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Principle 9 - Strate

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									IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                                       Iosco
Key Consideration                                                      Paper            Comments and Open Items
                                                                       Reference




                                                                       TRs may play a fundamental role in providing market transparency and, as such, effective access by relevant authorities and the public to the data recorded in TRs is critical. TRs are p
                                                                       important in the OTC derivatives markets. From a public policy perspective, the data maintained and generated by the operations of a TR and on behalf of its participants should prom
Principle 24: Disclosure of market                                     transparency and foster public policy objectives, subject to relevant laws involving disclosures of sensitive information. Transparency to market participants supports investor protection
data                                                                   exercise of market discipline. Transparency to the broader public helps build greater confidence in, and understanding of, markets, and informs and builds support for sound public pol
                                                                       may identify other policy objectives specific to an individual TR’s role in supporting market transparency in addition to these core policy objectives.




                                                                                       Strate Limited's response on Principle 24.

                                                                                       Principle can apply to all FMI's and not be limited to Trade
                                                                                       Repositories.

                                                                                       Recommendation to FSB / IOSCO:

                                                                                       1. Strate supports market transparency and this Principle is
                                                                                       essential for risk mitigation in the markets.

                                                                                       2. Centralisation of data in a TR will meet objectives better and
1. A TR should provide data in line with regulatory and industry
                                                                                       more efficiently, than having fragmented sources as suggested in
expectations to relevant authorities and the public, respectively, that
                                                                        3.24.1         par 3.24.4.
is comprehensive and at a level of detail sufficient to enhance
market transparency and support other public policy objectives.
                                                                                       3. A CSD is best suited to perform role of TR in South Africa, and
                                                                                       may form joint ventures or other relationships with other entities to
                                                                                       get all information (e.g. trading info) together in one place in TR.

                                                                                       4. South Africa should move to SOR holding structure with
                                                                                       beneficial owners recorded in CSD (transparent model) to give full
                                                                                       effect to this objective. IOSCO should expressly recommend
                                                                                       transparent holding and transfer models.
                                                                                  Recommendation to FSB / IOSCO:

                                                                                  1. IOSCO states in 3.24.3 and 3.24.4 that TR functions should form
                                                                                  part of legal and regulatory framework; thus should be included in
                                                                                  FM Bill as submitted by Strate.
2. A TR should have effective processes and procedures to provide
data to relevant authorities in a timely and appropriate manner to                2. CSD should report to supervisory body (FSB) on this, if it
                                                                   3.24.3 and 4
enable them to meet their respective regulatory mandates and legal                performs these functions as recommended in 3.24.4.
responsibilities.
                                                                                  3. Since regulators and authorities want to rely on information in
                                                                                  TR regarding troubled or failed Participants, legislation dealing
                                                                                  with TRs should override confidentiality issues, privacy issues and
                                                                                  other legal barriers.




3. A TR should have robust information systems that provide
accurate current and historical data. Data should be provided in a     3.24.      Strate supports this Principle and Key Considerations.
timely manner and in a format that permits it to be easily analysed.
d, as such, effective access by relevant authorities and the public to the data recorded in TRs is critical. TRs are particularly
ctive, the data maintained and generated by the operations of a TR and on behalf of its participants should promote market
ws involving disclosures of sensitive information. Transparency to market participants supports investor protection as well as the
 build greater confidence in, and understanding of, markets, and informs and builds support for sound public policies. Authorities
 supporting market transparency in addition to these core policy objectives.




                    Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 24.




                    Strate provides data (current and historical) to Issuers, Issuer Agents and regulatory bodies in accordance with
                    statutory requirements. Providing access to data to authorised entities assists with transparency and the
                    management of market risks.
                    Providing data should be in terms of Rules or a legislative requirement in order to protect investor
                    confidentiality and/or sensitive information (e.g. embargo periods).

                    Strate Rules and Directives include disclosure requirements (e.g. Directive SDB).
                    Strate's data sales to restricted, authorised parties only.
                    STRATE Supervision MOU's with regulatory authorities to share information.
Strate provides data (current and historical) to Issuers, Issuer Agents and regulatory bodies in accordance with
statutory requirements. Providing access to data to authorised entities assists with transparency and the
management of market risks.
Providing data should be in terms of Rules or a legislative requirement in order to protect investor
confidentiality and/or sensitive information (e.g. embargo periods).

Strate Rules and Directives include disclosure requirements (e.g. Directive SDB).
Strate's data sales to restricted, authorised parties only.
STRATE Supervision MOU's with regulatory authorities to share information.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                                                  Iosco
Key Consideration                                                                 Paper           Comments and Open Items
                                                                                  Reference




                                                                                  An FMI should provide sufficient information to its participants and prospective participants to enable them to identify clearly and understand fully the risks and responsibilitie
                                                                                  participating in the system. To achieve this objective, an FMI should adopt and disclose written rules and procedures that are clear and comprehensive and that include exp
                                                                                  material written in plain language so that participants fully understand the system’s design and operations, their rights and obligations, and the risks of from participating in th
Principle 23: Disclosure of rules and key                                         system. An FMI’s rules, procedures, and explanatory material need to be accurate, up-to-date, and readily available to all current and prospective participants. In addition, it
procedures                                                                        important to disclose to participants, as well as to the public, other information, such as fee schedules and discounts, plain language summaries of services, basic operation
                                                                                  information, and answers to key questions that will be published in the final report, in order to help promote a better understanding of the FMI’s operations and its impact on
                                                                                  participants and markets.




                                                                                                 Strate Limited's response on Principle 23.




1. An FMI should adopt clear and comprehensive rules and procedures that are
fully disclosed to participants and relevant rules and key procedures should be
publicly disclosed.




2. An FMI should disclose clear descriptions of the system’s design and
operations, as well as the rights, obligations, and risks participants incur by                  Strate supports this Principle and Key
participating in the FMI.                                                                        Considerations.



3. An FMI should provide all necessary and appropriate documentation and
training to facilitate participants’ understanding of the FMI’s rules and
procedures and the risks they face from participating in the FMI.
                                                                                     Strate supports this Principle and Key
                                                                                     Considerations.




4. An FMI should publicly disclose its fees at the level of individual services it
offers, as well as its policies on any available discounts. The FMI should provide
clear descriptions of priced services for comparability purposes.
pen Items




   participants and prospective participants to enable them to identify clearly and understand fully the risks and responsibilities of
  ive, an FMI should adopt and disclose written rules and procedures that are clear and comprehensive and that include explanatory
ants fully understand the system’s design and operations, their rights and obligations, and the risks of from participating in the
 tory material need to be accurate, up-to-date, and readily available to all current and prospective participants. In addition, it is
   the public, other information, such as fee schedules and discounts, plain language summaries of services, basic operational
 ill be published in the final report, in order to help promote a better understanding of the FMI’s operations and its impact on




                    Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 23.




                    Strate's Supervision, Training and PIMO divisions support all new applicants for participation. Strate provides
                    Handbooks and training material for applicants knowledge of Strate. Strate seminars and examinations are
                    available.
                    Complete IT and system specification documents are provided for systems integration.
                    System testing and training is robust.
                    Strate's Rules and Directives are publically available www.strate.co.za.
                    Strate schedules frequent working committees, project meetings, forums with all internal and external
                    stakeholders. Strate consults widely.

                    Strate's Crisis Management Plans and Participant Failure Manual are publicly available documents.

                    Strate publicly discloses it's Fee Schedules and Annual Financial Statement.
                    Settlement volumes and values are provided to Working Committes and on Strate's website.

                    STRATE Supervision supervises compliance with the Rules by Participants and addresses issues of non-
                    compliance with the relevant Participant representative. The supervisory report is sent to the FSB. Participants
                    are required to have adequately skilled human resources, and to maintain knowledge in order to remain eligible
                    to act as a Participant .
Strate schedules frequent working committees, project meetings, forums with all internal and external
stakeholders. Strate consults widely.

Strate's Crisis Management Plans and Participant Failure Manual are publicly available documents.

Strate publicly discloses it's Fee Schedules and Annual Financial Statement.
Settlement volumes and values are provided to Working Committes and on Strate's website.

STRATE Supervision supervises compliance with the Rules by Participants and addresses issues of non-
compliance with the relevant Participant representative. The supervisory report is sent to the FSB. Participants
are required to have adequately skilled human resources, and to maintain knowledge in order to remain eligible
to act as a Participant .
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                                                   Iosco
Key Consideration                                                                  Paper          Comments and Open Items
                                                                                   Reference




                                                                                   The ability of participants to communicate in a quick, reliable, and accurate manner is key to achieving efficient recording, payment, clearing, and settlement. The adoption o
                                                                                   internationally accepted communication procedures and standards contributes to the elimination of manual intervention in clearing and settlement processing, reduces risks
Principle 22: Communication procedures                                             transaction costs, improves efficiency, and reduces barriers to entry into a market. Therefore, an FMI should use or accommodate relevant internationally accepted commun
                                                                                   procedures and standards to ensure the most reliable, efficient, and accurate communication between the FMI, its participants, their customers, and other users. In particula
and standards                                                                      should be able to support and use consistent communication protocols, messaging standards, and reference data standards relating to counterparty identification and numb
                                                                                   processes. For example, relevant standards promulgated by the International Organization for Standardization should be carefully considered and adopted by an FMI.




                                                                                                  Strate Limited's response on Principle 22.


1. An FMI should use, or at a minimum accommodate the use of, internationally
accepted communication procedures that can support interoperability between
the FMI, its participants, their customers, and other users (such as third-party
service providers and other FMIs).



2. An FMI should use, or at a minimum accommodate, internationally accepted
communication standards, such as standardised messaging formats and
reference data standards for identifying financial instruments and                                Strate supports this Principle and Key
counterparties.                                                                                   Considerations.




3. An FMI that operates across borders should use, or at a minimum
accommodate, internationally accepted communication procedures and
standards.
en Items




 reliable, and accurate manner is key to achieving efficient recording, payment, clearing, and settlement. The adoption of
and standards contributes to the elimination of manual intervention in clearing and settlement processing, reduces risks and
barriers to entry into a market. Therefore, an FMI should use or accommodate relevant internationally accepted communication
 e, efficient, and accurate communication between the FMI, its participants, their customers, and other users. In particular, an FMI
unication protocols, messaging standards, and reference data standards relating to counterparty identification and numbering
gated by the International Organization for Standardization should be carefully considered and adopted by an FMI.




                    Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 22.




                    Strate follows the SFIDvP in Central Bank Funds protocol and adheres to global best practice for STP.
                    Strate is a member of the NMP and SMPG groups for SWIFT standards.
                    Strate's messaging standards and technical specifications for interconnectivity support internationally accepted
                    communication procedures.

                    Strate also provides "Gateway" as alternative communication protocol as a cheaper alternative to SWIFT.

                    Strate uses internationally accepted communication systems to support its communication procedures. For this
                    reason Strate uses SWIFT and Incentage Middleware Suite (IMS) that enable interoperability between Strate
                    and CSDPs, business partners, issuers, etc. Strate also uses CISCO MPLS network to ensure effective and
                    efficient communication between Strate and its customers. These communications systems and networks are
                    able to support or adapt to the operational procedures laid in the Directives and other processes.
                    Strate has adopted the ISO 15022 standards for financial messaging (SWIFT) and IMS has the ability to do any-
                    to-any conversion of messaging standards and formats.
                    Further, ISINs are used to identify the financial instruments, transaction codes are used to identify the
                    transactions, and client codes are used to identify Participants, Business Partners etc.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                                               Iosco
Key Consideration                                                              Paper           Comments and Open Items
                                                                               Reference




                                                                               "Efficiency" = the resources required by the FMI to perform its functions.
                                                                               "Effectiveness" = refer to whether the FMI is meeting its intended goals and objectives.

                                                                               An FMI may establish links with other FMIs. A link is a set of contractual and operational arrangements between two or more FMIs that connect the FMIs directly or through
                                                                               establish a link with a similar type of FMI for the primary purpose of expanding its services to additional financial instruments, markets, or institutions. For example, a CSD (re
Principle 21: Efficiency and effectiveness                                     may establish a link to another CSD (referred to as an issuer CSD in which securities are issued or immobilised) to enable a participant in the investor CSD to access the se
                                                                               the participant’s existing relationship with the investor CSD. A CCP may establish a link with another CCP to enable a participant in the first CCP to clear trades with a partic
                                                                               the participant’s existing relationship with the first CCP. If an FMI establishes a link, it should identify, assess, and manage its links-related risks, including legal, operational,
                                                                               an FMI that establishes multiple links should ensure that the risks generated in one link do not spillover and affect the soundness of the other links and FMIs. Mitigation of su
                                                                               the use of strong risk-management controls, including additional financial resources, or the harmonisation of risk-management frameworks across FMIs.




                                                                                               Strate Limited's response on Principle 21.




1. An FMI should be designed to meet the needs of its participants and the
markets it serves, in particular, with regard to choice of a clearing and
settlement scheme; operating structure; scope of products recorded, cleared,
or settled; and use of technology and procedure.



                                                                                               Strate supports this Principle and Key Considerations.

                                                                                               Recommendation for FSB / IOSCO :

2. An FMI should have clearly defined goals and objectives that are                            1. Key to mention conflicts of interests between FMI and other
measurable and achievable, such as in the areas of minimum service levels,                     stakeholders (e.g. IT vendors; stakeholder needs) especially
risk-management expectations, and business priorities.                                         relevant for "for-profit" FMI's.
                                                                             Strate supports this Principle and Key Considerations.

                                                                             Recommendation for FSB / IOSCO :

                                                                             1. Key to mention conflicts of interests between FMI and other
                                                                             stakeholders (e.g. IT vendors; stakeholder needs) especially
                                                                             relevant for "for-profit" FMI's.




3. An FMI should have established mechanisms for the regular review of its
efficiency and effectiveness.
tions.
oals and objectives.

 ctual and operational arrangements between two or more FMIs that connect the FMIs directly or through an intermediary. An FMI may
  expanding its services to additional financial instruments, markets, or institutions. For example, a CSD (referred to as an investor CSD)
 in which securities are issued or immobilised) to enable a participant in the investor CSD to access the services of the issuer CSD through
  may establish a link with another CCP to enable a participant in the first CCP to clear trades with a participant in the second CCP through
stablishes a link, it should identify, assess, and manage its links-related risks, including legal, operational, credit, and liquidity risks. Further,
generated in one link do not spillover and affect the soundness of the other links and FMIs. Mitigation of such spill-over effects may require
nancial resources, or the harmonisation of risk-management frameworks across FMIs.




                     Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 21.



                     Strate consults widely with the market (affected stakeholders) in all projects. (E.g. Working Committee's and Forums,
                     Market Advisory Committees.)
                     Good that IOSCO recognises differences in CSD structures and choice of settlement schemes.

                     As part of the licensing requirements by the FSB, Strate must have sufficient human resources, financial resources,
                     business continuity planning, disaster recovery and other relevant matters (including IT systems, systems availability,
                     etc). Further, Strate continuously updates its Directives (existing and new Directives) and systems (SAFIRES Release,
                     expansion of SWIFT services, etc), and conducts systems testing with the CSDPs in order to meet the market needs.

                     Strate’s goals and objectives are as stated in the Corporate Strategy document approved by the Board. The goals and
                     objectives are measured in the Corporate Balanced Scored aligned to Divisional and Individual Balanced Scorecards.
                     Other measures include CSIs by the CSDPs, the FSB and other relevant stakeholders

                     Strate follows the SFIDvP in Central Bank Funds protocol and adheres to global best practice for STP. Strate adopts
                     SWIFT ISO 15022 standards.
                     Strate operates SECOM system, robust vendor relationships and constant monitoring of technologies and associated
                     risks by Strate ARC and Board.
                     SLA's in place with Exchange.Strate system up-time and reliability of settlement. - meeting service levels!
                     Strate subject to reviewed by international agendcies e.g. Thomas Murray.


                     Strate's costs closely monitored by Strate EXCO, ARC and Board. Strate conducted Pricing Study to ensure anti-
                     competitive behaviour is avoided.
expansion of SWIFT services, etc), and conducts systems testing with the CSDPs in order to meet the market needs.

Strate’s goals and objectives are as stated in the Corporate Strategy document approved by the Board. The goals and
objectives are measured in the Corporate Balanced Scored aligned to Divisional and Individual Balanced Scorecards.
Other measures include CSIs by the CSDPs, the FSB and other relevant stakeholders

Strate follows the SFIDvP in Central Bank Funds protocol and adheres to global best practice for STP. Strate adopts
SWIFT ISO 15022 standards.
Strate operates SECOM system, robust vendor relationships and constant monitoring of technologies and associated
risks by Strate ARC and Board.
SLA's in place with Exchange.Strate system up-time and reliability of settlement. - meeting service levels!
Strate subject to reviewed by international agendcies e.g. Thomas Murray.


Strate's costs closely monitored by Strate EXCO, ARC and Board. Strate conducted Pricing Study to ensure anti-
competitive behaviour is avoided.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                           Iosco Paper
Key Consideration                          Reference
                                                             Comments and Open Items



                                           An FMI may establish links with other FMIs. A link is a set of contractual and operational arrangements between two or more FMIs that connect the FMIs directly or through
                                           with a similar type of FMI for the primary purpose of expanding its services to additional financial instruments, markets, or institutions. For example, a CSD (referred to as an
                                           another CSD (referred to as an issuer CSD in which securities are issued or immobilised) to enable a participant in the investor CSD to access the services of the issuer CS
Principle 20: FMI Links                    relationship with the investor CSD. A CCP may establish a link with another CCP to enable a participant in the first CCP to clear trades with a participant in the second CCP
                                           relationship with the first CCP. If an FMI establishes a link, it should identify, assess, and manage its links-related risks, including legal, operational, credit, and liquidity risks.
                                           links should ensure that the risks generated in one link do not spillover and affect the soundness of the other links and FMIs. Mitigation of such spill-over effects may require
                                           controls, including additional financial resources, or the harmonisation of risk-management frameworks across FMIs.




