Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4

Recommendation 5 Recommendation 6 Recommendation 7 Recommendation 8

Market selection

Recommendation 5

The major risks in Securities Systems should be mitigated by five key measures:

• the implementation of real delivery versus payment
• the adoption of a trade date plus one settlement cycle in a form that does not increase operational risk.
• the minimisation of funding and liquidity constraints by enabling stock lending and borrowing, broad based cross collateralisation, the use of repos and netting as appropriate
• the enforcement of scrip-less settlement
• the establishment of mandatory trade matching and settlement performance measures.

1.	Does the market use DvP settlement procedures in accordance with one of the recognised BIS models? If so, which one? If the model is not BIS model 1, are there plans to move to this model?	All movements of funds are processed on a multilateral net basis. Uncertificated securities are moved on both a gross and net basis. On this basis, STRATE adopts Model 2 and Model 3 methodologies. STRATE is, however, capable of settling on a Model 1 basis. It was prevented from settling on this basis, as the costs were prohibitive. STRATE is considering the introduction of an Electronic Share-Register (ESR) in South Africa when, once again, Model 1 settlement will be evaluated.
2.	Does the market have a rolling settlement cycle of T+3 or shorter for all exchange traded instruments?	No. All transactions initiated by the Johannesburg Stock Exchange (on exchange) and CSDPs (off exchange) remain within a rolling T+5 cycle. Exceptions are made for account transfers and lending and borrowing transactions initiated by Lending agents, for trades to be settled on a minimum T+1 cycle. Work is currently being carried out on the reduction of this period to T+3.
3.	Could the market reduce the current settlement period to T+2 or below, without increasing fails rates? If so, how would this be achieved, and what plans are there to shorten the existing settlement cycle?	It is doubtful whether the settlement period could be reduced without an increase in fails or operational risk within the current methodology. It has been suggested that the way forward is the introduction of an ESR and then the reduction of the T + 5 settlement period. This is being worked on currently and we anticipate that the reduction will be possible in 18 months.
4.	Is matching of trade details achieved on trade date, at least for direct market participants; and by trade date plus one for indirect participants?	All on-market transactions are matched on trade date. After hours trades are reported to the trading system before the opening of the market on the next business day. Off-market trades must be matched within STRATE by midday on S - 2 (Settlement Date less two). Any transaction entered after this cut off by the CSDP will require the prior approval of the counterparty and the STRATE Help Desk and will incur penalties.
5.	Is the depository scrip-less, and, if not, is it working to enable scrip-less settlement?	The STRATE depository is scrip-less with all electronic holdings dematerialised. No settlements other than in uncertificated form, can be processed through STRATE and it is a JSE Rule that all on-exchange transactions must be settled in uncertificated securities. All companies listed on the JSE are currently settling electronically in the STRATE CSD.
6.	Does the market allow partial settlements?	Partial settlements are not allowed for on or off exchange transactions. Partial settlements apply to lending and borrowing transactions initiated by Lending agents for partial return of stock over a limited time period.
7.	Can the depository accommodate same day turnarounds?	Yes. The STRATE CSD is able to cater for same day transactions, however it is not applied. The T+5 cycle applies to all on and off exchange transactions. T+1 cycle applies to account transfers and lending transactions. No same day transactions are permitted within the STRATE environment. This rule is applied to regulate the process within the market. However, this process has been streamlined within the "back-to-back" functionality where a "receive" can be linked to a "deliver" with the movement netted in STRATE. It is not permitted to net the two transactions in the books of the CSDP, which must reflect the two-way flow. This facilitates the audit trail necessary to track all movements.

Bank of International Settlements (BIS) Settlement Models

Model 1:	Systems that settle transfer instructions for both securities and funds on a trade-by-trade (gross) basis, with final (unconditional) transfer of securities from the seller to the buyer (delivery) occurring at the same time as final transfer of funds from the buyer to the seller (payment).
Model 2:	Systems that settle securities transfer instructions on a gross basis, with final transfer of securities from the seller to the buyer (delivery) occurring throughout the processing cycle, but settle funds transfer on a net basis, with final transfer of funds from the buyer to the seller (payment) occurring at the end of the processing cycle.
Model 3:	Systems that settle transfer instructions for both securities and funds on a net basis, with final transfers of both securities and funds occurring at the end of the processing cycle.