Debt Instruments Solution (DIS) Project - Strate · Debt Instruments Solution (DIS) Project ... The “TCS BaNCS MI” system was chosen and Money Market ... the South African Debt

Debt Instruments Solution (DIS) ProjectSettlements and Capital Events Process Guide

14 March 2017

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Contents

1. Introduction.............................................................................................................................................3

2. Purpose of this document.......................................................................................................................3

3. Settlements..............................................................................................................................................4

3.1 Settlement Cycles and Guiding Principles..............................................................................4

3.2. Transaction Types...................................................................................................................5

3.3. Settlements Processes...........................................................................................................6

3.3.1. On-Market Trade Reporting....................................................................................6

3.3.2. Off-Market Trade Reporting...................................................................................7

3.3.3. Commits, Back-to Back Links (BTB) and Dependency Link (DPL)......................8

3.3.4. On-Market and Off-Markets Settlement Process..................................................8

3.3.5. Operational Timelines and Other Settlement Windows (On-Markets)...............9

3.3.5. Operational Timelines and Other Settlement Windows (Off-Markets)............10

4. Capital Events........................................................................................................................................12

4.1. Capital Events - Timelines....................................................................................................13

4.2. Capital Events - Coupon / Partial Redemption (Excluding Payment Date activities).....14

4.3. Capital Events - Full Redemption (Excluding Payment Date activities)...........................15

4.4. Capital Events - Payment Date activities.............................................................................16

Settlements and Capital Events Process Guide

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Strate (Pty) Limited “Strate” took a strategic decision in 2013 to replace its core custody and settlement

systems and consolidate these into a single platform. The “TCS BaNCS MI” system was chosen and Money

Market Securities were successfully migrated onto the platform at the beginning of 2016.

Strate’s “DIS Project” is the strategic project to replace Strate’s previous “UnexCor” system and migrate

Bonds Securities onto the TCS BaNCS MI platform during 2017. Equities Securities will be the last

migration and this is planned for the end of 2018.

The key project currently being undertaken by Strate and the South African capital markets is the “DIS

Project”. This project will ensure not only the replacement of Strate’s core custody and settlement system

with regards to Bonds Securities, but will include the introduction of an upgraded Settlement and Capital

Events model for Bond Securities.

Introduction

This document serves to inform stakeholders on the principles and processes that are involved in the clearing

and settlement of Debt Instruments / Bond Securities in the South African market as well as Capital Event

processes during the course of the Debt Instruments’ life.

Purpose of this Document


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Settlement Cycles and Guiding Principles

Bonds transactions will adhere to the following settlement cycles:

• Standard T+3;

• Non-Standard – i.e. will allow for shorter cycles up to T+0; and

• Long dated settlements for forward legs of transactions which include normal Bond trades (forwards) and SARB Reverse Repurchases, Repos.

The following principles apply for On-Market Settlements:

• On-Market Settlements will conform to the Bank for International Settlements (BIS) Model 2 (Gross Securities and Net Cash at CSD Participant level);

• The JSE will report all the On-Market Trade details to Strate on a gross basis;

• Strate will generate Settlement Allegements for all Member, Member Proprietary and Non-Member settled instructions at the Central Securities Account (CSA) level. The Settlement Allegements will be sent by Strate to CSD Participants on a gross trade-by-trade basis;

• CSD Participants will commit to all the Settlement Instructions if the cash / securities are available in the client’s account, or commit based on a link (Back-to Back [BTB] or Dependency Link [DPL]);

• Settlement will occur on a Simultaneous Final Irrevocable Delivery versus Payment (SFIDvP) basis;

• All funds (cash) settlements will occur using Central Bank Funds;

• Only Nominal value and Consideration will be reported to the CSD (Price and Yield will no longer be required).

The following principles apply for all Off-Market Settlements:

• Off-Market Settlements will conform to BIS Model 2, (Gross Securities and Net Cash at CSD Participant level);

• The CSD Participants will report all transactions to the CSD on a gross basis;

• CSD Participants will commit the Settlement Instructions if the cash / securities are available in the client’s account, or commit based on a link (Back-to Back [BTB] or Dependency Link [DPL]);


• All funds (cash) settlements will occur using Central Bank Funds.

Transaction Types

For On-Market transactions, the following transaction types will be settled:

• Vanilla Spot Bonds;

• Repurchases (Repo’s) First Leg;

• Repurchases (Repo’s) Second Leg;

• SARB Repo First Leg;

• SARB Reverse Repo Second Leg;

• Structured Trades;

• Securities Lending and Borrowing; and

• Money Lending and Borrowing.

For Off-Market transactions, the following transaction types will be settled:

• DVP / RVP: Deliver / Receive versus Payment;

• DFP / RFP: Deliver / Receive Free of Payment;

• DPL / RPL: Deliver / Receive Pledge;

• DRL / RRL: Deliver / Receive Release Pledge.