                                                             Strate Limited's response on Principle 20.
                                                                                                    Recommendation to FSB / IOSCO:

                                                                                                    1. IOSCO focuses mainly on insolvency and default in guidelines in paragraphs
                                                                                                    3.20.5 – 3.20.18. It should also recommend the FMI should mesure, monitor and
                                                                                                    manage risks for natural disasters, etc.

                                                                                                    2. IOSCO does not address or make any reference to the other existing forms of
                                                                                                    foreign participation and the fact that FMI links may pose fewer challenges than
                                                                                                    for example a form of foreign participation where more intermediaries are
                                                                                                    interposed in the holding chain. FMIs links should be put into context.




                                                                                                    EN 3.20.1 = Why is the principle being limited to links between FMIs of the same
1. Before entering into a link arrangement and on an ongoing basis once the                         type (e.g. CSD to CSD or CCP to CCP) while links between FMIs of differing
link is established, an FMI should identify and assess all potential sources of   3.20.1 /2 / 5 8   types are referred to other Principles? (see footnote 118 on page 87)
risk arising from the link arrangement. Link arrangements should be designed      All Principles
such that each FMI is able to observe the other principles in this report.                          EN 3.20.1 = Agree that links should adhere to the other Principles. For example,
                                                                                                    operational risk considerations in Principle 17 should include not only
                                                                                                    operational risk associated with the FMIs own operations but also those related
                                                                                                    to the operation of link (supported by note 3.20.4)

                                                                                                    EN 3.20.5 = (and other notes related to CSD to CSD links) – The principles
                                                                                                    related to CSD to CSD links seem to include risk associated with securities
                                                                                                    settlement systems (particularly regarding credit risk) but this is not explicitly
                                                                                                    stated.


                                                                                                    EN 3.20.9 = Repeating the requirement to assess the risk associated with use of
                                                                                                    third parties is duplicative given that this is already addressed appropriately in
                                                                                                    other Principles.
                                                                                   Recommendation to FSB / IOSCO:

                                                                                   1) IOSCO document should distinguish clearly between:
                                                                                   (a) legal risk which is the possibility of an unexpected application of a law or
                                                                                   regulation or because a contract cannot be enforced, because (the application
                                                                                   of the home country (issuer CSD) law of jurisdiction which would determine the
                                                                                   CSD’s right to enforce its rules for a foreign participant and
                                                                                   (b) legal uncertainty about substantive law issues (what is law on a certain
                                                                                   matter?)

                                                                                   2) Strate agrees with Principle that choice of law must be spelled out clearly in
2. A link should have a well-founded legal basis, in the relevant jurisdictions,
                                                                                   agreement. However, IOSCO should recommend that jurisdiction of the country
that supports its design and provides adequate protection to the FMIs in the
                                                                                   where the issuer CSD is incorporated is checked and the law which applies to
operation of the link.
                                                                                   the securities. IOSCO should also recommend that an independent legal
                                                                                   opinion is obtained from the linked investor/issuer CSD that their respective
                                                                                   conflict of law rules which apply, do allow them freedom of contract as set out
                                                                                   in IOSCO.

                                                                                   3) Settlement finality can take place at various points of the service chain.
                                                                                   IOSCO should be clear that this is not just finality within own system, but also
                                                                                   in link FMI.

                                                                                   4) See comment to FSB on netting in Principle 1.
                                                                                                Recommendation to FSB / IOSCO:

                                                                                                1)Strate agrees that IOSCO seems to follow a risk-based approach to regulation
                                                                                                of links (3.20.2 and key consideration 1), but this approach should be expressly
                                                                                                stated as a separate “Key Cconsideration”.

                                                                                                2) Check the CSD’s default procedures for any loss-sharing arrangements that
                                                                                                will expose participants in the linked CSD (3.20.6). This is because an
                                                                                                unexpected liquidity pressure or losses may occur. IOSCO should make a
                                                                                                recommendation on default procedures with regards to links. Strate agrees that
                                                                                                finality of transfer must be ensured together with this.

                                                                                                3) On credit risk: The question is who bears the risk in each link scenario? Is it
3. Linked CSDs should measure, monitor, and manage their credit and liquidity
                                                                                                the client’s obligation to ensure that the appointed Participant is in a position to
risks arising from each other. Any credit extensions between CSDs should be
                                                                                                honour its obligations on settlement day? For example, for sale transactions
covered fully with high-quality collateral and be subject to limits.
                                                                                                unencumbered securities should be available for delivery and for purchases, or
                                                                                                the purchase obligation may be pre-funded. IOSCO should give guidelines on
                                                                                                these practical issues. IOSCO should recommend that regulation is risk-based
                                                                                                to ensure that these links are not over-regulated.

                                                                                                4) On principal risk: disconnection between the payment and the transfer of
                                                                                                ownership of securities should be addressed with settlement convention of
                                                                                                simultaneous final and irrevocable delivery versus payment. What other
                                                                                                guideline could IOSCO give in this regard?

                                                                                                5) IOSCO should advise on systemic risk if pre-funding would be required for
                                                                                                cash obligations or whether other requirements are set?



4. Provisional transfers of securities between linked CSDs should be prohibited                 Recommendation to FSB:
                                                                                 3.20.6 and
or, at a minimum, the retransfer of provisional transferred securities should be
                                                                                 Principle 1
prohibited prior to the transfer becoming final.                                                1) The CSD Rules should prohibit this practice.


                                                                                                Also for investor CSD’s customers. Segregation is important.

                                                                                                Recommendation to FSB / IOSCO:

                                                                                                1) IOSCO should provide guidelines that segregation should be effected for
5. An investor CSD should only establish a link with an issuer CSD if the        3.20.6 / 7     customers in nominee/omnibus accounts.
arrangement provides a high level of protection for the rights of the investor   Principle 11
CSD’s participants.                                                              and 14         2) IOSCO should recommend that UNIDROIT principle of prohibition of
                                                                                                attachment in upper-tier intermediary applies to link CSDs.

                                                                                                3) Reconciliation standards required, because a reconciliation on only one
                                                                                                level/tier may not address the concern.
                                                                                                     Recommendation to FSB / IOSCO:

                                                                                                     1) IOSCO should recommend that any critical outsource arrangement with a
6. An investor CSD that uses an intermediary to operate a link with an issuer
                                                                                                     service provider (eg custodian bank) should be subject to this requirement.
CSD should measure, monitor, and manage the additional risks (including               3.20.4 and 9
custody, credit, and operational risks) arising from the use of an intermediary.
                                                                                                     2) Business continuity plans of intermediary is but one example of what should
                                                                                                     be checked. What else is recommended?




7. Before entering into a link with another CCP, a CCP should identify and
assess the potential spillover effects of the linked CCP’s default and assess its
ability to cope with such occurrence. If a link has three or more CCPs, each          3.20.1/2       Not applicable to Strate.
CCP should identify, assess, and manage the risks of the collective links
arrangement.




8. The inter-CCP risk management for the provision and holding of financial
resources should enable each CCP to cover at least on a daily basis its current
exposures fully and its potential future exposure with a high degree of                              Not applicable to Strate.
confidence, without reducing the CCP’s ability to fulfil its own obligations at any
time.
nal arrangements between two or more FMIs that connect the FMIs directly or through an intermediary. An FMI may establish a link
 al financial instruments, markets, or institutions. For example, a CSD (referred to as an investor CSD) may establish a link to
sed) to enable a participant in the investor CSD to access the services of the issuer CSD through the participant’s existing
 nable a participant in the first CCP to clear trades with a participant in the second CCP through the participant’s existing
and manage its links-related risks, including legal, operational, credit, and liquidity risks. Further, an FMI that establishes multiple
 soundness of the other links and FMIs. Mitigation of such spill-over effects may require the use of strong risk-management
 ment frameworks across FMIs.




                    Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 20.
Good that IOSCO recognises links between FMI's and CSD's expanding services other than core
services.

Key for Strate to identify, assess and manage link-related risks (including legal, operational, custody, credit and
liquidity risks).
Key for robust DR facilities to prevent contagion effect (where there are multiple links, risks from one link must
not spillover to other links).

IOSCO to specifically mention concentration risks!
Good that IOSCO recognises links between FMI's and CSD's expanding services other than core
services.

Key for Strate to identify, assess and manage link-related risks (including legal, operational, custody, credit and
liquidity risks).
Key for robust DR facilities to prevent contagion effect (where there are multiple links, risks from one link must
not spillover to other links).

IOSCO to specifically mention concentration risks!
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                 Iosco
Key Consideration                                Paper            Comments and Open Items
                                                 Reference




Principle 19: Tiered                             From a broad perspective, since FMIs perform essential functions in financial markets, tiered participation arrangements may arise for using the FMI. For example, tiered arrangements can occur when pa
                                                 provide services to their customers using an FMI’s central facilities. These customers, in turn, may provide services to their customers using the FMI’s services, and so on. These tiered organisational stru
participation                                    dependencies they create, can present risks to an FMI as well as the broader financial markets. This principle encourages FMIs to identify, understand, and manage their risks arising from tiered participa
                                                 recognising that the ability of a particular FMI to identify, understand, and manage all such risks is likely to be limited.
arrangements

                                                                 Strate Limited's response on Principle 19.




                                                                 Recommendation to FSB / IOSCO:
1. An FMI should, to the extent practicable,
identify, understand, and manage its potential
                                                                 1. IOSCO should insist on segregation being applied to all levels.
risks arising from such tiered participation
                                                 3.19.3 and 4
arrangements. The risks identified and the
proposed mitigating actions should be reported
to the FMI’s board of directors.
                                                                Strate does not support this Principle. The data that is required to be collected can only be after
                                                                the fact, which does not help manage risk. While the Principle acknowledges the practical
                                                                difficulties in implementing this Principle, the practical reality is that the logistical, informational
                                                                and legal challenges to effectively implementing this Principle are insurmountable.
2. An FMI should ensure that its rules and
agreements with direct participants allow it to                 Any Principle addressing the risk associated with indirect participation in FMIs needs to
gather basic information about indirect                         recognize the risk management practices and regulation applied to direct Participants in their
participation and to identify, monitor, and                     dealings with their clients. Introducing additional requirements at the FMI-level will create
manage relevant concentrations of risk and                      duplication, increase cost and could potentially create conflicts between the regulatory
important interdependencies. As far as possible,                requirements of the direct participants regulators and the requirements of the FMI.
an FMI should seek to identify direct participants
acting on behalf of a material number of indirect
                                                                There are tremendous challenges regarding the confidentially of the indirect participants
participants, indirect participants with significant
                                                                information and activity. These need to be carefully balanced against the additional visibility
daily turnover in the system, those that are larger
                                                                provided by this principle.
than the direct participants through which they
access the FMI, or that pose other specific risks.
                                                                Recommendation to FSB / IOSCO:

                                                                1. The FSB should take a stronger stance on transparency and disclosure by Participants to the
                                                                CSD. IOSCO must also define segregation and take a stronger stance on what it entails.

                                                                2. The Principle does not specify how far down the tiers this must occur. It will also drastically
                                                                increase the administrative costs to regulate this. How will this be applied to FMIs that are not
                                                                SROs?
                                                                These are functions of the regulators, not the FMIs. This will result in a conflict of interest with
                                                                members / participants of an FMI.

                                                                Further,

                                                       3.19.5   KC1 – Why is there a special requirement for reporting on this risk to the Board? Reporting of
                                                                this risk should be considered against criteria applied to other risks when considering reporting
                                                                to the Board (e.g. materiality, etc.)

                                                                KC2 – It is likely that significantly more that “basic information” would be required in order to
                                                                effectively meet the spirit of this Principle.

                                                                KC3 – Reviewing rules and procedures applicable only to direct Participants as a means of
                                                                responding to risk issues related to indirect Participants seems problematic and highlights the
                                                                practical difficulty associated with this Principle generally.

                                                                The following comments are not limited to any one explanatory note unless specifically
                                                                referenced:

                                                                If a Principle regarding tiered participant arrangements is included in the final Principles,
                                                                consideration should be given to requiring direct Participants acting on behalf of indirect
                                                                Participants to confirm that they have identified and assessed indirect Participant risk consistent
                                                                with all the IOSCO Principles.

                                                                This Principle would only seem to address a single layer of indirect participation. In practice,
                                                                their could be multiple tiers of participation. This again highlights the practical difficulty in
                                                                implementing a principle regarding tiered participant arrangements.

                                                                In practice, the application of this Principle would likely vary considerably across various
                                                                jurisdictions, particularly due to varying legal and confidentiality constraints in different
                                                                jurisdictions.
                                                                   There are tremendous challenges regarding the confidentially of the indirect participants
                                                                   information and activity. These need to be carefully balanced against the additional visibility
                                                                   provided by this principle.

                                                                   Recommendation to FSB / IOSCO:

                                                                   1. The FSB should take a stronger stance on transparency and disclosure by Participants to the
                                                                   CSD. IOSCO must also define segregation and take a stronger stance on what it entails.

                                                                   2. The Principle does not specify how far down the tiers this must occur. It will also drastically
                                                                   increase the administrative costs to regulate this. How will this be applied to FMIs that are not
                                                                   SROs?
                                                                   These are functions of the regulators, not the FMIs. This will result in a conflict of interest with
                                                                   members / participants of an FMI.

                                                                   Further,

                                                          3.19.5   KC1 – Why is there a special requirement for reporting on this risk to the Board? Reporting of
                                                                   this risk should be considered against criteria applied to other risks when considering reporting
                                                                   to the Board (e.g. materiality, etc.)

                                                                   KC2 – It is likely that significantly more that “basic information” would be required in order to
                                                                   effectively meet the spirit of this Principle.
3. If an FMI identifies material risks arising from
tiered participation arrangements, it should
                                                                   KC3 – Reviewing rules and procedures applicable only to direct Participants as a means of
periodically review the system rules and
                                                                   responding to risk issues related to indirect Participants seems problematic and highlights the
procedures with its board to determine whether
                                                                   practical difficulty associated with this Principle generally.
there are potential issues related to indirect
participation in terms of legal structure, finality, or
the stable operation of the system, and ensure                     The following comments are not limited to any one explanatory note unless specifically
that the nature of each user’s participation is                    referenced:
clearly defined.
                                                                   If a Principle regarding tiered participant arrangements is included in the final Principles,
                                                                   consideration should be given to requiring direct Participants acting on behalf of indirect
                                                                   Participants to confirm that they have identified and assessed indirect Participant risk consistent
                                                                   with all the IOSCO Principles.

                                                                   This Principle would only seem to address a single layer of indirect participation. In practice,
                                                                   their could be multiple tiers of participation. This again highlights the practical difficulty in
                                                                   implementing a principle regarding tiered participant arrangements.

                                                                   In practice, the application of this Principle would likely vary considerably across various
                                                                   jurisdictions, particularly due to varying legal and confidentiality constraints in different
                                                                   jurisdictions.
on arrangements may arise for using the FMI. For example, tiered arrangements can occur when participants in an FMI
ide services to their customers using the FMI’s services, and so on. These tiered organisational structures, along with the
inciple encourages FMIs to identify, understand, and manage their risks arising from tiered participation arrangements,
 to be limited.



                   Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 19.

                   As above, Strate's Audit & Risk Committee and Strate ERM division monitor adherence to Strate's risk
                   tolerances. "Risk" is on every Board agenda.
                   E.G the New Business Committee and internal structures (CAB, Change Control, EXCO etc) are
                   responsible for identifying and managing risk exposures.
                   But - whilst we monitor risks that can be introduced from direct Participants, the only indirect
                   Participant we monitor would be from licensed Business Partners. The risks which can be introduced
                   from other indirect participants (e.g. clients of Participants or Business Partners) are NOT monitored.
                   The risks introduced by any service provider or vendor to Strate are monitored and the relationship
                   controlled via contracts and SLA's.

                   A potentially valid proposal but Strate does not have resources to monitor risks exposures
                   from such indirect participants and relies on the controls of Participants and Business
                   Partners to mitigate these risks. Undertaking such a role will significantly increase costs for
                   the SA market.
Strate does not gather information about the clients of a Participant!

A potentially valid proposal but Strate does not have resources to monitor risks exposures from such
indirect participants and relies on the controls of Participants and Business Partners to mitigate these
risks.

An SOR for the South African market may assist in identifying the risk exposures of indirect
Participants.
Strate does not gather information about the clients of a Participant!

A potentially valid proposal but Strate does not have resources to monitor risks exposures from such
indirect participants and relies on the controls of Participants and Business Partners to mitigate these
risks.

An SOR for the South African market may assist in identifying the risk exposures of indirect
Participants.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                                                    Iosco
Key Consideration                                                                   Paper           Comments and Open Items
                                                                                    Reference




                                                                                    Access refers to the ability to use an FMI’s services and includes the direct use of the FMI’s services by participants, including other market infrastructures (for example, trad
                                                                                    providers (for example, matching and portfolio compression service providers). In some cases, this includes the rules governing indirect participation. An FMI should permit
Principle 18: Access and participation                                              services. It should, however, control the risks to which it is exposed by its participants by setting objective risk-based requirements for participation in its services. An FMI sh
requirements                                                                        and any linked FMIs have the requisite operational capacity, financial resources, legal powers, and risk-management expertise so that their activities do not generate unacc
                                                                                    other participants. An FMI’s participation requirements should be clearly stated and publicly disclosed, so as to eliminate ambiguity and promote transparency.




