approval in terms of clause 2.13 where the Nominee no longer meets the requirements as set out in Directive SAN;
     2.15 Monitor the effectiveness of the Chinese Walls established between Strate's Supervision Division and all other Strate operational
          areas and approve the Chinese Wall Manual and periodic updates thereof;
     2.16 In exercising its monitoring function, the Committee should consider if any action or omission by it or the STRATE Supervision
          Division has, or could, expose Strate to accusations of anti-competitive behaviour; and
     2.17 Approve the annual report issued to stakeholders on regulatory and supervisory matters.


       3. Membership
      3.1 The Board shall appoint the members of the Committee.
      3.2 The Board shall appoint an independent non-executive director as the Committee Chairperson and determine the period for
          which he or she shall hold office. The Chairperson of the Board shall not be eligible to be appointed as Chairperson of the
          Committee.
      3.3 Membership of this Committee shall comprise a minimum of:-
          • The Chairperson;
          • Up to three non-executive directors of the Board;
          • The Chairperson of the Strate Audit and Risk Committee; and
          • One or more persons who, in the opinion of the Board, have the necessary skill, knowledge and expertise to assist the
           Committee.

21
3.4 The Committee Secretary will be a member of the STRATE Supervision Division.
3.5 The Board shall review the membership of the Committee on an annual basis.


 4. Attendance at meetings
4.1 The Head of Supervision shall attend all meetings.
4.2 A representative from the Financial Services Board shall have the right to attend all meetings.
4.3 Representatives nominated by the following bodies are invited to attend meetings of the Committee, except when the specific
    business of the meeting does not require their attendance:-
    • The JSE Limited;
    • The Bond Exchange of South Africa; and
    • The Money Market Advisory Committee.
4.4 The following will attend meetings of the Committee when agenda items applicable to their areas of responsibility are considered:-
    • The Chief Executive Officer ("CEO") of Strate; and
    • Head and members of the Strate Legal Division.
4.5 Persons attending in accordance with 4.3 and 4.4 above, shall:
    4.5.1 have the privilege of the floor;
    4.5.2 not be entitled to vote at meetings;
    4.5.3 not count towards the quorum for decisions of the Committee; and
    4.5.4 where applicable, recuse themselves from those parts of a meeting where matters of a confidential nature relating to a
          Participant are discussed, in accordance with the Chinese Walls Manual.
4.6 The Chairperson, at his discretion, may invite any Strate employee and any other person to attend and be heard at meetings of
    the Committee.


 5. Meetings
5.1 Meetings and proceedings of the Committee will be governed by Strate's Articles of Association.
5.2 The Committee shall meet at least three times a year on pre-arranged dates fixed in consultation with members.
5.3 Special purpose meetings may be called, at any other time, by the Chairperson of the Committee or any member of the Committee
    having regard to the provisions of 5.4 below.
5.4 The notice of each meeting of the Committee, confirming the venue, time and date and enclosing an agenda of items to be
    discussed shall, other than under exceptional circumstances, be forwarded to each member of the Committee no less than five
    working days prior to the date of the meeting.
5.5 The quorum for decisions of the Committee shall be a simple majority of members. In the event of there not being a quorum,
    the meeting may proceed and any decisions taken ratified at the next meeting of the Committee or by means of a round robin
    resolution.
5.6 A round robin resolution shall be as valid as a resolution passed at a properly constituted meeting of the Committee if approved
    by not less than a simple majority of members of the Committee and it is noted at the next meeting of the Committee. If any
    member dissents to the round robin resolution, the matter must be approved at a meeting.


 6. Minutes
6.1 Minutes of meetings shall be taken by the Committee Secretary and circulated to all members. Where persons were absent from
    part of a meeting when a confidential matter was discussed, the version of the minutes sent to them and the Board will only
    include matters discussed while they were in attendance.


 7. Remuneration
7.1 Members of the Committee who are independent non-executive directors of the Board, may be paid additional remuneration in
    respect of their services to the Committee as shall be determined by the Board.


 8. Authority
8.1 The Committee is authorised by the Board to:
    8.1.1 obtain such outside or other independent professional advice as it considers necessary to carry out its duties;
    8.1.2 investigate any activity within its terms of reference; and
    8.1.3 delegate the approval, amendment and rescinding of Directives to the Head of Supervision to the extent set out in Annexure
          One.