Furthermore, within the Debt Instrument / Bonds market there are various categories of Off-Market transactions:

• Standard Off-Market Trades which adhere to a T+3 settlement cycle;

• Account Transfers;

• Portfolio Moves;

• Charity Shares;

• Lending Account Transfers;

• Securities Lending and Borrowing (SLB); and

• Repurchases (Repos).

Strate is the licensed electronic:

• Central Securities Depository (CSD);

• Clearing House; and

• Payment Clearing House (PCH) Operator, in terms of PASA (Payments Association of South Africa) rules, for the South African Debt Instrument / Bond market.

Strate facilitates the settlement of all Bond On-Market and Off-Market transactions. Strate provides

comprehensive electronic settlement and capital events system. For cash settlement, Strate uses South African

Reserve Bank’s (SARB) South African Multiple Option Settlement (SAMOS) system to achieve Simultaneous

Final Irrevocable Delivery versus Payment (SFIDvP).

Settlements

Settlement Cycles and Guiding Principles

Bonds transactions will adhere to the following settlement cycles:

• Standard T+3;

• Non-Standard – i.e. will allow for shorter cycles up to T+0; and

• Long dated settlements for forward legs of transactions which include normal Bond trades (forwards) and SARB Reverse Repurchases, Repos.

The following principles apply for On-Market Settlements:

• On-Market Settlements will conform to the Bank for International Settlements (BIS) Model 2 (Gross Securities and Net Cash at CSD Participant level);

• The JSE will report all the On-Market Trade details to Strate on a gross basis;

• Strate will generate Settlement Allegements for all Member, Member Proprietary and Non-Member settled instructions at the Central Securities Account (CSA) level. The Settlement Allegements will be sent by Strate to CSD Participants on a gross trade-by-trade basis;

• CSD Participants will commit to all the Settlement Instructions if the cash / securities are available in the client’s account, or commit based on a link (Back-to Back [BTB] or Dependency Link [DPL]);


• All funds (cash) settlements will occur using Central Bank Funds;

• Only Nominal value and Consideration will be reported to the CSD (Price and Yield will no longer be required).

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The following principles apply for all Off-Market Settlements:

• Off-Market Settlements will conform to BIS Model 2, (Gross Securities and Net Cash at CSD Participant level);

• The CSD Participants will report all transactions to the CSD on a gross basis;

• CSD Participants will commit the Settlement Instructions if the cash / securities are available in the client’s account, or commit based on a link (Back-to Back [BTB] or Dependency Link [DPL]);


• All funds (cash) settlements will occur using Central Bank Funds.

Transaction Types

For On-Market transactions, the following transaction types will be settled:

• Vanilla Spot Bonds;

• Repurchases (Repo’s) First Leg;

• Repurchases (Repo’s) Second Leg;

• SARB Repo First Leg;

• SARB Reverse Repo Second Leg;

• Structured Trades;

• Securities Lending and Borrowing; and

• Money Lending and Borrowing.

For Off-Market transactions, the following transaction types will be settled:

• DVP / RVP: Deliver / Receive versus Payment;

• DFP / RFP: Deliver / Receive Free of Payment;

• DPL / RPL: Deliver / Receive Pledge;

• DRL / RRL: Deliver / Receive Release Pledge.

Furthermore, within the Debt Instrument / Bonds market there are various categories of Off-Market transactions:

• Standard Off-Market Trades which adhere to a T+3 settlement cycle;

• Account Transfers;

• Portfolio Moves;

• Charity Shares;

• Lending Account Transfers;

• Securities Lending and Borrowing (SLB); and

• Repurchases (Repos).

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Settlements Processes

On-Market Trade Reporting

The following diagram depicts the On-Market Trade Reporting Process:

1. Client A requests Member A to sell Bond Securities. Client B requests Member B to Buy Bond Securities. Member A and B agrees price

between each other (either via telephone or fax or S.W.I.F.T.).

2. Member A reports the Sell Trade leg to the JSE and Member B reports the Buy Trade Leg to the JSE.

3. The JSE reports both the Trade Legs to Strate.

4. On successful matching of Trade legs, Strate to send Status Intimation to the JSE and send Settlement Allegement to the respective

CSD Participants.

5. Client A and Client B to send their Instruction to their respective CSD Participant.

6. CSD Participant to match the Client Instruction to the Settlement Allegement. On successful matching, the CSD Participant to

Commit to the Settlement Instruction (either using Commit or Link (Back-to-Back or Dependency Link)) to Strate.

7. Strate to generate matched Status Intimation to the respective CSD Participants and to the JSE.

Request to Buy

Participant B

JSE Nutron System

4b 4a 3

7

4b

6

5

12

1a

7

4b

6

5

12

Participant A

Client BMember Settled

Member B

Client ANon-Member Settled

Member A

Request to Sell

Trade LegReporting

Trade LegReporting

MatchedTrade LegReporting

StatusIntimation

StatusIntimation

StatusIntimation

SettlementAllegement

SettlementAllegement

Commit / BTB / DTL Commit / BTB / DTL

ClientInstruction (SSI)


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Off-Market Trade Reporting

The following diagram depicts the Off-Market Trade Reporting Process:

1. Client A and Client B trades with each other (either via telephone or fax or S.W.I.F.T.) and agree price to buy and sell Bond Securities respectively.