                                                                                                   Strate Limited's response on Principle 18.

                                                                                                   Strate supports this Principle and Key Considerations.
1. An FMI should allow for fair and open access to its services, including by
direct and, where relevant, indirect participants and other FMIs, based on
reasonable risk-related participation requirements.                                                Strate supports the view that an FMI should establish fair and open
                                                                                                   access to its services, for both direct and indirect participants, other
                                                                                                   market infrastructures and where relevant service providers, with any
                                                                                                   restrictions justifiable only in terms of specific issues and risk
                                                                                                   considerations impacting the safety and efficiency of the FMI or the
                                                                                                   markets it serves. An FMI should not discriminate.

                                                                                                   Recommendation to FSB / IOSCO:
2. Any restrictions in an FMI’s participation requirements should be justified in
terms of the safety and efficiency to the FMI and the markets it serves, be                        1. The Principle could be enhanced to specifically refer to access
tailored to its specific risks, and be publicly disclosed.                                         from applicants in all jurisdictions - this is with reference to both local
                                                                                                   and foreign applicants i.e. this is applicable for issues where entities
                                                                                                   are incorporated, located or otherwise conducting business for the
                                                                                                   purpose of participation outside the home jurisdiction (Linked to
                                                                                                   Principle 1).

                                                                                                   2. With regards to monitoring compliance, not all CSD's are Self-
                                                                                                   Regulatory Organisations or entities that would have a direct
                                                                                                   supervisory responsibility. Further, not all direct and indirect
                                                                                                   Participants may be regulated entities! In order to manage the risks
                                                                                                   that a FMI may face, Strate supports the view that an FMI should be
                                                                                                   directly obliged to monitor compliance with its participation
                                                                                                   requirements on an on-going basis. Further, Strate supports the view
                                                                                                   that an FMI should have the authority to impose more stringent
                                                                                                   restrictions or penalties in situations where there are instances or non-
                                                                                                   compliance or increased risk.
                                                                                     Recommendation to FSB / IOSCO:

                                                                                     1. The Principle could be enhanced to specifically refer to access
                                                                                     from applicants in all jurisdictions - this is with reference to both local
                                                                                     and foreign applicants i.e. this is applicable for issues where entities
                                                                                     are incorporated, located or otherwise conducting business for the
                                                                                     purpose of participation outside the home jurisdiction (Linked to
                                                                                     Principle 1).

                                                                                     2. With regards to monitoring compliance, not all CSD's are Self-
                                                                                     Regulatory Organisations or entities that would have a direct
                                                                                     supervisory responsibility. Further, not all direct and indirect
                                                                                     Participants may be regulated entities! In order to manage the risks
3. An FMI should monitor compliance with its participation requirements on an        that a FMI may face, Strate supports the view that an FMI should be
ongoing basis, and have clear procedures for facilitating the suspension and         directly obliged to monitor compliance with its participation
orderly exit of a participant that breaches, or no longer meets, the participation   requirements on an on-going basis. Further, Strate supports the view
requirements.                                                                        that an FMI should have the authority to impose more stringent
                                                                                     restrictions or penalties in situations where there are instances or non-
                                                                                     compliance or increased risk.
 ct use of the FMI’s services by participants, including other market infrastructures (for example, trading platforms) and service
 ders). In some cases, this includes the rules governing indirect participation. An FMI should permit fair and open access to its
  participants by setting objective risk-based requirements for participation in its services. An FMI should ensure that its participants
ources, legal powers, and risk-management expertise so that their activities do not generate unacceptable risk for the FMI and
stated and publicly disclosed, so as to eliminate ambiguity and promote transparency.




                     Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 18.




                     Strate projects and initiatives impacted include, SOR, Golden Source, CSD Links, SDA's, Trade Repository
                     Register.
                     The participation criteria requires Participants to maintain adequate financial resources, human resources,
                     systems, etc, all aimed at addressing risks. The CSD Rules require a Participant who ceases to meet the
                     participation criteria to immediately notify the CSD in writing.
Strate projects and initiatives impacted include, SOR, Golden Source, CSD Links, SDA's, Trade Repository
Register.
The participation criteria requires Participants to maintain adequate financial resources, human resources,
systems, etc, all aimed at addressing risks. The CSD Rules require a Participant who ceases to meet the
participation criteria to immediately notify the CSD in writing.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                                   Iosco
Key Consideration                                                  Paper           Comments and Open Items
                                                                   Reference




                                                                   Operational risk is the risk that deficiencies in information systems, internal processes, and personnel, or disruptions from external events will result in the reduction, deterioration, or break
                                                                   of services provided by an FMI. Operational failures can damage an FMI’s reputation or perceived reliability, lead to legal consequences and result in financial losses incurred by the FMI,
Principle 17: Operational risk                                     participants, and other parties. In certain cases, operational failures can also be a source of systemic risk. An FMI should establish a robust framework to manage its operational risks. As
                                                                   of an FMI’s operational risk-management framework, the FMI should identify all plausible sources of operational risk; deploy appropriate systems; establish appropriate policies, procedure
                                                                   and controls; set operational reliability objectives; and develop a business continuity plan. An FMI should take a holistic approach when establishing its operational risk-management
                                                                   framework.



                                                                                  Strate Limited's response on Principle 17.




1. An FMI should establish a robust operational risk-management
                                                                 Principle 3
framework with appropriate systems, policies, procedures, and
                                                                and 3.17.2 - 7
controls to identify, monitor, and manage operational risks.




2. The roles and responsibilities for operational risk should be
clearly defined within the FMI, and the FMI’s operational risk-
management framework should be endorsed by the FMI’s board
of directors. Risks, operational policies and procedures, and
systems should be reviewed, audited, and tested periodically and
after significant changes.




                                                                                  Strate supports this Principle and Key Considerations.
3. An FMI should have clearly defined operational reliability
objectives and should have policies in place that are
commensurate with those objectives. An FMI should have                   3.17.8 - 10
adequate capacity and scalability, as well as the tools and
procedures to monitor the performance of the FMI.
                                                                                        Strate supports this Principle and Key Considerations.




4. An FMI should have well-defined physical and information
security policies. All potential vulnerabilities and threats should be     3.17.11
investigated, assessed, and documented.




5. An FMI should have a business continuity plan that addresses
events posing a significant risk of disrupting operations, including
events that could cause a wide-scale disruption. The plan should
incorporate the use of a secondary site and should ensure that
critical information technology (IT) systems can resume                  3.17.12 - 15
operations within two hours following disruptive events. In case of
extreme circumstances, settlement should be ensured by the end
of the day at the latest. The FMI should plan and carry out a
programme of tests of these arrangements.


6. An FMI should identify, monitor, and manage the risks that key
participants, other FMIs, and service and utility providers might
                                                                           3.17.16
pose to its operations. In addition, an FMI should identify, monitor,
and manage the risks its operations might pose to other FMIs.
ms




tems, internal processes, and personnel, or disruptions from external events will result in the reduction, deterioration, or breakdown
 age an FMI’s reputation or perceived reliability, lead to legal consequences and result in financial losses incurred by the FMI,
ailures can also be a source of systemic risk. An FMI should establish a robust framework to manage its operational risks. As part
I should identify all plausible sources of operational risk; deploy appropriate systems; establish appropriate policies, procedures,
p a business continuity plan. An FMI should take a holistic approach when establishing its operational risk-management




                    Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 17.




                    Strate ERM drives risk management throughout the CSD. Robust internal controls and risk management, DR
                    and BCP procedures,Change Control, etc are implemented and are audited. All divisions are responsible for
                    managing their risks - included in Strate's Performance Management program (Balanced Score Cards).
                    Central Know-Risk tool records all risks (Impact, Probability, Weightings, KPI's, Controls and Consequences).
                    Internal and external sources of risk are included.
                    Strate Audit and Risk Committee established to monitor and access risks and set tolerence levels.
                    Strate Rules impose stringent internal control and risk management procedures on Participants which are
                    audited by Registered Auditors in terms of a Strate Audit Circular and subject to supervision by STRATE
                    Supervision.
                    Strate ensures it has adequate and skilled personnel to manage its operations - one of Strate's license
                    conditions. Credit and criminal checks on staff are performed.

                    If Strate links to other CSDs (Link) then additional risk exposures must be fully understood. Services in other
                    jurisdictions / time zones may increase operational risk.
Operational Excellence is a key corporate goal.

Strate has robust and well documented operational reliability and incident management policies and
procedures. Strate has a fully functional Change Advisory Board (CAB) that monitors these aspects.
Strate closely monitors system capacity and scalability - and reporting to the Board takes place - FSB is an
observer.
Employment of sufficient and well-qualified personnel is aimed for.
Formal change / release / project - management is adopted to minimise oeprational risks.
Post-mortems are conducted after incidents and root-cause analysis is undertaken to prevent reoccurrence.
Vendor management and outsource agreements are closely monitored. SLA's in place with JSE, SARB.
Capacity and Scalability issues reported to Strate ARC and Board and are considered good.
All documents required by law are kept for as long as required.



Security (IT and Physical) plans and procedures are in place, are tested, audited and monitored by Strate
ARC.
A new Information Security Policy has been implemented and its effectiveness is being assessed.
Enhancements in mobile computer security are being investigated.

Strate Rules impose security requirements on Participants which are supervised by STRATE Supervision -
subject to bi-annual testing.

Operational Excellence is a key corporate goal.
Stringent BCP and DR plans and procedures are in place, are tested, audited and monitored by Strate ARC.
Contingency plans are in place with the SARB for cash payments that allows for late settlement processing.
Crisis management team and plans exist - including informing third parties eg: FSCF.
Industry wide DR testing is done with market stakeholders.

Strate Rules impose DR and BCP requirements on Participants which are supervised by STRATE Supervision -
subject to bi-annual testing.

Strate ERM drives risk management throughout the CSD. Robust internal controls and risk management
procedures are implemented and are audited.
Vendor management and outsource agreements (except operations) are closely monitored. SLA's in place
with JSE, SARB.
Strate Audit and Risk Committee established to monitor and access risks and set tolerance levels - FSB
observer.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                              Iosco
Key Consideration                                             Paper          Comments and Open Items
                                                              Reference




Principle 16: Custody and                                     An FMI has the responsibility to safeguard its assets, such as cash and securities, including assets that its participants have posted to the FMI. Custody risk is the risk of loss on assets held
                                                              in custody in the event of a custodian’s (or subcustodian’s) insolvency, negligence, fraud, poor administration, or inadequate recordkeeping. Assets that are used by an FMI to support its
investment risk                                               operating funds, capital funds, or that have been posted by participants to secure their obligations to the FMI, should be held at supervised or regulated entities that have strong processes,
                                                              systems, and credit profiles. In addition, assets should generally be held in a manner that assures the FMI prompt access to those assets in the event that an FMI needs to draw on them.
                                                              Investment risk refers to the risk of loss faced by an FMI when it invests its own resources or cash margin posted by its participants in obligations with market, credit, and liquidity risks.



                                                                             Strate Limited's response on Principle 16.




1. An FMI should hold its assets, including assets that its
participants have posted to it, at supervised and regulated
entities that have robust accounting practices, safekeeping     3.16.1 / 2
procedures, and internal controls that fully protect these
assets.


                                                                             Strate supports this Principle and Key Considerations.

                                                                             Recommendation to FSB / IOSCO:

2. An FMI should have prompt access to its assets,             Principle 4   1. This is a powerful Principle and maybe requires more
including assets posted by participants, when required.        and 3.16.3    guidance.




3. An FMI’s investment strategy should be consistent with
its overall risk-management strategy, and investments
                                                               Principle 4
should be secured by, or be claims on, high-quality
                                                               and 3.16.4
obligors. These investments should allow for quick
liquidation with little, if any, adverse price effect.
ems




as cash and securities, including assets that its participants have posted to the FMI. Custody risk is the risk of loss on assets held
 insolvency, negligence, fraud, poor administration, or inadequate recordkeeping. Assets that are used by an FMI to support its
  participants to secure their obligations to the FMI, should be held at supervised or regulated entities that have strong processes,
erally be held in a manner that assures the FMI prompt access to those assets in the event that an FMI needs to draw on them.
hen it invests its own resources or cash margin posted by its participants in obligations with market, credit, and liquidity risks.



                    Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 16.




                    Strate's Audit and Risk Committee monitors and assesses Strate's risks exposures and sets tolerence levels
                    and appropriate investment guidelines. Adequate and suitable insurance is in place.
                    Strate's cash is held at a bank regulated by the SARB (one of the Big Four Banks).
                    Strate's financial position is reviewed annually by the FSB.
                    The only asset held under this consideration is cash - and cash is not protected in the event of a bank
                    insolvency or curatorship.


                    Strate does not stand in for the default of a Participant or hold collateral for them.
                    Strate's investment policy (approved by the Board) dictates that assets are split amongst different banks - and
                    only governs the CSD's own assets.

                    Bank and Non-Bank Participants are supervised by Strate in its SRO capacity and continuous adherence to
                    entry criteria (including financial soundess requirements ) are constantly monitored.

                    Strate maintains electronic registers and has full acess when and if required.




                    Strate does not invest Participant assets or stand in for their defaults.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                                             Iosco
Key Consideration                                                            Paper           Comments and Open Items
                                                                             Reference




                                                                             An FMI bears certain risks and potential losses, related to its administration and operation as a business enterprise (that is, general business risks), that are not related to participa
                                                                             covered by financial resources under the credit or liquidity risk principles. General business risk refers to any potential impairment of the financial position (as a business concern)
Principle 15: General business risk                                          consequence of a decline in its revenues or growth in its expenses, such that expenses exceed revenues and result in a loss that must be charged against capital. Such impairme
                                                                             variety of business factors, such as poor execution of business strategy, an ineffective response to competition, losses in other business lines of the FMI or its parent, changes to
                                                                             environment, or reputational events. Business-related losses also may arise from risks covered by other principles, for example, legal risk (such as legal actions against the FMI’s
                                                                             investment risk of the FMI’s resources, or operational risk (such as fraud, theft, or loss). An FMI should have robust management and control systems to identify, monitor, and man
                                                                             risk.


                                                                                            Strate Limited's response on Principle 15.



1. An FMI should have robust management and control systems to
identify, monitor, and manage general business risks, including business                    Strate supports this Principle and Key Considerations.
strategy, cash flows, and operating expenses.




2. An FMI should hold sufficient equity or equity capital, in the form of    3.15 page 71
shareholders’ funds (such as common stock, disclosed reserves, or
retained earnings), to cover potential general business losses, so that it
can continue providing services as a going concern. Resources held to                       Strate supports this Principle and Key Considerations.
cover potential general business losses should be in addition to
resources held to cover participant defaults or other risks covered under
financial resource principles.
3. At a minimum, an FMI should hold equity capital at normal times equal
to [six, nine, or twelve] months of expenses. An FMI may also need to                           Recommendation to FSB / IOSCO:
hold additional equity capital, taking into account its general business risk
profile. Capital held under international risk-based capital standards                          1. The Consideration should not be specific or impose a timeframe and
should be included where relevant and appropriate to avoid double                               should be determined by the local regulator and Board of the FMI.
regulation.
                                                                                  3.15.6 page
                                                                                       72



4. In addition to capital adequacy, an FMI’s equity capital should reflect a
strong cash, cash-equivalent, or securities position to allow the FMI to
meet its current and projected operating expenses under a range of
                                                                                                Strate supports this Principle and Key Considerations.
scenarios; cash equivalents and securities should consist of high-quality
and sufficiently liquid assets that can easily be converted into cash at little
or no loss of value, even in adverse market conditions.




5. An FMI should maintain a viable plan for (a) raising additional capital                      Recommendation to FSB / IOSCO:
should its equity capital approach or fall below the minimum; and (b) if the
FMI is unable to raise new capital, achieving an orderly wind down or                           1. With regards to the reference to "Capital" - IOSCO should define what
                                                                             3.15.8 page
reorganisation of its operations and services. This plan should be                              capital includes - for example are borrowings, guarantees in favour of the
                                                                                  73
approved by the board of directors (or an appropriate board committee),                         FMI etc included?
updated regularly, and reviewed by the FMI’s regulator, supervisor, or
overseer.
and operation as a business enterprise (that is, general business risks), that are not related to participant default or separately
neral business risk refers to any potential impairment of the financial position (as a business concern) of an FMI as a
 t expenses exceed revenues and result in a loss that must be charged against capital. Such impairment can be caused by a
 neffective response to competition, losses in other business lines of the FMI or its parent, changes to the regulatory
 from risks covered by other principles, for example, legal risk (such as legal actions against the FMI’s custody arrangements),
eft, or loss). An FMI should have robust management and control systems to identify, monitor, and manage its general business



                    Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 15.




                    Strate's Audit and Risk Committee monitors and assesses Strate's risks exposures and sets tolerence
                    levels and appropriate investment guidelines.
                    Strate Exco and Board closely monitor revenue streams and constantly aim to reduce costs - also looking
                    for new sources of revenue.
                    Recent Strate pricing changes to ensure revenue from several sources and no over-reliance on single
                    source.
                    Strate's Strategic Themes are reported to the Board quarterly.
                    Specific PIMO division to conduct research and development of new products and services.
                    Strate adopts stringent financial reporting and has a strong cash balance-sheet.
                    The New Business Sub-Committee has been set to consider new business and further reviews the new
                    business checklist prepared by management. The new business checklist also highlights new risks that may
                    be brought in by such business.
                    The Business Continuity Management Policy has been implemented and is subject to an independent
                    review by Auditors. The Incident Management Process has also been implemented to address incidents or
                    scenarios that may affect business continuity.
As above.

For Non-Bank Participants, Strate imposes Bank Guarantee requirement for 6 times monthly operating
expenses.




