Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4

Recommendation 5 Recommendation 6 Recommendation 7 Recommendation 8

Market selection

Recommendation 4

Each market must have clear rules assuring investor protection by safeguarding participants from the financial risks of failed settlement and ensuring that listed companies are required to follow sound policies on corporate governance, transfer of economic benefits and shareholder rights.

1.	Does the depository or the market have securities lending and borrowing schemes in place, and are these open to all market participants and their settlement agents?	There is no centralised lending pool for use by STRATE. Instead, Lending Desks, some acting as Business Partners of STRATE, enable Securities Lending and Borrowing (SLB) for the market. The Lending Desks act as agents for the Lenders and Borrowers, thereby making the SLB market available to any investor who wants to avail of the facility. The Lending Desk Business Partner facility developed by STRATE provides a cheap and streamlined methodology for SLB and is growing in popularity amongst the market participants. The JSE Settlement Authority has also embraced the Lending Desk Business Partner concept, which is responsible for the smooth settlement of transactions. The JSE (JSE Securities Exchange South Africa) guarantees settlement of all on-market trades and this is an essential tool to manage the risk emanating from this guarantee in the rolling, contractual settlement environment. Four Lending desks have signed on as Business Partners of STRATE. They serve the market participants and agents as lenders and borrowers of securities to facilitate settlement. In addition, the CSD Participants perform loan transactions between themselves via the off market route thereby guaranteeing settlement.
2.	Does the settlement system mark fail trades to market and collect margin from the failing counterparty to protect the innocent counterpart's interest?	In terms of on exchange transactions, the JSE guarantees all Main Board trades. All unsettled trades are margined at the end of day T+3 by the JSE. The margin takes into consideration liquidity, volatility, and spread risk. The margin amounts are swept from the defaulting member's bank account into a JSE account and are only returned to the defaulting member's account once the trade has settled. There is a strict timetable contained in the Rules and Directives of the JSE, within which actions need to be taken. Non-compliance with these timetables results in risk, which is then mitigated by the JSE (JSE Securities Exchange South Africa) through the mark-to-market and margining processes.
3.	Does the market operate a guarantee fund or have an equivalent procedure to protect against the cost of failed transactions; and which sectors of the market does it cover?	The JSE guarantees all Main Board trades and therefore ensures settlement of the same. Various controls have been put in place to ensure settlement and to mitigate risk to the market as a whole. These include Capital Adequacy from initiation of the trade and Margining on EOD T+3 (As noted above). The JSE does hold a guarantee fund which is used under certain circumstances, namely should a member go into default. The JSE (JSE Securities Exchange South Africa) guarantees settlement of all on-market trades. This it does by acting as "Central Counterparty of last resort". Fails are caused by non-performance of clients, counterparties or broker/dealers. In terms of the JSE Rules, broker/dealers are responsible for any orders introduced by them into the trading system. Any fail, therefore, reverts to the broker/dealer for settlement and it is only when that broker/dealer fails to perform that the JSE becomes involved. Broker/dealers are required to have certain capital and guarantees in place. These positions are monitored on a daily basis through the centralised JSE accounting system (Broker Deal Accounting system - BDA). In addition to this, the JSE has lines of credit in place to bridge a fail as well as a Guarantee Fund of some R80 m. Settlement of off-market trades are not guaranteed by the JSE but may well be guaranteed by the broker/dealer to its client/counterparty.
4.	Are the stock transfer agents (share registrars) linked electronically to the depository?	All share registrars are electronically linked to STRATE. This is a prerequisite for any Business Partner of STRATE.
