CIS Corporate Governance Conference

The Impact of the New Companies Act on Shareholder Disclosure and the Role of

Strate in the Financial Markets  

PRESENTED BY: Monica Singer and Dr. Maria Vermaas DATE: Thursday 10 September 2009

What is Strate?

South Africa’s authorised Central Securities Depository for the electronic

settlement of financial instruments in South Africa

Provides electronic settlement for equities, bonds, warrants and money market

securities to the South African market and the Namibian Stock Exchange

Owned by the JSE Ltd (44.5%), four local banks (55.4%) and Citibank (0.1%)

Core purpose is to mitigate risk and bring efficiencies to the South African market

Aligned to international best practice and standards

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Vision and Purpose

Strate Ltd

Vision

We are the leading independent South African provider of innovative post

trade products and services

We are globally recognised for the confidence we inspire in our financial

markets infrastructure

Purpose

Strate’s purpose is to provide clearing, settlement and depository services for

securities, enabling end-to-end pragmatic, reliable, innovative solutions that

facilitate the management of risk and the realisation of value for all

stakeholders

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The Markets we Serve

Equities – Shares, Exchange Traded Funds and Warrants (T+5)

Alt-X (T+5)

Yield-X (T+3)

Bonds (T+3)

Money Market Securities (T+0)

Namibian Stock Exchange (NSX) (T+5)

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Board Composition

Chairman (Independent Non Executive)

Two executive directors

Two representatives from the JSE Ltd

Two representatives from the Banks / Participants (rotation basis)

One representative from the listed companies

One representative from the fund managers

Four independent non executive directors

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Benefits of Strate

Simultaneous final irrevocable delivery versus payment in Central Bank Funds

World class settlement system with compliance to international standards

Rolling, contractual, guaranteed settlement

Risk Management – given top ranking by Thomas Murray rating agency

Robustness of support for business continuity capability and Disaster Recovery

G30 and IOSCO compliance except T+ 3 for equities

S.W.I.F.T Connectivity (ISO 15022 standards) and Virtual Private Network

Electronic securities lending and borrowing

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Value Added Services to Issuers

Corporate Actions processing with the elimination of market claims and no failed trades;

Accuracy of the share register (BND) for Issuers;

Electronic custody of shares which are reconciled daily;

Elimination of paper share certificates;

Electronic processing of corporate events - elimination of costs, significant risks and

administration previously associated with corporate actions processing;

Interest, dividends and proceeds are credited to the clients' accounts directly occurring in a

quick and secure manner;

The elimination of the costs and risks of cheques payments and the improved efficiency of

dividend payments;

Certainty of settlement (T+5) for investors;

The marketability of South Africa financial services infrastructure.

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Products available to Issuers

Strate currently provides the following value added reporting services to Issuers on request:-

The delivery of a PDF or Excel beneficiary download report via e-mail direct to the Issuer and / or

their Sponsor.

Ad hoc beneficiary downloads for the purpose of mailing in respect of special events by prior

arrangement.

A list of the top 100 beneficial owners (or number determined by the Issuer).

A list of beneficial owners/shareholders holding in excess of (X) % of the issued share capital or

dematerialised balance.

A list of non-resident beneficial owners/shareholders.

The number of beneficial owners/shareholders and the % held by band. e.g. 1-1000 No. of

beneficial owners/shareholders % of shareholders, % of issued share capital.

Ad hoc data sorts by beneficial owners/shareholders.

A list of movements by beneficial owners/shareholders since the previous reporting period.

Accurate buyer seller details for trades executed on a specific day or over an extended period.