Strate's own position is set and monitored by Strate Audit and Risk Committee.
The Investment Policy has been implemented and approved by the Board.
Prudential regulation of Bank Participants via MOU with Central Bank.
Non-Bank Participants subject to 6 month Bank Guarantee, in favour of Strate, condition.



Strate's own position is set and monitored by Strate Audit and Risk Committee.
In respect of Strate, the FSB, as part of the CSD licensing requirements, requires Strate to maintain
sufficient capital resources. Strate submits its financial results to the FSB annually.


Prudential regulation of Bank Participants via MOU with Central Bank.
Non-Bank Participants subject to 6 month Bank Guarantee, in favour of Strate, condition.

Letter of Undertaking and Indemnity must be provided by Capital Sponsor of any Participant not being able
to meet the Strate financial soundness requirements.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                            Iosco
Key Consideration                           Paper           Comments and Open Items
                                            Reference




                                            The segregation of customers’ positions and collateral plays an important part in the safe and effective holding and transfer of
                                            customers’ positions and collateral especially in the event of a participant’s default or insolvency. Segregation refers to a
                                            method of protecting customer collateral and contractual positions by holding or accounting for them separately from those of
                                            the direct participant (such as a carrying firm or broker). Effective segregation arrangements can reduce the impact of a
Principle 14: Segregation and portability   participant’s insolvency on its customers by providing for clear and reliable identification of customer positions and collateral.
                                            Segregation also protects a customer’s collateral from becoming unavailable or permanently lost as a result of a participant’s
                                            insolvency. In addition, segregation facilitates the transfer of customers’ positions and collateral. Even if no transfers take
                                            place, segregation can improve a customer’s ability to identify and recover its collateral, which, at least to some extent,
                                            contributes to retaining customers’ confidence in their clearing participants and may reduce the potential for “counterparty
                                            runs” on a deteriorating clearing participant.


                                                           Strate Limited's response on Principle 14.
                                                                                              Strate supports this Principle and Key Considerations.
                                                                                              However, Strate mentions the segregation and portability of securities - and is not limited to CCP's and
                                                                                              the segregation of cash / money.

                                                                                              Recommendations:

                                                                                              1. This Principle should be extended and should apply to CSDs and any other intermediary in a
                                                                                              securities holding chain.

                                                                                              2. Reference to the wording " to the greatest extent possible " is not supported. IOSCO should
1. A CCP should have segregation and portability arrangements that protect                    recommend full segregation to end investor / Beneficial Owner level - supported by legislation.
customer positions and collateral to the greatest extent possible under           3.14.1 page
applicable law, particularly in the event of a default or insolvency of a              66     3. Segregation and portability must be able to withstand insolvency laws.
participant.
                                                                                              4. Strate supports a direct holding model. IOSCO should recommend segregation to all levels in a
                                                                                              holding chain. Individual accounts may also allow regulators to perform market surveillance more
                                                                                              effectively and proactively prevent money laundering and terrorism financing.

                                                                                              5. Segregation and portability should not always be linked but should also be dealt with separately.
                                                                                              Segregation is important for other purposes e.g. attachments, securities interests, pledges, collateral
                                                                                              management etc. Strate supports segregation of securities as one would not want loss-sharing
                                                                                              arrangements unnecessarily in an insolvency / default situation.

                                                                                              6. Portability can be enhanced with the pre-appointment of a "Secondary" Intermediary i.e. investors
                                                                                              appoint a "Primary" Intermediary who administers their accounts, but they proactively appoint a
                                                                                              "Secondary" Intermediary who steps in and immediately fulfills the functions of the primary
                                                                                              intermediary should the Primary Intermediary be placed in an insolvency / default proceeding.


                                                                                              Further considerations:
                                                                                              Page 4/5
                                                                                              1) What are the different models and approaches to establishing segregation and portability? What are
                                                                                              their pros and cons respectively, for example in terms of efficiency and level of protection that can be
                                                                                              achieved?
2. A CCP should employ an account structure that enables it readily to identify
and segregate positions and collateral belonging to customers of a participant.   3.14.5 page
Such CCPs should maintain customer collateral and positions in an omnibus              67     Models of segregation can include for example:
account or in individual accounts at the CCP or at its custodian.                             CCP/CSD
                                                                                              client / client
                                                                                              CCP / client
                                                                                              CSD / client
                                                                                              CSD / CSD
                                                                                              CSD / Participant
                                                                                              Participant / client;
                                                                                              and combinations thereof.

                                                                                              * The basic approach to segregation should be not only the protection of the FMI or between FMIs and
                                                                                              another group, but at all levels in a holding chain.
                                                                                              * Efficiency and cost debates exist when segregation is proposed but this should be weighed against
                                                                                              the benefits of transparency and investor protection.
                                                                                              * Problem with supervising segregation at lower levels by an FMI whose power does not extend to
                                                                                              lower levels. Instances of regulatory arbitrage and unlevel playing fields where requirements do not
                                                                                              apply to all tiers. This Principle should also apply cross borders. IOSCO should recommend to
                                                                                              regulators and government to legislate and harmonise segregation.




                                                                                              2) Is there any one option or model in particular that could usefully serve as a minimum requirement?
                                                                                              Would it be possible to identify a specific approach to segregation and portability that could be
                                                                                              defined as best practice?

                                                                                              Minimum requirement should be segregation between FMIs or intermediaries proprietary positions
                                                                                                  client / client
                                                                                                  CCP / client
                                                                                                  CSD / client
                                                                                                  CSD / CSD
                                                                                                  CSD / Participant
                                                                                                  Participant / client;
                                                                                                  and combinations thereof.

                                                                                                  * The basic approach to segregation should be not only the protection of the FMI or between FMIs and
                                                                                                  another group, but at all levels in a holding chain.
                                                                                                  * Efficiency and cost debates exist when segregation is proposed but this should be weighed against
                                                                                                  the benefits of transparency and investor protection.
                                                                                                  * Problem with supervising segregation at lower levels by an FMI whose power does not extend to
                                                                                                  lower levels. Instances of regulatory arbitrage and unlevel playing fields where requirements do not
                                                                                                  apply to all tiers. This Principle should also apply cross borders. IOSCO should recommend to
                                                                                                  regulators and government to legislate and harmonise segregation.


3. A CCP should structure its arrangements in a way that facilitates the transfer
                                                                                   3.14.12 page
of the positions and collateral belonging to customers of a defaulting participant
                                                                                        69
to one or more other participants.
                                                                                                  2) Is there any one option or model in particular that could usefully serve as a minimum requirement?
                                                                                                  Would it be possible to identify a specific approach to segregation and portability that could be
                                                                                                  defined as best practice?

                                                                                                  Minimum requirement should be segregation between FMIs or intermediaries proprietary positions
                                                                                                  and those of their clients. Strate supports, as best practice, full segregation to end investor /
                                                                                                  Beneficial Owner level.




                                                                                                  3) Would it be helpful to distinguish between different types of customers, such as by the degree of
                                                                                                  tiering or by domestic or cross-border activity? (Consider potential conflicts between local and
                                                                                                  foreign structures in CSD links ).
                                                                                                  Not helpful. Full segregation at end investor / Beneficial Owner level is supported.


4. A CCP should clearly disclose its rules, policies, and procedures relating to
the segregation and portability of customer positions and collateral. In addition,
                                                                                   3.14.13 page 4) Would it be helpful to distinguish between different types of products?
a CCP should disclose any constraints, such as legal or operational constraints,                Segregation should apply across markets.
                                                                                        70
that may impair its ability fully to segregate or port customer positions and
collateral.


                                                                                                  5) What are the legal constraints that limit segregation and portability?
                                                                                                  Constraints may include, lack of legislative provisions, jurisdictional issues, conflict of laws,
                                                                                                  enforceability or lack thereof, privacy issues, insolvency laws, administrative issues or constraints,
                                                                                                  contractual provisions or restrictions.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                            Iosco
Key Consideration                                           Paper           Comments and Open Items
                                                            Reference




                                                            Participant-default rules and procedures facilitate the continued functioning of an FMI in the event that a participant fails to meet its obligations and help to limit the potential for the effects of a parti
                                                            other participants. Key objectives of default rules and procedures should include (a) ensuring timely completion of settlement, even in extreme but plausible market conditions; (b) minimising furthe
Principle 13: Participant-                                  participants and the customers of the defaulting participant; (c) limiting disruptions to the market; (d) providing a clear framework for accessing FMI liquidity facilities as needed; and (e) managing a
                                                            participant’s positions and liquidating any applicable collateral in a prudent and orderly manner. In some instances, managing a participant default may involve hedging open positions, funding coll
default rules and procedures                                be closed out over time, or both. An FMI may also decide to auction or allocate open positions to its participants. To the extent consistent with these objectives, an FMI should allow other participa
                                                            positions as normal.



                                                                            Strate Limited's response on Principle 13.



                                                                            Strate supports this Principle and Key Considerations.




                                                                            Recommendation to FSB:
1. An FMI should have default rules and procedures that
enable the FMI to continue to meet its obligations in the    3.13.2 page
                                                                         1) Although there is a Directive that spells out some procedures in the event of default,
event of a participant default and that address the               64
                                                                         proposed Rules to cater for Segregated Depository Accounts (and their use in the event of
replenishment of resources following a default.
                                                                         a CSD Participant’s failure) and further detailed procedures in the Participant Failure
                                                                         Manual, provisions should be included in the FM Bill, as per Strate’s submission, to ensure
                                                                         that these and further arrangements would apply in insolvency and other administrative
                                                                         (failure) situations. Further, the proposed amendments to the Insolvency Act must be
                                                                         monitored, to ensure that the provisions of sections 35A and 35B are kept intact.




2. An FMI should be well prepared to implement its
default rules and procedures, including the exercise of      3.13.5 page
                                                                         Strate supports this Principle and Key Considerations.
any appropriate discretionary procedures provided in its          65
rules.
3. An FMI should make key aspects of its default rules        3.13.6 page
                                                                          Strate supports this Principle and Key Considerations.
and procedures available to the public.                            65



                                                                           Recommendation to FSB / IOSCO:

                                                                           1) UNIDROIT principles should be catered for in legislation as per Strate’s submission.
4. An FMI should engage with its participants and other
relevant stakeholders in the periodic testing and review      3.13.7 page
                                                                          2) Strate agrees with the key aspects for the default rules and procedures. The CSD
of its default procedures to ensure that they are practical        66
                                                                          Participant Failure Manual sets out specific procedures as per CPSS-IOSCO proposals.
and effective.
                                                                          Provisions should be included in the FM Bill, as per Strate’s submission, to ensure that the
                                                                          CSD can make Rules on these procedures, which would apply in insolvency and other
                                                                          administrative (failure) situations.
 nt that a participant fails to meet its obligations and help to limit the potential for the effects of a participant’s failure to spread to
mely completion of settlement, even in extreme but plausible market conditions; (b) minimising further losses at the FMI, other
t; (d) providing a clear framework for accessing FMI liquidity facilities as needed; and (e) managing and closing out the defaulting
 In some instances, managing a participant default may involve hedging open positions, funding collateral so that the positions can
 o its participants. To the extent consistent with these objectives, an FMI should allow other participants to continue managing their




                     Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 13.




                     The SSA need to be amended to include insolvency provisions. Then the Strate Rules can be amended to
                     include default procedures and align with the procedures contained in the Participant Failure Manual. The
                     Manual proposes steps to be taken to manage a failure in terms of closing out trades reported but not settled,
                     processing of corporate events, obligations of all stakeholders and the migration of client accounts to new
                     service providers. As mentioned above, the Strate procedurers to not envisage any margin, collateral or loss
                     sharing provisions. Proposed legislative changes have been submitted to the FSB.




                     See Rule amendment requirements above, which will give Strate the power to implement the Failure Manual
                     procedures. Strate and market stakeholders have investigated the existence of, or ability to produce, certain
                     audit trail and open position reports which will assist in managing default and determining extent of exposure.




                     Manual clearly defines the roles and responsibilities of stakeholders and training is constantly provided to give
                     guidance on the procedures which will be followed.
Strate Rules and Participant Failure Manual are public documents and are available on the Strate website.




The Manual is periodically reviewed to ensure it is always current.
Testing / simulation of a failure and the failure procedures had not been undertaken but is being investigated
and considered.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                        Iosco
Key Consideration                                       Paper           Comments and Open Items
                                                        Reference



                                                        The settlement of a financial transaction by an FMI may involve the settlement of two linked obligations, such as the delivery of securities against payment of cash or securities, or the delivery of one
                                                        currency against delivery of another currency. In this context, principal risk may be created when one obligation is settled, but the other obligation is not (for example, the securities are delivered but n
Principle 12: Exchange-of-                              cash payment is received). Because this principal risk involves the full value of the transaction, substantial credit losses as well as substantial liquidity pressures may result from the default of a
                                                        counterparty or, more generally, the failure to complete the settlement of both linked obligations. Further, a settlement default could result in high replacement costs (that is, the unrealised gain on an
value settlement systems                                unsettled contract or the cost of replacing the original contract at market prices that may be changing rapidly during periods of stress). An FMI should eliminate or mitigate these risks through the use
                                                        DvP, DvD, or PvP settlement mechanism


                                                                       Strate Limited's response on Principle 12.
                                                                       Strate supports this Principle and Key Considerations.

                                                                       Recommendation to FSB / IOSCO:

                                                                       1. The settlement finality principles should included in the FM Bill to
                                                                       legally entrench finality of settlement in the South African law.

1. An FMI that is an exchange-of-value settlement                      2. There should be provisions in the FM Bill on limitation of revocation
system should eliminate principal risk by linking the
                                                                       of settlement instructions, effectiveness in insolvency and prohibition
final settlement of one obligation to the final
                                                                       of upper tier attachments to enhance the legal framework.
settlement of the other.
                                                                       3. DvP equates to transfer of ownership.
                                                                       DvP across all layers can best be achieved through full segregation of
                                                                       client accounts at CSD level.

                                                                       4. This Principle could be cross references with Principle 14.

                                                                       5. This Principle shuld be in an order that puts it close to Principles 8
                                                                       and 9.

                                                                       6. Eliminate the restriction that the linked obligations are two in all
                                                                       cases. The principle assumes that there are only two linked
                                                                       transactions, DvP or PvP. The concept is appropriate but there are
                                                                       business operations in which there can be three or more linked
                                                                       transactions. Examples are premium payments of securities lending
                                                                       in two currencies; collateral substitution (DvD), which includes various
                                                                       securities on either side, etc.
                                                           of settlement instructions, effectiveness in insolvency and prohibition
                                                           of upper tier attachments to enhance the legal framework.

                                                           3. DvP equates to transfer of ownership.
                                                           DvP across all layers can best be achieved through full segregation of
                                                           client accounts at CSD level.

                                                           4. This Principle could be cross references with Principle 14.

                                                           5. This Principle shuld be in an order that puts it close to Principles 8
                                                           and 9.

                                                           6. Eliminate the restriction that the linked obligations are two in all
2. The settlement of two obligations can be achieved       cases. The principle assumes that there are only two linked
in several ways and varies by how trades or                transactions, DvP or PvP. The concept is appropriate but there are
obligations are settled, either on a gross basis (trade-   business operations in which there can be three or more linked
by-trade) or on a net basis, and the timing of when        transactions. Examples are premium payments of securities lending
finality occurs.                                           in two currencies; collateral substitution (DvD), which includes various
                                                           securities on either side, etc.
ment of two linked obligations, such as the delivery of securities against payment of cash or securities, or the delivery of one
k may be created when one obligation is settled, but the other obligation is not (for example, the securities are delivered but no
ue of the transaction, substantial credit losses as well as substantial liquidity pressures may result from the default of a
both linked obligations. Further, a settlement default could result in high replacement costs (that is, the unrealised gain on an
 rices that may be changing rapidly during periods of stress). An FMI should eliminate or mitigate these risks through the use of a



                    Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 12.




                    Strate’s regulatory, technical and risk-management framework embraces the principle of SFIDvP.
                    Three levels of netting within Strate.
                    Time between blocking of securities on settlement day and movement of corresponding cash, is almost
                    instantaneous.Upon the blocking of securities, Participants must fund their cash accounts at the central bank
                    within thirty (30) minutes, and the blocked securities are released and delivered immediately upon receipt of a
                    confirmation message from the central bank.

                    "Back-to-Back link functionality in the Equities environment allows for risk mitigation when one securities
                    obligation is dependant on the prior settlement of another securities obligation.

                    Exchange of value from a cash perspective is not currently available. Cash netting across markets is being
                    considered.

                    Cash obligations are linked and netted. Strate facilitates these settlement linkages through its system
                    functionality and strict procedures and timelines in terms of its settlement Directives.
                    Equities and Bonds transactions settle on a nett basis. Money Market transactions (cash and securities) and
                    excluded Bonds transactions (securities leg) settle on a gross trade by trade basis.
                    Strate links two or a series of DvP, DFP and RFP transactions.


                    The NPS Act ensures the binding nature of rules and practices of a settlement system (cash leg). Settlement
                    rules will provide for a point in time when settlement instructions cannot be withdrawn from the settlement
                    system, once enabling provision in FM Bill is enacted.
within thirty (30) minutes, and the blocked securities are released and delivered immediately upon receipt of a
confirmation message from the central bank.

"Back-to-Back link functionality in the Equities environment allows for risk mitigation when one securities
obligation is dependant on the prior settlement of another securities obligation.

Exchange of value from a cash perspective is not currently available. Cash netting across markets is being
considered.

Cash obligations are linked and netted. Strate facilitates these settlement linkages through its system
functionality and strict procedures and timelines in terms of its settlement Directives.
Equities and Bonds transactions settle on a nett basis. Money Market transactions (cash and securities) and
excluded Bonds transactions (securities leg) settle on a gross trade by trade basis.
Strate links two or a series of DvP, DFP and RFP transactions.