 9. General
9.1 These terms of reference may from time to time be amended as required, subject to the approval of the Board.
9.2 The Committee will periodically review the terms of reference.

                                                                                                                                         22
      appendix b         APPENDIX B


                                           Strate Regulatory and Supervisory Committee

                                                   Summary of Attendance 2009



                           Total Number of Meetings                 Y                       R                 A              M
                                during the year             (attended meeting)   (recused from meeting)   (apology)   (did not attend
                                                                                                                      -maternity leave)

                                          *10

     Members

     R Cottrell                                                    6
     R Barrow                                                      10
     B Johnston                                                    10
     N Payne                                                       9
     M Stocks                                                      3                       5

     A Van Der Merwe                                               9
     S Zilwa                                                       7                                          1

     Observers

     FSB                                                           7
     S Davies - JSE                                                2                                          2
     G Greubel - BESA                                              0
     J Shayi - BESA                                                1                                          2

     Monica Singer                                                 4                       5


     Notes:
     1) R Barrow joined 1 January 2009.
     2) M Stocks joined 1 January 2009.
     3) R Cottrell resigned as Chairman 30 June 2009.
     4) R Barrow appointed as Chairman 1 July 2009.


     *6 of the 10 meetings were special purpose meetings.




23
appendix c                   APPENDIX C


                                                                   Bonds Transgressions




                             100%



                              90%



                              80%



                              70%



                              60%
                Percentage




                              50%



                              40%



                              30%



                              20%



                              10%



                              0%
                                      2006                        2007                      2008          2009

                                                                             Period



Late Reported                          97%                        79%                       91%           59%

Late Committed                         0%                         0%                         0%           0%

Late Funding                           0%                         11%                        0%           0%

Extending Same Day Window              2%                         0%                         4%           0%

Unauthorised Exclusions                0%                         5%                         4%           6%
Improper Conduct                       0%                         0%                         0%           6%
Debit Balances of Securities           0%                         0%                         0%           12%
Late Submission of                     0%                         5%                         0%           18%
Settlement Problem Lists
Imbalances                             0%                         0%                         0%           0%


Notes:
Stats for 2006 indicate all fines levied, whether incurred by Participants or clients of a Participant.
2007 - 2009 stats indicate fines incurred by Participants only.




                                                                                                                 24
                                                Equities Transgressions




                                  100%



                                  90%



                                  80%



                                  70%



                                  60%
                     Percentage




                                  50%



                                  40%



                                  30%



                                  20%



                                  10%



                                   0%
                                         2006   2007                2008   2009

                                                        Period



     Late Reported                       54%    24%                 40%    28%

     Late Committed                      24%    46%                 42%    37%
     Overdue                             0%     1%                  2%     1%
     Same Day                            6%     8%                  3%     1%
     Less than T+5                       9%     12%                 3%     3%
     Exceeding Max Settlement Cycle      2%     4%                  4%     1%
     ATF/PM vs Payment                   0%     0%                  4%     1%
     ATF/PM “CBO”                        0%     0%                  0%     7%
     Late Funding                        0%     0%                  0%     1%
     Improper Conduct                    0%     0%                  0%     1%
     ATF/PM between LDT +1 & RD          4%     4%                  2%     1%
     Debit Balances of Securities        0%     0%                  0%     12%
     Gridlock                            0%     0%                  0%     0%
     Imbalances                          0%     1%                  0%     6%




25
      appendix d                       APPENDIX D


                                                      Strate Examination Statistics 2009




                     120




                     100




                      80
Number of Learners




                      60




                      40




                      20




                       0
                               Module 1   Module 2   Module 3     Module 4       Module 5   Module 6   Module 7


                                                                   Module


                     Passed      44         14         13            12             11        11          2
                     Failed      65          7          0             1              0         1          0
                     Written     109        21         13            13             11        12          2




                                                                                                                  26
Ground Floor, 9 Fricker Road, Illovo Boulevard, Illovo, Sandton, 2196, South Africa
                     PO Box 78608, Sandton, 2146, South Africa


           Switchboard: +27 (11) 759 5300 • Facsimile: +27 (11) 759 5509
                                 www.strate.co.za

								
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