WORLD BANK CONFERENCE

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WORLD BANK CONFERENCE
Payment Systems to Preserve Financial Stability
Interbank Money Markets and Payment Systems A
Two Way Relationship
PRESENTED BY Anthony van Eden DATE 8th April
2009
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(No Transcript)
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• South African Money Market statistics
• Background to the South African Money Market
• Compelling Factors for the Deployment of
  Infrastructure in MM - The South African
  Dematerialisation of MM Project

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Average Duration per Issue -100 days
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• Informal market no exchange or Automated Trading
  Systems
• Clearing and settlement unchanged since inception
  of MM
• No formal Market Association
• Bearer certificates telephonic trading paper
  based settlement instructions physical custody
  manual recording of ownership and coupon
  calculations no guaranteed SFIDvP certificate
  splitting physical delivery against Capital
  Events

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• Stringent exchange controls
• Securities Services Act
• National Credit Act June 2005
• Deposit Taking Institutions Act
• Central Bank (SARB) responsible for monetary
  policy and supervision
• Capital Adequacy Ratio Required 9,75 Actual
  2008 between 12 - 14
• Liquid Asset Requirement - Banks can only use 50
  intra-day and 25 of collateral at SARB
  inter-day
• Banking IT systems, processes and procedures
  robust and relatively advanced

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• Risk Reduction
• Operational
• Credit
• Settlement
• Systemic and
• Reputational.
• Improvement in liquidity
• Prevention of money laundering opportunities
• Enhanced Straight Through Processing

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THE MITIGATION OF RISK - SOUTH AFRICAN
DEMATERIALISATION OF MONEY MARKET PROJECT
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Reduction of Operational risk

• All MM securities will be-
• standardised
• allocated an ISIN real-time via the CSD
• issued, traded and settled electronically
• Electronic communication using ISO 15022 standard
  messages types
• Communication via SWIFT infrastructure or Strate
  WAN reliable, secure and robust
• Use of unique identifiers for business partners,
  investors, security issuing, trade matching,
  clearing and settlements trades of Capital
  Events
• Electronic Trade Matching Engine (ETME) post
  trade/pre-settlement

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Reduction of Operational risk (continued)

• Any changes in beneficial ownership reported and
  matched in ETME before settlement Participants
  commit to delivery of securities or settlement of
  trades
• Both legs to Buy Backs reported and matched
  simultaneously for settlement
• End to end STP from ISIN issue to Maturity
• Standardised settlement procedures for trades and
  Capital Events
• Capital Events paid to Participants in bulk for
  dissemination to their clients by accounting
  entry.

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• Settlements of trades are committed to by
  Participants
• Existing secure inter-banking settlement using
  existing SARB SAMOS RTL ISO 15022 messages over
  SWIFT infrastructure
• Real-time Settlement in SARB funds (SAMOS RTL)
  or intra-bank (on-us) for trades and Capital
  Events
• Carries Repurchase and Reverse Repurchase
  Agreements treated as change in beneficial
  ownership i.e. Buy Backs
• Payment instructions from CSD only generated once
  commits for delivery and settlement matched

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• Securities committed to delivery
  reserved/locked in SOR Securities Account
  pending confirmation of final and irrevocable
  settlement
• Pledged securities reserved/locked in SOR
  Securities Account until Pledge Release
  instructions received or security matures
• Settlement status messages sent by CSD
  Participants can query settlement status on-line,
  real-time
• Simultaneous Final Irrevocable Delivery Versus
  Payment (SFIDVP) at SOR level

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• Participants notified immediately by CSD when
  insufficient securities for delivery
• Trade settlement only fails at close of SARB
  settlement windows
• Capital Events settled electronically on payment
  date
• Participants have access to real time records of
  client Securities accounts.

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• Use of SARB SAMOS RTL-
• Final and irrevocable settlement
• Real time availability of funds on settlement
  date
• Facilitates more efficient and accurate credit
  management cash flow forecasting
• SARB has real time statistics of compliance with
  Liquid Asset Requirements

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• Bulk trades settled on Gross principal to
  principal settlement avoid one fail all fail
• Participants have ability to electronically
  freeze Securities Accounts of its clients
• Curator appointed by the SARB has the ability to
  place freeze over all of a banks Securities
  Accounts.
• SARB has real time statistics of compliance with
  Liquid Asset Requirements

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• More timely settlement of trades and Capital
  Events via SAMOS RTL should increase activity in
  the secondary market

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• Ownership maintained in CSD at beneficial owner
  level in SOR
• Only foreign companies can open Nominee accounts
  in SOR
• SOR legally regarded as the definitive record of
  ownership

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• End to end STP from ISIN issue to Maturity
• ETME makes settlement process more efficient /
  timeous
• Executed trades reported for matching at bulk
  level underlying allocations cleared and
  settled
• Participants have real time records of securities
  available for delivery
• Automated Capital Event payments settled at
  Participant level
• Centralised real-time electronic records in CSD
  of every electronic Security issued
• Opportunity for risk reduction and cost savings
  across the Market.

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THANK YOU