The NPS Act ensures the binding nature of rules and practices of a settlement system (cash leg). Settlement
rules will provide for a point in time when settlement instructions cannot be withdrawn from the settlement
system, once enabling provision in FM Bill is enacted.
IOSCO - Principles for Financial Market
Infrastructures

Response by Strate Limited.

                                          Iosco
Key Consideration                         Paper          Comments and Open Issues
                                          Reference




                                          A CSD is an entity that holds securities accounts and, in many countries, operates an SSS. A CSD also provides central
                                          safekeeping and asset services, which may include the administration of corporate actions and redemptions, and plays an
                                          important role in helping to ensure the integrity of securities issues. Securities can be held at the CSD either in physical (but
                                          immobilised) form or in dematerialised form (that is, as electronic records). The precise activities of a CSD vary based on
                                          jurisdiction and market practices. A CSD, for example, may be the official securities registrar and maintain the definitive
Principle 11: Central securities          record of legal ownership for a security; however, in some cases, another entity may serve as the official securities registrar.
                                          Further, the activities of a CSD may vary depending on whether it operates in a jurisdiction with a direct or indirect holding
depositories                              arrangement or a combination of both. A CSD should have clear and comprehensive rules and procedures to ensure that the
                                          securities it holds on behalf of its participants are appropriately accounted for on its books and protected from risks
                                          associated with the other services that the CSD may provide. An SSS is also expected to comply with elements of this
                                          principle, as appropriate.
                                          (IOSCO Doc. Page 8 and 58)



                                                         Strate Limited's response on Principle 11.
                                                                                                    Strate supports the proposed Consideration.


                                                                                                    Recommendations:

                                                                                                    1. Acknowledgement by IOSCO that the precise activities of a CSD may vary based on jurisdiction
                                                                                                    and market practices, is positive.

                                                                                                    2. Rules and procedures should be a legislative requirement for CSDs.

1. A CSD should have appropriate rules and procedures, including robust                             3. Where discrepancy in reconciliation exists then reconciliation practices should ensure that the
accounting practices and controls, to safeguard the interests of securities       3.11.1 / 2 and    CSD records prevail in the case of a discrepancy. IOSCO only mentions reconciliation, but
issuers and holders, prevent the unauthorised creation or deletion of securities, 32 page 59        reconciliation should be a requirement through all layers in a holding chain. IOSCO does not define
and conduct periodic reconciliation of securities issues it maintains.                              "top-down" or "bottom-up" reconciliation - whichever is to apply, the CSD records must prevail.

                                                                                                    4. Strate supports a direct holding model. If records are held directly at CSD level this would assist
                                                                                                    with the duties of reconciliation. Strate looks to the regulator to support a direct holding system over
                                                                                                    other models due to the benefits of heightened transparency and investor protection.

                                                                                                    5. Not all CSDs are Self-Regulatory Organisations (SROs) who would have a supervisory and
                                                                                                    enforcement role/obligations and monitor compliance by its Participants with such rules and
                                                                                                    procedures. In instances where the CSD is not an SRO, this Consideration should be extended to
                                                                                                    specifically mention monitoring of compliance with such rules and procedures by the CSD - since non-
                                                                                                    compliance exposes the CSD and other market stakeholders to risk.


                                                                                                    Strate supports the proposed Consideration.

                                                                                                    Recommendations:

                                                                                                    1) Since a debit balance may occur at all levels in the holding chain, IOSCO should specifically
                                                                                                    recommend this for all layers. The CSD can only prohibit and supervise this requirement to the extent
                                                                                                    of its regulatory powers.
                                                                                        3.11.3 page
2. A CSD should prohibit overdrafts or debit balances in securities accounts.                       2) This Consideration may be further strengthened by specifically stating that the CSD should have
                                                                                             59
                                                                                                    the power to impose stringent penalties / punitive measures on any entity who processes a debit
                                                                                                    balance of securities.

                                                                                                    3) The impact of a debit balance of securities is not only the affect on the integrity of the securities
                                                                                                    issue, but also the resultant unauthorised securities lending and the prejudice to other clients in the
                                                                                                    event of an insolvency proceeding where such securities may not be able to be returned to the rightful
                                                                                                    owner.


                                                                                                    Recommendation:
3. A CSD that maintains a link to another CSD should prohibit the provisional
                                                                                        3.11.3 page
transfers of securities or, at a minimum, prohibit the retransfer of securities prior               1) This should be a Rule requirement.
                                                                                             59
to the first transfer becoming final.
                                                                                                The ideal would be to mandate dematerialisation, but this proposal is often subject to regulations and
                                                                                                constitutional rights of investors in specific jurisdictions.

                                                                                                Strate supports the Consideration to maintain securities in a dematerialised form.
                                                                                                A CSD holding securities in immobilised form is still subject to custody risks and every effort should
                                                                                                be made to dematerialise such holdings as well. The reference and aim should be limited to
                                                                                                dematerialised securities only.
4. A CSD should maintain securities in an immobilised or dematerialised form
                                                                                  3.11.4 page
for their transfer by book entry. Where appropriate, a CSD should provide
                                                                                       60     Recommendations:
incentives to immobilise or dematerialise securities.
                                                                                                1. Legislative changes should enable dematerialisation and immobilisation.

                                                                                                2. IOSCO should recommend dematerialisation.

                                                                                                3. Incentives should come from government level and main regulator. This should not only be the
                                                                                                responsibility of the CSD.




                                                                                                Recommendations:

                                                                                                1. Segregation of assets on accounts are necessary, but IOSCO should recommend this to all levels in
                                                                                                the holding chain.

                                                                                                2. Legislation should make it clear that securities are "ring-fenced" even though they are deposited
                                                                                                with a CSD or other Participant or intermediary. Segregation does not necessarily protect investors
                                                                                                from insolvency, there must be "ownership protection" as well.
5. A CSD should identify, measure, monitor, and manage its risks from other
                                                                                                3. IOSCO should recommend segregation not only between participants own securities and those of
activities that it may perform; additional tools may be necessary in order to
                                                                                   3.11.5 / 6   its clients, but also between clients in "omnibus accounts".
address these spillover effects.
                                                                                   page 60
                                                                                                4. Performance of other activities by a CSD is foreseen by IOSCO and this is positive.

                                                                                                5. Risk factors should be the only factor to consider when allowing a CSD to perform other activities.
                                                                                                The regulator should not interfere with the normal business of for-profit CSDs.

                                                                                                6. Separate legal entities for different entities may be considered, depending on the structure and size
                                                                                                etc of the CSD. This is positive because it may not work in the case of very small CSDs. Separate legal
                                                                                                entities should not be recommended by IOSCO - a "may" option is supported.



                                                                                                Cross referenced with Principle 18.

6. A CSD providing central safekeeping and settlement services to a CCP
                                                                                              Any entity introducing risk to a CSD must be subject to stringent entry criteria, rules, procedures and
should ensure that the CCP would not pose additional material risks (such as      3.11.7 page
                                                                                              monitoring at the level commensurate with such risk levels.
liquidity and operational risk) as compared to any other participant in the CSD        61
and, where necessary, take additional measures.
                                                                                                Recommendation:
                                                                                                1. Do not limit this consideration to CCPs.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                                                      Iosco
Key Consideration                                                                     Paper           Comments and Open Items
                                                                                      Reference



                                                                                      An FMI may settle transactions using physical delivery, which is the delivery of an instrument or asset in physical
                                                                                      form. For example, the settlement of commodities or other futures contracts cleared by a CCP may allow or
                                                                                      require the physical delivery of the underlying commodity or financial instruments. An FMI that provides physical
Principle 10: Physical deliveries                                                     settlement should have rules that clearly state its obligations with respect to the delivery of physical instruments
                                                                                      or commodities. In addition, an FMI should identify, monitor, and manage the risks associated with the storage
                                                                                      and delivery of such physical instruments and commodities.


                                                                                                     Strate Limited's response on Principle 10.




1. An FMI’s rules should clearly state its obligations with respect to the delivery    3.10.2 page
                                                                                                   No response. Strate does not settle physical securities.
of physical instruments or commodities.                                                     57




2. An FMI should identify, monitor, and manage the risks associated with the           3.10.3 and
storage and delivery of physical instruments or commodities.                             3.10.4
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                                  Iosco
Key Consideration                                                 Paper           Comments and Open Items
                                                                  Reference



                                                                  An FMI typically needs to conduct money settlements with or between its participants for a variety of purposes, such as the settlement of individual payment obligations, funding and defunding
                                                                  collection and distribution of margin payments. To conduct such money settlements, an FMI can use central bank money (when obligations between direct participants are discharged via settl
Principle 9: Money settlements                                    the central bank of issue) or commercial bank money (when settlement occurs on the books of a commercial bank or on the books of a private-sector FMI, including itself). An FMI may also us
                                                                  central bank and commercial bank monies to conduct settlements, for example, by using central bank money for funding and defunding activities and using commercial bank money (or its boo
                                                                  individual payment obligations between participants.


                                                                                  Strate Limited's response on Principle 9.




1. An FMI should conduct its money settlements in central
bank money, where practical and available, to avoid credit        3.9.2 page 55
and liquidity risks.




                                                                                  Strate supports this Principle and Key Considerations.
2. If central bank money is not used, an FMI should conduct
its money settlements using a settlement asset with little or         3.9.3
no credit or liquidity risk.
                                                                                  The explanation of settlement on the books of the FMI is quite forward looking. If
                                                                                  Principle 14: Segregation and Portability is seen together with this Principle, the
3. An FMI that settles in commercial bank money should                            recommendation be to settle on the books of the FMI, regardless if the end of day
establish and monitor adherence to strict criteria for its                        cash arrangement is with either the Central Bank or commercial banks. If not in
settlement banks that take account of, amongst other things,          3.9.4
                                                                                  Central Bank funds, then this money segregation should also have precise legal
their supervision, creditworthiness, capitalisation, access to
                                                                                  basis.
liquidity, and operational reliability.

4. An FMI should closely control the credit and liquidity risks
from its commercial settlement banks including the
distribution of exposures among its commercial settlement
banks.
                                                                        recommendation be to settle on the books of the FMI, regardless if the end of day
                                                                        cash arrangement is with either the Central Bank or commercial banks. If not in
                                                                        Central Bank funds, then this money segregation should also have precise legal
                                                                        basis.




5. If an FMI conducts money settlements on its own books, it
should minimise and strictly control its credit and liquidity   3.9.6
risks.
 for a variety of purposes, such as the settlement of individual payment obligations, funding and defunding activities, and the
an FMI can use central bank money (when obligations between direct participants are discharged via settlement on the books of
e books of a commercial bank or on the books of a private-sector FMI, including itself). An FMI may also use a combination of
sing central bank money for funding and defunding activities and using commercial bank money (or its books) for the settlement of



                   Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 9.




                   SFIDvP in Central Bank funds is methodology within Strate.




                   Although money settlements of individual obligations are conducted using Central Bank money, commercial
                   bank money is used for funding of corporate actions.




                   Strate has an MOU with the Central Bank in respect of prudential regulation of Bank Participants.
                   Strate applies strict criteria (due diligence) to its chosen bank for settlement of corporate actions.




                   Not applicable for Strate.
Money settlements are conducted using Central Bank money. Strate is not a bank, nor does it possess a
special banking licence that would enable it to conduct money settlements in its own books.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                                         Iosco
Key Consideration                                                        Paper           Comments and Open Items
                                                                         Reference



                                                                         An FMI should be designed to provide clear and certain final settlement of payments, transfer instructions, or other obligations. Final settlement is defined as the irrevocable and unco
                                                                         an asset or financial instrument or the discharge of an obligation by the FMI or its participants in accordance with the terms of the underlying contract. A payment, transfer instruction,
Principle 8: Settlement finality                                         that is accepted by an FMI for settlement according to its terms and conditions should be settled with finality on the intended value date, which is the day on which it is due and typicall
                                                                         receiving participant. The completion of final settlement by the end of the FMI’s business day on the value date is essential. Deferral of final settlement to the next business day can cr
                                                                         liquidity pressures and potentially systemic risk. Where necessary or preferable, an FMI should provide intraday or real-time settlement finality to reduce settlement risk.


                                                                                        Strate Limited's response on Principle 8.


                                                                                        Strate supports this Principle and Key Considerations.




                                                                                        Recommendation to FSB:
1. An FMI should clearly define the point at which the settlement of a
payment, transfer instruction, or other obligation is irrevocable and    3.8.2 page 53 1. Although SFIDVP principles are entrenched in the Companies
unconditional.                                                                         Act, Strate Rules and Directives, and the irrevocability of
                                                                                       instructions is spelt out in the Strate Directives, provisions should
                                                                                       be included in the FM Bill as per Strate’s submission, to ensure that
                                                                                       these arrangements would apply in insolvency and other
                                                                                       administrative (failure) situations.




2. An FMI should complete final settlement no later than the end of
the value date, and preferably intraday or in real time, to reduce
                                                                         3.8.4 page 53 Strate supports this Principle and Key Considerations.
settlement risk. An LVPS, CSD, or SSS should consider adopting
RTGS or multiple-batch processing during the settlement day.
                                                                      Strate supports this Principle and Key Considerations.

                                                                      Recommendation to FSB:
3. An FMI should clearly define the point in time before settlement
when unsettled payment or transfer instructions or obligations may
                                                                      1. Although this is spelt out in the Strate Directives, provisions
not be revoked.
                                                                      should be included in the FM Bill, as per Strate’s submission, to
                                                                      ensure that these arrangements would apply in insolvency and
                                                                      other administrative (failure) situations.
 t of payments, transfer instructions, or other obligations. Final settlement is defined as the irrevocable and unconditional transfer of
e FMI or its participants in accordance with the terms of the underlying contract. A payment, transfer instruction, or other obligation
 nditions should be settled with finality on the intended value date, which is the day on which it is due and typically available to the
he FMI’s business day on the value date is essential. Deferral of final settlement to the next business day can create credit and
referable, an FMI should provide intraday or real-time settlement finality to reduce settlement risk.


                     Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 8.




                     SFIDvP is define in SSA and Strate Rules.
                     Strate Directives detail "commit" deadlines and "uncommit" deadlines or procedures.

                     Additional investigations linked to Participant failure are being undertaken. Linked with FM Bill and Unidroit
                     principles.
                     FM Bill and Strate Rule changes relating to insolvency provisions and making CSD Rules binding on
                     Insolvency Adminitrators pending.




                     SFIDvP in Central Bank funds is methodology within Strate.
                     Strate's system suports multiple settlement runs through the RTGS provided by the Central Bank.
Additional investigations linked to Participant failure are being undertaken. Linked with FM Bill and Unidroit
principles.
FM Bill and Strate Rule changes relating to insolvency provisions and making CSD Rules binding on
Insolvency Adminitrators pending.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                                  Iosco
Key Consideration                                                 Paper           Comments and Open Items
                                                                  Reference




                                                                  Liquidity risk arises in an FMI when it, its participants, or other entities cannot settle their payment obligations when due as part of the clearing or settlement process. Depending on the design
                                                                  liquidity risk can arise between the FMI and its participants, between the FMI and other entities (such as its settlement bank, nostro agents, custodian banks, and liquidity providers), or betwee
                                                                  participants in an FMI (such as in a DNS payment system, CSD, or SSS). It is particularly important for an FMI to manage carefully its liquidity risk if, as is typical in many systems, the FMI relie
Principle 7: Liquidity risk                                       incoming payments from participants or other entities during the settlement process in order to make payments to other participants. If a participant or other entity fails to pay the FMI, the FMI
                                                                  have sufficient funds to meet its payment obligations to other participants. In such an event, the FMI would need to rely on its own liquidity resources (that is, liquid assets and prearranged fun
                                                                  arrangements) to cover the funds shortfall and complete settlement. An FMI should have a robust framework to manage its liquidity risks from the full range of participants and other entities fro
                                                                  faces liquidity risk. In some cases, a participant may also play other roles within the FMI, such as a settlement or custodian bank or liquidity provider. These other roles should be considered in
                                                                  determining an FMI’s liquidity needs.


                                                                                  Strate Limited's response on Principle 7.




1. An FMI should have a robust framework to manage its
                                                                                  Strate supports this Principle and Key Considerations.
liquidity risks from its participants, settlement banks, nostro
agents, custodian banks, liquidity providers, and other
entities.




2. An FMI should have effective operational and analytical
                                                                                  Strate supports this Principle and Key Considerations.
tools to identify, measure, and monitor its settlement and
                                                                  3.7.4 page 48
funding flows on an ongoing and timely basis, including its
use of intraday liquidity.
3. An FMI should maintain sufficient liquid resources (that is,
liquid assets and prearranged funding arrangements) to
effect same-day and, where appropriate, intraday settlement
of payment obligations with a high degree of confidence
under a wide range of potential stress scenarios that should
include, but not be limited to, the default of the [one/two]
participant[s] and [its/their] affiliates that would generate the
                                                                     Strate supports this Principle and Key Considerations. However,
largest aggregate liquidity need in extreme but plausible
                                                                     IOSCO should be aware that this recommendation would
market conditions. A payment system, CSD, or SSS
                                                                     depend on the actual CSD or SSS model adopted in a specific
should have sufficient liquid resources to effect, at a
                                                                     jurisdiction.
minimum, timely completion of daily settlement in the
event of the inability of the [one/two] participant[s] and
[its/their] affiliates with the largest aggregate payment
obligation[s] to settle those obligations. A CCP should
have sufficient liquid resources to meet required margin
payments and effect the same-day close out or hedging of
the [one/two] participant[s] and [its/their] affiliates with the
largest potential liquidity need[s] in extreme but plausible
market conditions.



