JSE Securities Exchange

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STRATE Ltd

• Dr Maria Vermaas
• Head of Legal Services

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Introduction by JSE Securities Exchange
Elbi J van Vuuren Legal Counsel Introduction   Re
lationship between JSE and STRATE   Importance
of legislation to the JSE   World-class
settlement integrity introduced by STRATE
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Settlement Risk amongst 20 Emerging Markets 1998
to 2003
WORST 1998 1999 2000 2001 2002 2003
India 18.76 41.48 71.42 80.66
91.77 92.71 Indonesia 74.11 56.61 67.22 77.32
96.95 99.41 South Africa (1.28) 0.14 36.41 58.48
98.13 97.62 Venezuela 60.41 53.08 46.31 53.11
65.12 64.61 Source GSCS BenchmarksSettlement
risk includes factors such as Interest rate and
overall cost of failed trades
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Settlement Risk Ratings in 2004 for South Africa
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What is STRATE?

• Electronic settlement of equity, bonds and
  money market instruments (Late 2005)
• The CSD for financial instruments in South
  Africa
• Electronic transfer of ownership within SAFIRES
  
• Transfer of value via the Central Bank (SARB)

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STRATE Ltd Corporate Structure
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Board Members

• Chairman
• Mervyn King
• Jse Securities Exchange
• Russell Loubser
• Leanne Parsons
• Des Davidson
• Bobby Johnston
• Banks
• Johan Geldenhuys (ABSA)
• Angela Hardwick (FirstRand)
• Vernon Heunis (Nedcor)
• Simon Ridley (Standard Bank)

• Listed Companies
• Annamarie van der Merve
• Executive Director
• Monica Singer CEO
• Erna Solomon COO
• Independent Non-executives
• Nigel Payne
• Rick Cottrell
• Other
• Tom Lawless (BESA)
• Stephan Malherbe
• Trevor Cross
• Arthur Cousins

Chairman of Audit Risk Committee Chairman
of Regulatory Committee
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Regulation
Financial Services Board
JSE SECA Listing Requirements
STRATE CASA Rules Directives
Companies Act
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Background to STRATE

• October 1996-project begins
• May 1998-contract for system implementation
  signed with TCS and SARB goes live with SAMOS
• 1999-Legislation amendments approved by
  Parliament
• November 1999-system live with Harmony Gold Mine
• July 2000-2001 - 12 more companies into STRATE
• March 2001- schedule for all companies to move
  into STRATE approved
• January 2002-all listed companies settling in
  STRATE
• August 2003-merger with Unexcor and CD Ltd
  approved

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Benefits of STRATE

• Contractual settlement guaranteed by the JSE
• Rolling 5 day settlement settlement certainty
• Optimum use of liquidity - cash and shares
• Electronic record vs paper
• Complete Shareholders Register
• Transparency of ownership- Beneficial Owner
  Download
• Simultaneous, Final, Irrevocable, Delivery
  versus Payment

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Benefits of STRATE

• Reserve Bank connectivity and payment in
  Central Bank funds
• Electronic execution of corporate actions with
  no claims
• Ø Automated functionality for securities
  lending and borrowing
• Electronic pledging
• S.W.I.F.T. messaging and ISO 15022
• Discipline through increased level of
  regulation
• G30 compliance and beyond
• Worst settlement risk amongst emerging markets
  replaced with the most sophisticated (Global
  Custody Review, 2003)

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What is dematerialisation?
Dematerialisation is the process of exchanging
scrip (physical certificates and certified
deeds) for an electronic record of ownership.
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Equities by Value- Dematerialisation
Value of the dematerialised shares as a of the
market capital
dematerialised in STRATE
held by investors in certificated form outside of
STRATE
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Transfer of shares

• Change of ownership linked to debiting and
  crediting (S 91A(4)(a))
• Change of ownership effective provided that
  transferee acts without notice (S 91A(4)(c))

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Rights of recourse

• Actio ad exhibendum
• Action for damages to owner against thief or
  other mala fide possessor
• Criminal claim against perpetrators of fraud
• Action on negligence

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Rights of recourse (cont.)

• Claims under S 91A(8)
• Taking of unlawful action
• Which causes removal/omission of name from
  register
• Gives rise to liability for direct loss / damage
  arising out of such action

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Loss of dividend?

• Loss by depriving true owner of dividend
• S 91A has not changed this position in any way
• Include losses in a rights issue or unbundling or
  any other distribution
• Registry entry and ownership more closely linked
  than before

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Dispossessed Members Fidelity Fund

• Creation of fund
• Claims lodged and accepted
• Fund paid compensation to claimant where claimant
  has waived further actions, including S115

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Legislative protection to dematerialised
shareholders

• S 91A enables SFIDVP
• No longer claim against someone who became owner
  in good faith
• Uncertainty of certificated transfers addressed
  (Oakland Nominees v Gelria)
• S115 must be seen in context of practically
  insurmountable evidentiary difficulties
• DMF limited duration
• Matter only to be resolved by legislation

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Legislative protection to dematerialised
shareholders

• Amendment to disapply S115 partially
• Essential safeguard to integrity of markets
• Internationally accepted principle
• Important to know that once shares are
  dematerialised, they will be clean

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Questions
www.strate.co.za
THANK YOU!
The South African Central Securities Depository
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Glossary of terms
BDA - Broker Deal Accounting System
(back-office system of brokers) CSD - Cent
ral Securities Depository CSDP - Central
Securities Depository Participant FSB - Financi
al Services Board JET - Johannesburg Equities
Trading System JSE - JSE - Securities
Exchange South Africa JSE SETS - JSE Trading
System (Same as London Stock Exchange)
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Glossary of terms
SAMOS - South African Multiple Options System
(SARBs system for RTGS of
cash) SECOM - Swiss settlement system SARB - Sout
h African Reserve Bank (Central Bank) SFI
DvP - Simultaneous, Final, Irrevocable
Delivery versus Payment SAFIRES - Southern
African Financial Instruments
Real Time Electronic Settlement System
(Strates system) STP - Straight Through
Processing