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Other products and services

Clearing and Settlement

Corporate Actions

Strate Reporting Services

Strate Training and Exams

SWIFT Services / Virtual Private Network

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Future Projects

Securities Ownership Register (SOR)

Centralised register of beneficial ownership holdings

Investor specific accounts are kept in the name of the beneficial account holder

Legal, risk mitigation, operational and cost imperative for the South African market

Link UP Markets

Global trend for CSD to CSD links

Strate invited to join Link UP Markets as the African link connecting to eight European CSDs

Address complexities and inefficiencies of cross-border settlement

Position South Africa globally

Move to the daily Beneficiary Download (BND)

Market initiative – move from monthly, to weekly and daily to better service issuers

Equities and bonds

Corporate Actions enhancement project

More efficient processing of corporate actions aligned to international standards

Ability to deal with the growing complexity of corporate action events and the management of risk10

Relationship: Strate and Issuer

Securities Services Act (SSA), CSD Rules, CSD Directives

Companies Act (Co. Act), regulations

JSE Listing requirements

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Three important things for Issuers

The decision making process

Flow of capital inside and outside the company

Mechanism for transferring shares

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Electronic transfer by book entries

Paper crunch

Various holding and settlement models

Indirect vs Direct

Fragmentation vs Centralised

Non-transparent vs Transparent

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Model under Section 91A of Co. Act

IssuerTransfer Secretary

STRATE (CSD)

CSD Participant A CSD Participant B

Subregister

Sub -subregister

1. Investor D2. Other Nominee3. Global Investor E

Subregister

Sub-Sub-Subregister

1. Investor F2. Investor G

1. Broker Nominee2. Own Name Client Mr A3. Investor BC (Pty) Ltd4. Other Nominee5. CSD Participant A Nominee

1. CSD Participant B Nominee

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Model under Co. Act, 2008

Alignment with SSA

Chapter 2 Part E in the Co. Act

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Securities Ownership Register (SOR)

ISSUER CSD

INT

AC3AC2AC1

Top-tier

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South African legislation

1. SSA does not prescribe a specific settlement model, but enables a Transparent SOR system:

Deposit of securities with a CSD or a Participant for deposit in the CSD (s 41(1);35(a))

Doesn’t prescribe manner in which records of clients or beneficial owners must be kept,

but provides that CSD rules must provide for the manner

Enables transfer of securities held by CSD or Participant by entry in the central securities

account of the CSD or securities account of the parties kept by the CSD or Participant (s

42)

2. CA prescribes subregister model for equities (s 91A)

3. Companies Act, 2008: In alignment with SSA approach, the Act moves away from the

restrictive approach to subscribe a specific settlement model for the market. The Act contains

the basic underpinnings for an effective settlement model, but the CSD rules will spell out the

detail of the specific model. This allows for flexibility to ensure the law adapts to reality and

keeps up with global and domestic business developments in SA financial markets.

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Subregister Model

Intermediary X’s Account

1,600

Customer A’s Account Customer B’s Account Customer C’s Account

CSD's Book

Intermediary X's Book

intermediaries

300 200 100

“omnibus account”:

CSD does not know A, B or C or even X’s own

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SOR Model

Intermediary X’s Account

own cust.A cust B cust C

Customer A’s Account Customer B’s Account Customer C’s Account

CSD's Book

Intermediary X's Book

intermediaries

1,000

300 200 100

300 200 100

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Examples of benefits of SOR

Segregation

Ownership

Attachments

Increased transparency

The issuer’s legal register of uncertificated securities would be

centralised

Shareholders would be able to directly exercise their rights as

shareholders of the issuer

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Relationships: Strate and Issuer and Client

Issuer can control who holds the securities (who casts the

vote?)

Issuer can communicate with relevant shareholders

Strate keeps electronic records centralised

Strate facilitates the exercise of shareholder rights (address

execution problems in voting)

Transparency and identification

Network relationships

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Questions?

Contacts:

•Bryan Rudd, Business Development Manager, Strate (bryanr@strate.co.za or 011 579 5376)

•Monica Singer, CEO Strate Ltd

(monicas@strate.co.za or 011 759 5311)

•Dr. Maria Vermaas, Head of Legal, Strate Ltd

(mariav@strate.co.za or 011 759 5315)

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