4. An FMI should obtain a high degree of confidence through
rigorous due diligence that each liquidity provider, whether or
not it is a participant of the FMI, would have sufficient
                                                                     Strate supports this Principle and Key Considerations.
information to understand and to manage its associated
                                                                     However, a FMI should assess the degree of dependency to a
liquidity risks, and that it has the capacity to perform as
                                                                     liquidity provider and where too great a concentration is
required under the liquidity arrangement. Where relevant to
                                                                     deemed to exist, should diversify its liquidity providers.
assessing a liquidity provider's performance reliability with
respect to a particular currency, a liquidity provider’s potential
access to credit from the central bank of issue should be
taken into account. An FMI should regularly test access to its
liquid resources at a liquidity provider.




5. For the purposes of this principle, liquid resources include
cash at the central bank of issue and creditworthy
commercial banks, as well as highly marketable collateral
held in custody and investments that are readily available on
a same-day basis and that are also convertible into cash with
prearranged funding arrangements including committed
liquidity lines, foreign exchange swaps, repos, or pledges. If       Strate supports this Principle and Key Considerations.
an FMI has access to central bank credit, then an
appropriate portion of its collateral holdings should be eligible
for pledging to (or conducting other appropriate forms of
transactions with) the relevant central bank. An FMI should
not assume the availability of emergency central bank credit
as a part of its liquidity plan.
6. If an FMI has access to central bank accounts, payment
services, or securities services, the FMI should use these
                                                                   Strate supports this Principle and Key Considerations.
services, where practical and available, to enhance its
management of liquidity risk.




7. An FMI should determine and test the sufficiency of its
liquid resources by regular and rigorous stress testing. An
FMI should have clear procedures to use the results of its
stress test and to evaluate and adjust the adequacy of its
liquidity risk-management framework. In conducting stress
testing, an FMI should consider a wide range of relevant
scenarios, including peak historic price volatilities, shifts in
other market factors such as price determinants and yield
curves, multiple defaults over various time horizons,
simultaneous pressures in funding and asset markets, and a         Strate supports this Principle and Key Considerations.
spectrum of forward-looking stress scenarios in a variety of
extreme but plausible market conditions. Scenarios should
also consider the design and operation of the FMI, and
include all entities that might pose material liquidity risks
to the FMI (such as settlement banks, nostro agents,
custodian banks, liquidity providers, and linked FMIs). The
stress-testing programme should include “reverse stress
tests” aimed at identifying extreme market conditions for
which the FMI’s liquid resources would be insufficient.


8. An FMI should have clear and transparent rules and
procedures to address unforeseen and potentially uncovered
liquidity shortfalls in order to avoid unwinding, revoking, or
delaying the same-day settlement of payment obligations. An
                                                                   Recommendation to FSB :
FMI’s rules and procedures should also indicate its process
to replenish any liquidity resources it may employ during a
                                                                   1. The provisions supporting the Participant Failure Manual
stress event, including the default of the two participants and
                                                                   should be included in the FM Bill, as per Strate’s submission.
their affiliates that would potentially cause the largest
combined liquidity needs, so that it can continue to operate in
a safe and sound manner.
 ies cannot settle their payment obligations when due as part of the clearing or settlement process. Depending on the design of an FMI,
en the FMI and other entities (such as its settlement bank, nostro agents, custodian banks, and liquidity providers), or between
 r SSS). It is particularly important for an FMI to manage carefully its liquidity risk if, as is typical in many systems, the FMI relies on
ettlement process in order to make payments to other participants. If a participant or other entity fails to pay the FMI, the FMI may not
cipants. In such an event, the FMI would need to rely on its own liquidity resources (that is, liquid assets and prearranged funding
nt. An FMI should have a robust framework to manage its liquidity risks from the full range of participants and other entities from which it
  r roles within the FMI, such as a settlement or custodian bank or liquidity provider. These other roles should be considered in



                    Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 7.



                    Strate does not guarantee settlement and hence is not exposed to liquidity risk. However, while Strate is not directly
                    exposed to this risk, it may be exposed to the indirect consequences of liquidity risk leading to operational risk and
                    systemic issues.
                    Strate as the CSD and SSS manages the liquidity risk of securities, while the central bank manages the liquidity risk
                    of cash.

                    Strate has a robust cash netting mechanism, which is irrevocable, and is integrated with SARB in order to mitigate
                    the market Liquidity Risk . SARB supports this process through a robust Risk Management protocol.




                    Strate's Custody and Settlement division does have effective operational tools to identify, measure and monitor
                    settlement and funding obligations of Participants.
                    STRATE Supervision has supervisory and enforcement tools, and may impose fines on Participants who fail to
                    meet their settlement obligations.

                    Strate does not guarantee settlement and does not provide liquidity for settlement obligations.
                    The JSE guarantees certain on-market transactions and the JSE Settlement Authority is a "lender of last resort" in
                    respect of cash and securities for such transaction. Historically, where there has been liquidity pressure, the JSE
                    may roll trades to prevent failed trades.
Strate itself, as an FMI, does not expose itself to liquidity risk, but the results of one its Participants being exposed
could have a domino effect and contagion impact may have to be handled by Strate in trying to ensure settlement
of transactions in the CSD.


Participants can face exposures that in return can expose Strate and market to failure risks. Further, one
Participants failure can lead to the failure of a further Participant.

In order to manage such an impact (stress event), Strate does have crisis plans and Participant Failure Manual -
but not tested or simulated and SSA gaps relating to insolvency provisions as mentioned above apply.

Settlement is conducted in central bank funds through various payment streams throughout the day, designed to
manage participants’ liquidity.


STRATE Supervision does impose fines for delayed funding.
STRATE Supervision has entered into a MOU with the central bank with regards to the prudential regulation of
Bank Participants.

Any consideration for a formal CCP for the SA market should be undertaken by the FSB.




Strate as a CSD does not have a banking license.
Strate as a CSD does not have a banking license.Settlement is conducted in central bank funds through various
payment streams throughout the day, designed to manage participants’ liquidity.




See comments above relating to the Participant Failure Manual procedures and MOU with SARB in respect of
prudential regulation and role of JSE.

Strate can facilitate the volume of stress testing required by the Central Bank or any other market stakeholder.




The Strate Rules currently define settlement obligations and failed trades. The Directives provide detailed timelines
and obligations and fines imposed for delaying settlement or failing to settle.Settlement is conducted in central bank
funds through various payment streams throughout the day, designed to manage participants’ liquidity. Payment is
conducted through central bank funds. The central bank is responsible for management of liquidity risk of cash in
the market.

Participant Failure Manual sets out procedures in the event of a Participant failure (stress event). Default Rules to
be developed with the market.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                            Iosco Paper
Key Consideration                                           Reference
                                                                              Comments and Open Items



                                                            An effective margining system is a key risk-management tool for a CCP to manage the credit exposures posed by its participants’ open positions (see also principle 4
                                                            on credit risk). A CCP should collect collateral in the form of margin to mitigate its credit exposures for all products that it clears (see also principle 5 on collateral).
                                                            Margin systems typically differentiate between two types of margin calculations: initial margin and variation margin. Initial margin is typically collected to cover potential
                                                            changes in the value of each participant’s position over the appropriate close-out period in the event the participant defaults. Initial margin is generally expected to
Principle 6: Margin                                         cover the CCP’s potential future exposures to the participant over the close-out period. Calculating potential future exposure requires modelling potential price
                                                            movements and other relevant factors, as well as specifying the target degree of confidence and length of the close-out period. Variation margin is collected and
                                                            typically paid out to reflect current exposures resulting from actual changes in market prices. To calculate variation margin, open positions are marked to current market
                                                            prices and funds are typically paid to (or received from) a counterparty to settle any gains or losses on those positions.



                                                                              Strate Limited's response on Principle 6.          Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 6.


1. A CCP should establish margin levels that are
commensurate with the risks and unique attributes of
each product, portfolio, and market it serves, taking
into account potential increases in liquidation times in
stressed markets.


2. A CCP should have a reliable source of timely price
data for its margin models and regular collection of
variation margin. A CCP should also have procedures
and sound valuation models for addressing
circumstances where pricing data is not readily
available or reliable. As an input for its initial margin
models, a CCP should rely upon pricing data covering
an appropriate historical time period for the products it
clears.




                                                                              Although Strate does not take margin and is
                                                                              not an expert on the issues involved, we
3. A CCP should adopt initial margin models and
parameters that are risk-based and generate margin
requirements sufficient to cover potential future
exposure to participants in the interval between the last
margin collection and the close out of positions
following a participant default. Initial margin should
meet an established single-tailed confidence level of at
least 99 percent for each product that is margined on a
product basis, each spread within or between products
for which portfolio margining is permitted, and for each
clearing member’s portfolio losses. The model should
also be based on adequate time horizons for the close
out of the particular types of products cleared by the
CCP, have an appropriate method for measuring credit           Although Strate does not take margin and is
exposure that accounts for relevant product risk factors       not an expert on the issues involved, we
and portfolio effects across products, and, to the             agree with the content of this Principle.
maximum extent practical and prudent, avoid the need
for destabilising, procyclical changes.                                                                      Strate does not take margin or in any way stand in for the obligations of Participants.

                                                               Principle can be cross-referenced with
4. At least daily, a CCP should mark participant               Principle 24.
positions to market and collect variation margin to limit
the build-up of current exposures. A CCP should have
the authority and operational capacity to make intraday
calls for initial and variation margin from participants
with positions that have lost significant value.



5. In calculating margin requirements, a CCP may
allow offsets or reductions in required margin across
products that it clears or between products that it and
another CCP clear, if the price risk of one product is
significantly and reliably correlated with the price risk of
the other product. Where two or more CCPs are
authorised to offer cross-margining, they must have
appropriate safeguards and harmonise their overall
risk-management programmes.
6. A CCP should analyse and monitor its model
performance and overall margin coverage by
conducting rigorous daily backtesting and at least
monthly, if not more frequent, stress testing. A CCP
should regularly conduct an assessment of the
theoretical and empirical properties of its margin model
for all products it clears. A CCP, in reviewing its
model’s coverage, should take into account a range of
scenarios, including scenarios that capture the most-
volatile periods that have been experienced by the
markets it serves and develop forward-looking

7. A CCP should regularly review and validate its
margin system.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                                 Iosco
Key Consideration                                                Paper           Comments and Open Items
                                                                 Reference



                                                                 Collateralising credit exposures protects an FMI and, where relevant, its participants against potential losses in the event of a participant default (see principle 4 on credit risk).
                                                                 Besides mitigating an FMI’s own credit risk, the use of collateral can provide participants with incentives to manage the risks they pose to the FMI or other participants. A
                                                                 payment system, CSD, or SSS that provides intraday credit to a participant should collect sufficient collateral to cover the principal amount of each credit extension fully with a
Principle 5: Collateral                                          high degree of confidence, according to the provisions of principle 4 on credit risk. Similarly, a CCP should collect sufficient collateral, in the form of margin, to cover fully its
                                                                 participants’ open positions with a high degree of confidence (see principle 6 on margin). An FMI that obtains collateral needs assurance that its value will be greater than or
                                                                 equal to the value of the obligation it secures in the event of liquidation; the FMI should apply prudent haircuts to the collateral’s value. Additionally, an FMI should have the
                                                                 capacity to use the collateral promptly when needed.


                                                                                 Strate Limited's response on Principle 5.


1. An FMI should generally limit the assets it (routinely)
accepts as collateral to those with low credit, liquidity, and
market risk.


2. An FMI should establish prudent valuation practices and
develop haircuts that are regularly tested and take into
account stressed market conditions.


3. An FMI should avoid the concentration of holdings of                          Although Strate does not take collateral and is not
certain assets because of potential concerns about the                           an expert on the issues involved, we agree with the
ability to liquidate such assets quickly without significant                     content of this Principle.
adverse price effects.

4. An FMI should establish stable and conservative haircuts
that are calibrated to include periods of stressed market                        Principle can be cross-referenced with Principle
conditions in order to reduce the need for procyclical                           24.
adjustments.

5. An FMI that accepts cross-border collateral should
mitigate the risks associated with its use and ensure that the
collateral can be used in a timely manner.
                                                          Principle can be cross-referenced with Principle
                                                          24.




6. An FMI should have a well-designed and operationally
flexible collateral management system to accommodate
changes in the ongoing monitoring and management of
collateral.
en Items



, where relevant, its participants against potential losses in the event of a participant default (see principle 4 on credit risk).
of collateral can provide participants with incentives to manage the risks they pose to the FMI or other participants. A
 y credit to a participant should collect sufficient collateral to cover the principal amount of each credit extension fully with a
ns of principle 4 on credit risk. Similarly, a CCP should collect sufficient collateral, in the form of margin, to cover fully its
nfidence (see principle 6 on margin). An FMI that obtains collateral needs assurance that its value will be greater than or
event of liquidation; the FMI should apply prudent haircuts to the collateral’s value. Additionally, an FMI should have the
.


                     Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 5.




                     Strate does not accept collateral or in any way stand in for the obligations of Participants.
Background to the IOSCO consultative report
1 Overview of the report
The consultative report on Principles for Financial Market Infrastructures (consultative report) was prepared by the
Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International
Organization of Securities Commissions (IOSCO). The CPSS and IOSCO request comments on the proposed
When finalised, the principles in the consultative report will replace the existing CPSS and CPSS-IOSCO standards
for systemically important payment systems, central securities depositories, securities settlement systems, central
The Core principles for systemically important payment systems (issued in 2001);
The Recommendations for securities settlement systems (also issued in 2001); and
The Recommendations for central counterparties (issued in 2004).
The CPSS and IOSCO believe that a single set of standards will provide greater consistency in the oversight and
regulation of FMIs worldwide. Moreover the committees believe that the new principles reflect the lessons learned
from the recent financial crisis and the experience of more normal operation and assessments in the years since the
The consultative report focuses on payment systems, central securities depositories, securities settlement systems,
central counterparties and, as a new category of FMI, trade repositories. Compared to the current standards, the
report introduces a number of provisions on issues that are not addressed by the existing standards. For example,
2 Market consultation
In light of the scope of this effort, the CPSS and IOSCO propose an approximately four month comment period for
no later than 29 July 2011.1 Following review of the comments, the CPSS and IOSCO propose to publish a final

This document contains Strate response to this consulatative report.
Mr Norman Muller
Financial Services Board
Riverwalk Office Park - Block B
41 Matroosberg Road
(Cnr Garsfontein & Matroosberg rds)
Ashlea Gardens, Ext 6
Menlo Park
Pretoria
81


                                                                                                              22-Jun-11


Dear Norman


RE: CPSS/IOSCO Principles for Financial Market Infrastructures


The consultative report on the Principles for Financial Market Infrastructures which has been prepared by the
Committee on Payment and Settlement Systems (CPSS) and the International Organisation of Securities
Commissions (IOSCO) has afforded Strate Limited (Strate) an opportunity to review the proposed new standards and
principles which may no doubt lead to greater and improved consistency in the functioning, oversight and regulation

It is the view of Strate that the consultative report, proposed principles and explanatory notes have been written in a
very clear and comprehensive manner and we commend CPSS/IOSCO for the work of their technical and working

Strate’s response to the report is attached hereto and provides recommendations to the FSB and IOSCO on each
principle where applicable. One worksheet per principle is provided in the attached Excel summary. In addition, while
we understand that an Assessment Methodology will be released in time and Strate will be required to formally
respond on the extent to which we comply with the final principles, we have taken the opportunity to include a brief

Detailed comments and recommendations are provided in the attached spreadsheet. Some more general comments

Strate understands that the Assessment Methodology will only be released after the final Principles for FMI’s has
been released and entities will not have an opportunity to comment on the proposed Assessment Methodology. If this
is indeed the case, we ask that we please be given an opportunity to review and comment on the proposed
In order to avoid undue duplication we recommend that IOSCO should rather cross-reference issues between
principles where applicable. The duplication of concepts across multiple principles should be kept to a minimum
The final principles should align with the explanatory notes in the consultative report which are more general and
recognise the alternative structures and models which FMIs may adopt in different jurisdictions. Strate is supportive
of IOSCO not being too prescriptive and allowing local regulators and Boards of FMIs to impose specifics as
Annex C: “Selected RSSS marketwide recommendations ” should be included /combined into the proposed 24
principles or such principles should be extended to incorporate the important and valid considerations included in this


Members of Strate’s executive team will be attending the Global Relations Exchange and Training (GREAT 2011)
seminar in New York during July 2011. Mr Jeffery Mooney, Special Counsel, US Securities and Exchange
Commission and Co-Chair of the CPSS/IOSCO working committee will be attending and presenting at this seminar.
We look forward to receiving the FSB’s response to our recommendations and supporting the final CPSS/IOSCO



Yours sincerely




MONICA SINGER

Chief Executive Officer: Strate Limited.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                            Iosco
Key Consideration                           Paper           Comments and Open Items
                                            Reference



                                            A robust legal basis for an FMI’s activities in all relevant jurisdictions is critical to an FMI’s overall soundness. The legal basis defines, or provides the foundation for relevant parties to define, the rights and obliga
                                            the FMI, its participants, and, where relevant, participants’ customers. Most risk-management mechanisms are based on assumptions about the manner and time at which these rights and obligations arise thro
Principle 1: Legal                          FMI. Therefore, if risk management is to be sound and effective, the enforceability of rights and obligations relating to an FMI and its risk management should be established with a high degree of certainty. If the
basis                                       basis for an FMI’s activities and operations is inadequate, uncertain, or opaque, then the FMI, its participants, and their customers may face unintended, uncertain, or unmanageable credit or liquidity risks, whic
                                            also create or amplify systemic risks.