5.	Is there a legal maximum time period to complete ownership transfers in the books of the issuer? If so, does market practice adhere to the deadline?	The maximum time period for settlement is T + 5. Settlement must take place within the books of the CSD Participants on a delivery versus payment basis in terms of the Companies Act. Transfer of ownership takes place in the books of the Issuer only when transfer of certificated holdings are registered. All transfers of ownership in uncertificated (dematerialised/electronic) form takes place on the sub-registers which are maintained by the CSDPs, not the Issuers. On-exchange transactions may only be settled in uncertificated form and on the basis of "rolling, contractual, T + 5, with effective Simultaneous, Final and Irrevocable, Delivery versus Payment, in Central Bank Funds". Account transfers, SLB transactions and several similar transaction types can take place on a shorter cycle with T + 5 the maximum.
6.	Are investors entitled to all benefits arising on a security from the point of purchase; and how are any rules enforced?	Investors are entitled to the benefits from the date of purchase however all trades concluded from the Record Date - 4 are traded excluding entitlements. The rules form part of the JSE's Listings Requirements and are enforced by them. In terms of the Companies Act, investors are entitled to all benefits arising on a security from the point of transfer of ownership. STRATE has developed a methodology whereby claims are removed from the market in totality. To achieve this, buyers and sellers to transactions contractually agree to: settle on T + 5, and trade in the form that settlement will take place. On this basis, the ISIN that is being traded goes "ex" at end of day five days before the Record Date (RD). This date is referred to as the LDT (Last day to Trade). From LDT + 1, the ISIN being traded, trades "ex" as the trade done on LDT + 1 will only settle on RD + 1, too late to appear on a sub-register and to participate in the Corporate Action. At "ex" date (LDT + 1), the price adjusts for the Corporate Action so that a buyer during the period LDT + 1 to RD, pays the "ex" price and is not entitled to the Corporate Action. Price risk vests with the purchaser from date of purchase. The rules backing up this methodology are contained in the Rules of the JSE and the Listing Requirements of the JSE within which all listed entities are required to perform.
7.	Is proxy voting permissible in the market and can such proxies be lodged by post or other remote delivery method?	Proxy voting is permissible. It is not yet compulsory for shareholders to dematerialise their certificated holdings. Certificated holders who appear on the principal register of the Issuer, together with Investors who appear in their own name on the sub-registers maintained by the CSDPs have a direct relationship with the Issuer and are thus shareholders in terms of the Companies Act, 1973. They can thus attend and vote at a meeting of the Company, or appoint a proxy to act in their stead. Those beneficial shareholders who hold shares via a nominee can either instruct their nominee how to vote or request the nominee to issue a proxy in their favor to attend and vote themselves. The communication of these instructions will be in terms of the custody agreement entered into between the investor and their elected CSDP, broker/dealer or other approved nominee.
8.	Are there binding rules in the market stating the minimum and maximum lapsed time between the announcement and completion of key events, including registration, the calling of shareholder meetings, the payment of dividends or interest, rights issues, tender offers and other voluntary corporate actions?	Yes. The timetable is contained in the Rules of the JSE. For example, with an elective Corporate Action, the procedure involves the following dates: Declaration Date; Final Date; LDT (Last day to trade); Election Date; Record Date and finally Pay Date. Each date relates to all the other dates with the Record Date being the "Centre of the Universe" as far as the Corporate Action is concerned.
9.	Are all voluntary corporate actions advised through a central mechanism assuring consistent information to all investors?	Yes. The primary source of information is the JSE via SENS (Stock Exchange News Service) the central news dissemination mechanism. STRATE then distributes the information to the CSDPs who in turn inform their clients.
10.	Is information on corporate actions available electronically, and is the minimum lapsed time for responding to such actions sufficient to enable all domestic and foreign investors to respond in a timely and considered fashion?	All information is distributed via SWIFT by STRATE to the CSDPs and is available in electronic form from the JSE. Distribution to the beneficial holders is in terms of the custody agreement entered into between the CSDP and their clients. There is sufficient time allocated to enable all investors to respond. Reverting to the timetable mentioned above, the declaration date is a minimum of 15 business days prior to the Record Date giving all stakeholders plenty of time to consider and react to the event.