South African Bond Market to Explore New Clearing System

  • Trading Systems
  • 12.06.2017 09:00 am

The South African bond market will soon receive a new clearing and settlement system that will replace the one that has served the market since 1991. 

The revolution is being spearheaded by the country’s Central Securities Depository, Strate, which owns the current bond settlement system it inherited from UNEXCor, following a merger between both parties in 2003. Strate is responsible for the electronic settlement of securities in SA and safely keeping these ownership records. Strate owns the systems that seamlessly transfer the ownership of equities, bonds and money market securities electronically, delivering them to the buyer at the same time that payment is received by the seller. This is done in conjunction with its CSD Participants, the South African Reserve Bank and key market players. 

On July 24, 2017, Strate plans to implement its Debt Instrument Solution (DIS) to replace the UNEXCor system. In so doing, much-needed changes to the bonds settlement model, capital event payments processes and communication between bond issuers and Strate will be introduced 

“With an average of R2.4 trillion worth of bonds under Strate’s custody and settlements exceed R100 billion daily, this is a significant project being undertaken by Strate and members of the capital markets,” says Beverley Furman, Managing Executive: CSD Operations at Strate. 

She adds that with the country’s best interests at heart, and risk mitigation top of mind, Strate will continue to ensure its Go-Live date can be met without introducing risk. “You can appreciate the stringent governance that Strate has over a project of this scale and importance. Given that several project milestones must still be met between now and 24 July 2017, Strate is regularly assessing progress on these milestones to ensure that this Go- Live date can be met. Should the implementation be postponed, there are contingency arrangements in place. These will be communicated in need.” 

Strate is always ensuring it provides value for its stakeholders through the solutions it offers, looking at ways to evolve its core services for the betterment of South Africa’s financial markets . “We want the best-of-the-best technology for our market so that it can enhance the profile of South Africa’s financial markets and further facilitate the management of risk in line with global best practice,” says Iann Seymour-Smith, Project Executive for the DIS project and General Manager of Custody and Settlement at Strate. 

The revolutionary bond settlement system will provide numerous benefits to the market. These include the introduction of multiple settlement runs, a move from older messaging protocols to international SWIFT messaging standards, the introduction of an interface that will enable bond market issuers to do their top-ups, redemptions, calls and even check balances directly with the CSD. The streamlined capital event processes are expected to offer better, faster entitlement communication and payment distribution. 

While South Africa is used to bonds settling on a T+3 settlement cycle in the Strate environment, the new system can cater for any settlement cycle from T+0 upwards. Its functionality also allows for back-to-back links across different markets; so if a security is bought on exchange and is sold on the over-the-counter market, this 2 

functionality allows for greater efficiencies across all these markets. The use of central bank funds to facilitate the payment leg of the transaction as well as capital events, continues to ensure that risk mitigation remains a priority. 

DIS forms part of a wider programme where Strate is replacing its IT infrastructure for all asset classes. The component being used to settle money market securities was introduced in February 2016, while the equities market will be switched over at later stages using a phased approach. According to Seymour-Smith, “The new infrastructure offers the market a streamlined service, as multiple systems are consolidated into one. Strate is now in a position to offer more innovative products to the market in a much shorter time.”

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