                                                            Strate Limited's response on Principle 1.

                                                            Strate supports this Principle and Key Considerations.




                                                            Recommendation to FSB / IOSCO:

                                                          1. Since the FMI is allowed to carry out other business activities as well that do not
                                                          bring systemic risk, there is no need to legislate or regulate “each aspect”.
                                                          Cooperation with the regulator is a key factor in deciding what activities of the
                                                          business must be regulated and what not. Strate is not in favour of restricting CSDs
1. The legal basis should provide a high
                                                          or other FMIs to perform only pre-defined core functions or activities. Markets and
degree of certainty for each aspect of an
                                            3.1.2 page 19 market practices continuously develop globally and FMIs should be agile. IOSCO
FMI's activities in all relevant
                                                          should encourage flexibility in legislation and allow discretion to be given to the
jurisdictions.
                                                          regulator to step in when deemed necessary. Over-regulation on each aspect of all
                                                          activities performed by FMIs would lead to over-regulation and high costs and
                                                          inefficiencies for investors and others.

                                                            2. Explanatory Note (EN) 3.1.5 = Needs to be constrained by legal arrangements
                                                            between FMI's participants and their clients.

                                                            3. EN 3.1.6 = Duplication with Principle 8 regarding settlement finality should be
                                                            removed.
2. An FMI should have rules, procedures
and contracts that are clear,
                                                3.1.2 page 20 Strate supports this Principle and Key Considerations.
understandable, and consistent with
relevant laws and regulations.




3. An FMI should be able to articulate the
legal basis for its activities to relevant
                                                 3.1.2 and 4
authorities, participants and, where                            Strate supports this Principle and Key Considerations.
                                                  page 20
relevant, participants' customers, in a clear
and understandable way.




                                                                Recommendation to FSB / IOSCO:

                                                                1. Independent legal opinions to interpret enforceability of laws on other
4. An FMI should have rules, procedures
                                                                jurisdictions must be obtained where necessary.
and contracts that are enforceable in all
relevant jurisdictions, even when a
                                                                2. South Africa should sign and ratify Hague Convention to deal with jurisdictional
participant defaults or becomes insolvent.
                                                 3.1.4; 3.1.9   issues more effectively.
There should be a high degree of certainty
that actions taken under such rules and
                                                                3. The UNIDROIT Convention addresses legal consistency and certainty on
procedures will not be stayed, voided or
                                                                substantive matters and IOSCO should encourage the ratification of this global
reversed.
                                                                standard. The recommendation of these Conventions by IOSCO will speed up the
                                                                addressing of the specific legal risk.

                                                                4. The Principle should be extended to include an FMI's own default.
                                                               Recommendation to FSB / IOSCO:

                                                               1. Strate and other FMIs must cooperate with regulators to create an understanding
                                                               of the business model in order to make the correct risk analysis. However,
                                                               regulators should be open-minded to move on according to legislative objectives.

                                                             2. Strate agrees that it is necessary to develop CSD Rules and procedures and
5. An FMI conducting business in multiple
                                                3.0; 3.1.10 indicate the law that is intended to apply to each aspect of the FMI’s operation.
jurisdictions should identify and mitigate
                                               and Principle Legal opinions can be obtained to analyse the enforceability of choice of law in
the risks arising from any potential
                                                     20      relevant jurisdictions.
conflicts of laws across jurisdictions.

                                                               3. South Africa should sign and ratify the Hague and UNIDROIT Conventions to
                                                               minimise conflict of laws amongst member states and to minimise the jurisdictional
                                                               legal risks.

                                                               4. IOSCO should encourage the harmonisation of laws and ratification of global
                                                               standards. IOSCO should require regulators to demand legal opinions on
                                                               enforceability.




                                                               Recommendation to FSB / IOSCO:

                                                               1. South African legislation does not define these rights and obligations specifically
“define rights and obligations of the FMI,                     with regard to insolvency circumstances. The proposed FM Act would need to do
its participants and where relevant,                           this.
customers”; “Therefore, if risk
management is to be sound and effective,                       2. UNIDROIT specifically defines rights and obligations, also in insolvency
                                                3.1.1; 3.1.5
the enforceability of rights and obligations                   circumstances. IOSCO should adopt the core rights and obligations as set out in
relating to an FMI and its risk management                     UNIDROIT as a global standard across jurisdictions.
should be established with a high degree
of certainty”.                                                 3. The legal risk cannot be seen in isolation, and credit risk also plays a huge role
                                                               here.

                                                               4. Ensure UNIDROIT principles with regard to rights and obligations of all
                                                               intermediaries are contained in new FM Act, including the ones on insolvency.




“A TR’s rules, procedures and contracts
should be clear as to the legal status of                      Recommendation to FSB / IOSCO:
the transaction records that it stores”; “A    3.1.3 Principle
TR should identify and mitigate any legal      24              1. CSDs should be able act as TRs and are doing so currently in most countries.
risks associated with any such ancillary
services that it may provide”;                                 2. IOSCO should be clear on what is expected where CSDs and other FMIs fulfill this
                                                               role.
“the legal basis should also set out the
rules and procedures for providing access
and disclosing data to participants,
                                             3.1.3 Principle
relevant authorities, and the public to meet                 Strate supports this Principle and Key Considerations.
                                             24
their respective information needs, as well
as data protection and confidentiality
issues”


“The legal basis should fully protect from
the insolvency of relevant parties and
other relevant risks a participant’s assets
held in custody by the FMI, as well as an
FMI’s assets held at a custodian or linked                    Recommendation to FSB / IOSCO:
FMI”; “the legal basis should provide         3.1.5 Principle
certainty of rights and interests covering,   11 on CSDs 1. Segregation of securities should be prescribed at all layers of the holding chain
where applicable, an FMIs interests in and    and 14 on       and up to the level of beneficial holder.
rights to use and dispose of collateral, to   segregation
transfer ownership rights ... and to make                     2. IOSCO should recommend how segregation should be done in practice on
and receive payments, notwithstanding                         accounts for each beneficial shareholder and how this should be done in the case
...insolvency of its participants,                            of nominees and omnibus accounts.
participants’ customers, or custodian
bank.”




                                                            Recommendation to FSB / IOSCO:

For TRs ...rights of participants and others                 1. Data warehousing can also be done by CSDs. IOSCO should recognise role that
                                             3.1.5 Principle
with respect to data stored in the TR’s                      CSDs can play in data storage for governments, tax authorities and other
                                             24
systems”                                                     authorities.

                                                            2. Not all forms of data have same legal value or standing. IOSCO should distinguish
                                                            carefully classes of data and not encourage the over-regulation of all data bases.
                                                 Recommendation to FSB / IOSCO:

On settlement finality: point which
                                                 1. It is very important that finality can only be revoked under very specific
transactions are irrevocable, also in    3.1.6
                                                 circumstances. The balance needs to be defined between the finality of a
insolvency
                                                 transaction and the very exceptional circumstances when the transaction may be
                                                 revoked, e.g. by court order or not. IOSCO should encourage UNIDROIT principles
                                                 to be incorporated in all jurisdictions. IOSCO should provide basis for defining
                                                 exceptions to general rule of finality.




On settlement finality: cash leg         3.1.6   Strate supports this Principle and Key Considerations.




                                                 Recommendation to FSB / IOSCO:

                                                 1. Enforceability of netting arrangements should be addressed / considered where
                                                 two or multiple jurisdictions are involved to avoid possible risk, even systemic risk.
                                                 IOSCO should also recognise this as a technique to reduce counterparty risk.
On netting arrangements: enforceability of
                                                 2. IOSCO is not clear on the preferred method to reduce exposure to the insolvency
arrangement in law; also when FMI or its 3.1.7
                                                 of a counterparty. Does it recommend netting or the use of collateral in a form of
participants are insolvent.
                                                 security interest (pledge/out and out cession/hypothec, etc? Or both? What is the
                                                 view of IOSCO on prefunded default arrangements?

                                                 3. IOSCO should specifically address “cherry picking” powers of insolvency
                                                 administrators.

                                                 4. IOSCO should support the proper operation of netting agreements. UNIDROIT is
                                                 currently doing a study on this topic (“Netting of Financial instruments study 78C”)
                                                 and IOSCO should be made aware of this.
For CCPs, state when and under what
circumstances novation or off-setting may
be revoked even after the acceptance of a
                                            3.1.8      Same as above
trade, otherwise netted amounts may not
accurately represent the obligations of the
relevant parties.



On enforceability: “Insolvency law should
support isolating risk and retaining and
using collateral and cash payments           3.1.9     Strate supports this Principle and Key Considerations.
previously paid into an FMI,
notwithstanding the default or insolvency”




“in extreme circumstances, restrict access
                                                       Recommendation to FSB / IOSCO:
or not perform the problematic activity until 3.1.11
the legal situation is addressed”
                                                       1. Legal situation may also be addressed by better supervision and surveillance
                                                       methods.
s overall soundness. The legal basis defines, or provides the foundation for relevant parties to define, the rights and obligations of
 ment mechanisms are based on assumptions about the manner and time at which these rights and obligations arise through the
hts and obligations relating to an FMI and its risk management should be established with a high degree of certainty. If the legal
e FMI, its participants, and their customers may face unintended, uncertain, or unmanageable credit or liquidity risks, which may




                    Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 1.




                    The CSD Rules issued in terms of the SSA provides the legal framework for a Participants functions and
                    obligations and in addition thereto, the framework for STRATE Supervision to monitor compliance with the laid
                    down participation requirements.
                    The CSD Rules clearly define the obligations of Participants and the rights of the Participants' clients.
                    The manner and time these obligations and rights arise are, from an operational perspective, detailed in the
                    Directives.

                    Legal framework for CSD, Clearing House and SRO is provided for, for the South African jurisdiction -
                    enforceability of SSA and CSD Rules for foreign Participants is supported by a Letter of Undertaking and
                    Indemnity and confirmed by a legal opinion on the regulated entities jurisdiction.

                    "Choice-of law provisions" would be RSA in terms of Strate Participation.

                    Foreign Participation - RSA jurisdiction is also applicable for issues where Participants are incorporated,
                    located or otherwise conducting business for the purpose of participation outside RSA.

                    Current SSA is silent on insolvency matters and enforceability of CSD Rules against Insolvency
                    Administrators.
SA legislation prescribes that CSD Rules and Directives must be consistent with laws. This also controlled by
regulator in renewal of CSD licence on an annual basis. With regard to procedures and contracts, no legal
action has been taken against Strate by its CSD Participants or other third parties since inception. Legal
comparisons and compliance on legislation and contracts are done on a regular basis by internal lawyers.

SFIDvP enshrined in SSA and CSD Rules.
SSA and CSD Rules are available on Strate website.
Strate Training division provides training modules on all legal and operational aspects of Strate.
Strate Legal's Rule and Directive Setting Process ensures rules and directives are not ultra vires the SSA.

Strate strives in all instances to align with global best practices and harmonise rules and procedures with same
- for example UNIDROIT on legal issues and ISO15022 standards for messaging.


SA legislation determines the legal structure and CSD environment is regulated by the FSB. Memoranda of
understanding exist between Strate and other SROs (e.g. exchange) and regulatory authorities (e.g. SARB).
Legal basis is clear. CSD is SRO. CSD Rules and Directives are binding in terms of SA legislation on CSD
Participants and others. Industry standards and market protocols are captured in CSD Directives, where
necessary. Proper consultation with market is followed in line with administrative law. CSD Directives are
issued to CSD Participants and others. Proper communication channels are in existence and various market
committees meet regularly to articulate issues. Authorities have access to all Strate’s meetings and
documentation.

SSA and CSD Rules are available on Strate website.
Strate Training division provides training modules on all legal and operational aspects of Strate.
Annual SRO Report articulates Strate's regulatory, supervisory and enforcement functions.




CSD Rules, procedures and contracts are enforceable in South African jurisdiction and remain enforceable
under SA legislation, even in insolvency. South African CSD Rules, procedures and contracts will only be
enforceable in other jurisdictions, if expressly arranged in contracts. To “seek to ensure that activities are
consistent with legal basis in all relevant jurisdictions” pre-supposes harmonisation of core legal principles, or
express agreement to SA law. Actions taken under CSD Rules etc may be influenced in practice as result of
insolvency proceedings. Strate’s Participant Failure Manual, Segregated Depository Accounts and new
clauses in Financial Markets Bill and Companies Act, 2008 should ensure finality of transactions.




Strate Training divisions provides training modules on all legal and operational aspects of Strate.
Strate Participant Failure Manual is in place and available on www.strate.co.za.

"Choice-of law provisions" would be RSA in terms of Strate Participation.

Foreign Participation - RSA jurisdiction is also applicable for issues where Participants are incorporated,
located or otherwise conducting business for the purpose of participation outside RSA.

Current SSA is silent on insolvency matters and enforceability of CSD Rules against Insolvency
Administrators.
Legal framework is provided for South African jurisdiction - enforceability of SSA and CSD Rules for foreign
Participants is supported by a Letter of Undertaking and Indemnity and confirmed by a legal opinion on the
regulated entities jurisdiction.

Priority rights were part of Strate's submission to the SSA changes.

Strate identifies a possible impact on CSD Links, FundServ and OTC Derivatives projects.




Obligations of intermediaries have become more onerous in the last decade. It is important for the industry that
the rights of stakeholders are also taken into account. SA legislation defines rights and obligations in general.




Strate has an information storage policy and compliance is monitored.
SA legislation prescribes.




SA legislation prescribes. Securities are ring-fenced.




SA legislation prescribes the provision of data to relevant authorities via CSDs and Exchanges. Confidentiality
issues are prescribed in law. Data contained in messages embody certain legal rights and interests, such as
ownership.
Current SA legislation does not sufficiently deal with finality in insolvency circumstances. Insolvency Act (s 35A
and 35B) that also delegates power to CSD to issue certain rules, has only limited applicability and is not
sufficient. New FM Act should address issue. Proposed FM Act should capture concept carefully as submitted
by Strate. The Companies Act, 2008 now also refers to irrevocability in the case of insolvency.




Strate only settles in central bank money. SA Legislation on national payment system is clear and supports
delivery versus payment.




Netting is a new concept in many jurisdictions. In SA, it is recognised under Insolvency Act s 35A and 35B, but
not expressly recognised in other SA legislation. The enforceability of the netting arrangement of another
country should be clear. Proposed FM Act should expressly allow for netting arrangements and fill the legal
gaps of the s 35A and 35 B provisions.
NPS Act; s 35A and B of Insolvency Act. Cash in fungible pool.




SA legislation makes provision for suspension and determination and further legal action to be taken by the
regulator against the CSD or exchange.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                                                  Iosco
Key Consideration                                                                 Paper          Comments and Open Items
                                                                                  Reference




                                                                                  Governance is the set of relationships between an FMI’s owners, board of directors, management, and other interested parties, including participants, authorities, and other
Principle 2: Governance                                                           participants’ customers, other interdependent FMIs, and the wider market). Governance provides the processes through which an organisation sets its objectives, determine
                                                                                  monitors performance against the objectives. Good governance provides the proper incentives for an FMI’s board and management to pursue objectives that are in the inte
                                                                                  interest. Governance arrangements should be clearly specified and documented. Information on the arrangements should be disclosed to owners, relevant authorities, user


                                                                                                 Strate Limited's response on Principle 2.




1. An FMI should have documented governance arrangements that provide
clear and direct lines of responsibility and accountability. These arrangements
                                                                                      3.2.1
should be disclosed to owners, relevant authorities, users, and, at a more
general level, the public.




                                                                                                 Strate generally supports this Principle and Key Considerations, but there are some
                                                                                                 areas of concern as noted below.
2. An FMI should have objectives that place a high priority on the safety and
efficiency of the FMI and explicitly support financial stability and other            3.2.2
relevant public interests.
                                                                                                 Key Consideration (KC) 5 – support including reference to a documented risk tolerance
                                                                                                 or risk appetite statement but that statement needs to be linked to the risk management
                                                                                                 practices of the FMI (see 3.2.11).


                                                                                                 EN 3.2.2 and 3.2.5 = Strate is supportive of IOSCO's recommendation and that IOSCO
                                                                                                 should not be prescriptive. Guidance should only be given and left to the local
                                                                                                 regulators to impose specific requirements where necessary.

                                                                                                 EN 3.2.9 = A single, combined audit and risk committees should be acceptable.

                                                                                                 EN 3.2.13 = The frequency of model validation should be consistent with the magnitude
                                                                                                 of the risk exposure related to the model’s use and frequency of changes to the
                                                                                                 parameters and assumptions in the model. The model validation process itself being
                                                                                                 subject to an independent validation process is redundant and unnecessary.

                                                                                                 EN 3.2.13 = In general, this explanatory note is too prescriptive. Calling out a special
                                                                                                 requirement for Board oversight of model vetting (given the Board has a comprehensive
                                                                                                 risk management oversight role already) is unnecessary.

                                                                                                 EN 3.2.14 = The Board should have responsibility for oversight of internal controls, not
                                                                                                   Strate generally supports this Principle and Key Considerations, but there are some
                                                                                                   areas of concern as noted below.




                                                                                                   Key Consideration (KC) 5 – support including reference to a documented risk tolerance
                                                                                                   or risk appetite statement but that statement needs to be linked to the risk management
                                                                                                   practices of the FMI (see 3.2.11).


                                                                                                   EN 3.2.2 and 3.2.5 = Strate is supportive of IOSCO's recommendation and that IOSCO
                                                                                                   should not be prescriptive. Guidance should only be given and left to the local
3. The roles and responsibilities of an FMI’s board of directors (or equivalent)                   regulators to impose specific requirements where necessary.
should be clearly specified, and there should be documented processes for its
functioning, including processes to identify, address, and manage member               3.2.3 -9    EN 3.2.9 = A single, combined audit and risk committees should be acceptable.
conflicts of interest. The roles and responsibilities of management should also
be clearly specified.                                                                              EN 3.2.13 = The frequency of model validation should be consistent with the magnitude
                                                                                                   of the risk exposure related to the model’s use and frequency of changes to the
                                                                                                   parameters and assumptions in the model. The model validation process itself being
                                                                                                   subject to an independent validation process is redundant and unnecessary.
4. The board should contain suitable members with the appropriate skills and
incentives to fulfil its multiple roles. This typically requires the inclusion of                  EN 3.2.13 = In general, this explanatory note is too prescriptive. Calling out a special
                                                                                        3.2.10
independent board member(s). The board should review its overall                                   requirement for Board oversight of model vetting (given the Board has a comprehensive
performance and that of its individual board members regularly.                                    risk management oversight role already) is unnecessary.

                                                                                                   EN 3.2.14 = The Board should have responsibility for oversight of internal controls, not
                                                                                                   for establishing the controls themselves. That is the role of management.
5. The board should establish a clear, documented risk-management
framework that includes the FMI’s risk-tolerance policy, assigns responsibilities                  Consideration should be given to the independent assessment of the Board’s
and accountability for risk decisions, and addresses decision making in crises                     performance.
                                                                                       3.2.10-14
and emergencies. Governance arrangements should ensure that the risk-
management and internal control functions have sufficient authority,
independence, resources, and access to the board.




6. The board should ensure that the FMI’s overall strategy, rules, and major
decisions reflect appropriately the interests of its participants and other relevant
                                                                                        3.2.15
stakeholders. Major decisions should be clearly disclosed to relevant
stakeholders and, where there is a broad market impact, the public.
ement, and other interested parties, including participants, authorities, and other stakeholders (such as indirect participants,
vides the processes through which an organisation sets its objectives, determines the means for achieving those objectives, and
ves for an FMI’s board and management to pursue objectives that are in the interest of its stakeholders, and support the public
n on the arrangements should be disclosed to owners, relevant authorities, users, and, at a more general level, the public.


                   Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 2.




                   Strate complies with the principles of the King II Code of Governance.The Board and its Committees (Audit and
                   Risk, Remuneration, Transformation, Regulatory and Supervisory, Nominations and New Business Committee)
                   have clearly documented mandates and other information regarding Governance is disclosed in the Annual
                   Report available in the website




                   SSA obligation on Strate to operate with due regard to the interest of all stakeholders.
                   1) One of Strate’s objectives in terms of the Corporate Strategy is to be profitable and to ensure operational
                   excellence and effective management of enterprise risk while driving innovation and market best practice.
                   2) All Participants must continuously meet the entry criteria, including the adequacy of the financial resources,
                   systems and human resources
                   3) Strate is required in terms of the SSA to conduct its business in a prudent manner, and with due regard to
                   the rights of Participants, clients and issuers.
Strate complies with the principles of the King II Code of Governance. Stringent Board Charter is in place.
Paragraph 9 of the Board Charter requires the evaluation of the Board performance but no specific mention of
independent assessment.




Strate complies with the principles of the King II Code of Governance. Stringent Board Charter is in place.
Strate EXCO has a balanced mix of skills and experience (this to be incorporated in the new EXCO Charter).
The Nominations Committee also plays a role in the identification of suitable EXCO members.




Strate complies with the principles of the King II Code of Governance. Stringent Board Charter is in place. Role
of the Strate Audit and Risk Committee has been defined in stringent "Terms of Reference".The Board,
through the Audit and Risk Committee is responsible or accountable for the management of risk in accordance
with the Board approved risk management framework.
Chinese Wall separating the operations and supervisory function is subject to an audit. The Information
Management Policy provides for some restrictions on the use and access to information.
The internal audit function is outsourced to ensure independence and it reports to the Board through the Audit
and Risk Committee, and administratively to the Head of Risk Management.




SSA obligation on Strate to operate with due regard to the interest of all stakeholders.The Board has approved
Stakeholder Management Policy to manage stakeholder relationships
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                                                                   Iosco
Key Consideration                                                                  Paper          Comments and Open Items
                                                                                   Reference




                                                                                   An FMI should take an integrated and comprehensive view of its risks, including the risks it bears from and poses to its participants and their customers, as well as the risks
Principle 3: Framework for the                                                     other entities, such as linked FMIs, settlement banks, liquidity providers, and service providers. An FMI should consider how various risks relate to, and interact with, each o
                                                                                   manage risks from a comprehensive perspective and have a sound risk-management framework that can effectively identify, measure, monitor, and manage the risks born
comprehensive management of risks                                                  posed by the FMI to the institutions and markets it serves. This framework should include the identification and management of interdependencies. An FMI should provide a
                                                                                   where relevant, the capacity for its participants and other entities to manage and contain their risks vis-à-vis the FMI. As discussed in principle 2 on governance, the board o
                                                                                   role in establishing and maintaining a sound risk-management framework.


                                                                                                  Strate Limited's response on Principle 3.




                                                                                                  Strate supports this Principle and Key Consideration.


                                                                                                  Recommendation to FSB / IOSCO:

                                                                                                  1.This Consideration should be a Rule requirement.
1. An FMI should have risk-management policies, procedures, and systems              3.3.1 and
that identify, measure, monitor, and manage the range of risks that arise in the   3.3.2 Page 28- 2. IOSCO to detail their meaning of "capacity" and "incentives" in
FMI.                                                                                     29       order to be clear and effective about the suggested mechanisms.
                                                                                                  (Strate aligns the words "capacity" with "ability"; and
                                                                                                  "incentives" with "market best practice".)
                                                                                                  Strate supports this Principle and Key Consideration.
2. An FMI should provide the incentives and, where relevant, the capacity to
                                                                                  3.3.5 page 29
participants and their customers to manage and contain their risks.




                                                                                                  Strate supports this Principle and Key Consideration.

3. An FMI should regularly review the material risks it bears from and poses to                 Recommendation to FSB / IOSCO :
other entities (such as linked FMIs, settlement banks, liquidity providers, or    3.3.6 page 29
service providers) as a result of interdependencies and develop appropriate            -30      1) IOSCO should acknowledge that a FMI that links with a third
risk-management tools to address these risks.                                                   party e.g a Central Bank (which is not an FMI) may be exposed to
                                                                                                risks that it can not itself manage.
 s, including the risks it bears from and poses to its participants and their customers, as well as the risks it bears from and poses to
  rs, and service providers. An FMI should consider how various risks relate to, and interact with, each other. The FMI should
  isk-management framework that can effectively identify, measure, monitor, and manage the risks borne by the FMI and the risks
  work should include the identification and management of interdependencies. An FMI should provide appropriate incentives and,
manage and contain their risks vis-à-vis the FMI. As discussed in principle 2 on governance, the board of directors plays a critical
 work.


                     Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 3.




                     Strate complies - Risk policy, frameworks and monitoring / reporting structures are in place and are reviewed
                     frequently and supported by Strate's Board.

                     A formal Risk Policy and Framework has been approved by the Board and is subject to annual review.
                     Ongoing monitoring of adherance is undertaken via the Audit and Risk Committee with a comprehensive,
                     combined assurance approach having been adopted through the use of Internal and External Audit as well as
                     other, appropriate assurance providers.

                     Strate has developed an effective system of policies, processes, procedures and controls, with appropriate
                     oversight via a comprehensive governance framework, to manage its risks. These have been designed to
                     cover all aspects of the operations of the CSD.

                     Rules and Directives are issued to mitigate risks. Fines are imposed for non-compliance by Participants.

                     Strate has robust business continuity arrangements including crisis-management procedures - Wider risks
                     (extreme but probable are also considered such as earthquake, pandemic etc).

                     As Strate does not take collateral or margin from Participants, market risk is not a risk to us.
                     Strate is a member of the FSCF, which is under the auspices of the SARB. The forum seeks to provide a high-
                     level of co-ordination across the various FMI's in SA.

                     Robust policies, procedures and controls are imposed by the FSB via Strate's annual license application and
                     their presence on the Strate Board and ARC. Strate completes the FSB's Self -Assessment annually.
Strate complies - CSD Rules and Directives impose onerous internal control and risk management procedures
on Participants.
Fines and penalites can be imposed for failure to comply with CSD Rules - including termination of
participation as a last resort.




This requirement relates to international interdependencies, such as CSD-to-CSD links. Strate does not have
any such links at present, but links with other CSDs are currently being investigated and all risks associated
with links are being considered.

Strate policies are subject to both internal and external independent audit review.
IOSCO - Principles for Financial Market Infrastructures

Response by Strate Limited.


                                   Iosco
Key Consideration                  Paper           Comments and Open Items
                                   Reference




                                   Credit risk is broadly defined as the risk that a counterparty will be unable to meet fully its financial obligations when due or at any time in the future. The default of a participant (and its affilia
                                   cause severe disruptions to an FMI, its other participants, and financial markets more broadly. Therefore, an FMI should establish a robust framework to manage such credit risks (see also
                                   settlements and principle 16 on custody and investment risk that deal with credit risk from settlement banks and credit risk from custodians and investment counterparties, respectively). An
Principle 4: : Credit risk         from the credit exposures created by its payment, clearing, or settlement processes can be divided into two types: current exposure and potential future exposure. Current exposure, in this
                                   loss that an FMI would immediately face if a participant defaulted. If the FMI does not guarantee settlement as in the case of some deferred net settlement systems, this exposure may be b
                                   directly by its participants rather than directly by a central entity in the FMI. Potential future exposure is broadly defined as any potential credit exposure that an FMI could face at a future da
                                   exposure that an FMI might potentially assume during the life of a contract or set of contracts beyond the current replacement cost). The type and level of credit exposure faced by an FMI w
                                   design.


                                                   Strate Limited's response on Principle 4.
1. An FMI should establish a robust framework to manage the           Strate supports this Principle and Key Considerations.
credit risks from its participants and the credit risks involved in
its payment, clearing, and settlement processes. Credit risk may
arise from current exposure, potential future exposure, or both.




2. An FMI should identify sources of credit risk, routinely
measure and monitor credit exposures, and use appropriate risk-       Strate supports this Principle and Key Consideration.
management tools to control these risks.
                                                                       Recommendation to FSB / IOSCO:
3. A payment system, CSD, or SSS should cover its current
                                                                       1. IOSCO must give clarity on how netting arrangements affect
and, where they exist, potential future exposures to each
                                                                       credit risks.
participant fully with a high degree of confidence using collateral
and other equivalent financial resources (see principle 5 on
                                                                       2. Principle can be cross-referenced to Principle 1.
collateral).




                                                                       Not applicable to Strate - Strate does not operate a CCP.
4. A CCP should cover its current and potential future
exposures to each participant fully with a high degree of
                                                                       Recommendation to FSB / IOSCO:
confidence using margin and other financial resources (see
principle 6 on margin which specifies 99 percent initial margin
                                                                       1. In the context of market contagion, Strate supports the
coverage and other requirements). A CCP should also maintain
                                                                       consideration of the failure of more than one Participant.
additional financial resources sufficient to cover a wide range of
                                                                       Note however, that every market is different and consideration
potential stress scenarios identified in regular and rigorous
                                                                       of multiple failures depends on conditions such as market
stress testing that should include, but not be limited to, the
                                                                       concentration. We suggest at least 1 Participant and leave
default of [one /two] participant[s] and [its/their] affiliates that
                                                                       space for local regulators / Risk Committees / Boards of
would potentially cause the largest aggregate credit exposure[s]
in extreme but plausible market conditions.                            Directors to establish additional resources, based on stress
                                                                       testing measures that will be more complete.


5. A CCP should determine and test regularly the sufficiency of
its financial resources by rigorous backtesting and stress
testing. Backtesting should be conducted daily to demonstrate
sufficient initial margin coverage with a 99 percent degree of
confidence. Stress tests to check the adequacy of the total
financial resources available in the event of a default in extreme
but plausible market conditions should be performed at least
monthly, or more frequently when the products cleared or
markets served in general display high volatility, become less
                                                                       Not applicable to Strate - Strate does not operate a CCP.
liquid, or when the size or concentration of positions held by a
CCP’s participants increases significantly. In addition, more
routine daily or weekly stress testing in which a CCP stresses
the current positions of its participants using established
parameters and assumptions should be considered to be a best
practice. Comprehensive stress tests, involving a full validation
of models, parameters, and assumptions and reconsideration of
appropriate stress scenarios, should be conducted at least
annually.
6. In conducting stress testing, a CCP should consider a wide
range of relevant stress scenarios, including peak historic price
volatilities, shifts in other market factors such as price
determinants and yield curves, multiple defaults over various
time horizons, simultaneous pressures in funding and asset
                                                                     Not applicable to Strate - Strate does not operate a CCP.
markets, and a spectrum of forward-looking stress scenarios in
a variety of extreme but plausible market conditions. The stress-
testing programme should include “reverse stress tests” aimed
at identifying extreme market conditions for which the CCP’s
financial resources would be insufficient.




7. An FMI should have clear and transparent rules and
procedures that address how potentially uncovered credit
losses would be allocated, including in relation to the repayment
of any funds an FMI may borrow from liquidity providers. An
                                                                     Strate supports this Principle and Key Consideration.
FMI’s rules and procedures should also indicate its process to
replenish any financial resources it may employ during a stress
event, including the potential default of the two participants and
their affiliates that would cause the largest aggregate credit
exposure so that the FMI can continue to operate in a safe and
sound manner.
 s




 e unable to meet fully its financial obligations when due or at any time in the future. The default of a participant (and its affiliates) has the potential to
nancial markets more broadly. Therefore, an FMI should establish a robust framework to manage such credit risks (see also principle 9 on money
  deal with credit risk from settlement banks and credit risk from custodians and investment counterparties, respectively). An FMI’s credit risk arising
 ttlement processes can be divided into two types: current exposure and potential future exposure. Current exposure, in this context, is defined as the
d. If the FMI does not guarantee settlement as in the case of some deferred net settlement systems, this exposure may be borne individually and
n the FMI. Potential future exposure is broadly defined as any potential credit exposure that an FMI could face at a future date (such as the additional
 a contract or set of contracts beyond the current replacement cost). The type and level of credit exposure faced by an FMI will vary based on its



                     Detail of the extent to which Strate Limited currently complies with, or aligns to, Principle 4.
Strate has evaluated its credit risk and determined that its only exposure is to that in its debtors’ book. From a market perspective,
we are not responsible for monitoring the credit risks of our Participants. However, we do use our Rules, Directives and systems
to assist them in managing their exposures.Strate itself, as an FMI, does not expose itself to credit risk, but the results of one its
Participants being exposed could have a domino effect and contagion impact may have to be handled by Strate in trying to
ensure settlement of transactions in the CSD.

Strate does not extend credit to its Participants.
BUT Participants can face financial exposures that in return can expose Strate and market to failure risks. Further, one
Participants failure can lead to the failure of a further Participant.

In order to manage such an impact (stress event), Strate does have crisis plans and Participant Failure Manual - but not tested
or simulated and SSA gaps relating to insolvency provisions as mentioned above apply.

Strate does not mandate pre-funding for settlements or margin / collateral being held by Participants for client settlement
obligations.

STRATE Supervision does not directly monitor Participant credit exposure.
SSA only covers securities and not cash.
Fines are imposed for delayed funding.
MOU with Central Bank in respect of prudential regulation of Bank Participants.

Reference to CCP should be extended to all FMI's.
Any consideration for a formal CCP for the SA market should be undertaken by the FSB.


Use of Financial Resources:
3.4.15 page 36 = "The rules of an FMI should expressly set out the circumstances in which specific resources of the FMI can be
used in a participant default."
Strate does not currently have such rules or may not wish to make own resources available. No collateral or margin posted with
Strate; no prefunded default arrangements in the Strate environment.




Strate does not take collateral or stand in for any of its Participants’ obligations. Participants are responsible for their own credit
risk management. Regular monitoring of our limited exposure to credit risk does occur.

Participants are required to monitor their own credit risks on an ongoing basis through their own systems. With netting
arrangements in place, the information that Strate can provide them is limited.

Strate does not act as a CCP, does not act as counter-party in transactions, and does not take collateral.

Strate monitors market conditions for evidence of risk. The Participant Failure Manual also covers the processes to be followed in
the event of Participant failure.

Strate does not extend credit in securities transactions. In order to mitigate credit risk in the market, the issue of finality is
entrenched through the use of both an RTGS and an SFIDvP system.

Time-based limits are placed on our debtors’ books.
Strate does not stand in for Participants’ obligations or guarantee trades. Strate does not take collateral. Therefore Strate does
not have current or future exposures to Participant obligations.

Strate operates as a clearing house for bonds and money market securities, but does not take margin or collateral.




Strate has considered the effects of Participant default and how it will affect the market. This is documented in the Participant
Failure Manual. Stress / simulation testing has however not been undertaken - Strate wishes to work together with the FSB and
SARB on failure simulation initiatives.

No Strate assets will be used in the event of Participant default .




Strate has considered the effects of Participant default and how it will affect the market. This is documented in the Participant
Failure Manual. Stress / simulation testing has however not been undertaken - Strate wishes to work together with the FSB and
SARB on failure simulation initiatives.

No Strate assets will be used in the event of Participant default .
Strate has considered the effects of Participant default and how it will affect the market. This is documented in the Participant
Failure Manual. Stress / simulation testing has however not been undertaken - Strate wishes to work together with the FSB and
SARB on failure simulation initiatives.

No Strate assets will be used in the event of Participant default .




In South African context, this risk is a risk of the Participants, but it may impact Strate in the way of operational and/or systemic
risk.

								
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