2. Client A and Client B send their Client Instruction to their respective CSD Participants.

3. The CSD Participant A and CSD Participant B reports their Settlement Instruction to Strate.

4. Strate to match the Settlement Instructions based on the following first level matching criteria:

a. ISIN

b. Trade Date

c. Settlement Date

d. Settlement Type

e. Trading Party CSD Participant BP-ID

f. Counterparty CSD Participant BP-ID

g. Nominal Value

h. Buyer’s SAFE Keeping Account

i. Seller’s SAFE Keeping Account

5. On successful matching of first level criteria, Strate to match the Settlement Instructions based on the following second level

matching criteria:

a. Client Type

b. Consideration (Tolerance of ZAR 50,00)

c. Taxable Indicator (Should always be N, as there is no STT for Bonds)

If the first level of matching is not successful, Strate to generate Settlement Allegement to the counterparty CSD Participant, who

has not reported a matching trade leg, as per the agreed timelines with the Market. If the second level of matching is not successful,

a Status Intimation will be sent to both the CSD Participant. On successful matching of Trade legs at the second level, Strate to send

Status Intimation to the CSD Participants.

6. CSD Participants to Commit / Link (BTB or DPL) to Settlement Instructions.

7. Strate to generate Status Intimations to the CSD Participants.

CSDParticipant B

Client BSelling

1

2

3

Off-Market TradeLeg Reporting

5

Status Intimation

6

Commit / Link

7

Status Intimation


4

Trade with each other

CSDParticipant A

Client ABuying

2

3

Off-Market TradeLeg Reporting

5

Status Intimation

6

Commit / Link

7

Status Intimation


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Commits, Back-to-Back Links (BTB) and Dependency Link (DPL)

CSD Participants can link (BTB) multiple delivery transactions to multiple receive transactions, provided all

transaction in a BTB belongs to the same Central Securities Account, ISIN and Settlement Date.

CSD Participants can use DPL for interdependent receive and deliver transactions across different settlement

dates to commit to the Trade Legs. This is a functionality within a Participants own custody and settlement system.

On-Market and Off-Markets Settlements Process

The following applies for the settlement processes:

• Free of Payment Transactions in “Ready for Settlement” status, with no links will settle as soon as they are marked as “Ready for Settlement”, provided requisite securities holdings are available in the seller’s Central Securities Account.

• Initial Settlement Run (planned to be initiated every day at 10h00)

o All transactions in “Ready for Settlement” status will be processed, where securities are available in the sellers’ Central Securities Accounts.

o Once Reservation is processed successfully:

• A Payment Advice will be generated for all CSD Participants.

• A Payment Instruction will be generated to the Central Bank.

• As soon as funds are transferred at the Central Bank, the CSD will initiate Securities transfer; and notify the CSD Participant and the JSE accordingly.

• Subsequent Settlement Runs

o These runs will be initiated by Strate every hour on the hour. The final settlement run takes place at 15h15.

o For uncommitted Trade Legs, the Client will source the securities from Lenders using SLB Business Partners.

o Failing this, with regards to On-Market transactions, the Client must approach the JSE Settlement Authority to facilitate the arrangement of a securities lending transaction.

o The JSE Settlement Authority, in conjunction with National Treasury, may create Repo Transactions and enable the CSD Participants to commit to these Trade Legs.

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Operational Timelines and Other Settlement Windows (On-Markets)

Transaction Type Settlement Cycle

End of Day T 17h00 (S-1)T+3

Operational Timelines Table

Reporting Time Commit Time

On-market Transactions (T+3)

End of Day T 17h00 (S-1)T+2On-market Transactions (T+2)

15h00 S-1 17h00 (S-1)T+1On-market Transactions (T+1)

End of Day T 17h00 (S-1)T+NOn-market Transactions (T+N)

13h00 (S) 15h00 (S)T+0On-market Same Day Transactions

Other Settlement Windows Timelines

17h00 (S-1)Back-to-Back Addition Time - All Transactions

09h30 (S)Back-to-Back Removal Time - All Transactions

09h30 (S)Un-commit Time - On-market / Off-market Transactions

Before every Settlement RunMoment of Finality of Instructions

10h00First Settlement Run

Every hour on the hour (or as required under exceptional circumstances)

Subsequent Settlement Runs

15h15Last Settlement Run

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Operational Timelines and Other Settlement Windows (Off-Markets)

Transaction Type Settlement Cycle

15h00 (S-1) 17h00 (S-1)T+3

Reporting Time Commit Time

Off-market Transactions (T+3)

15h00 (S-1) 17h00 (S-1)T+2Off-market Transactions (T+2)

15h00 (S-1) 17h00 (S-1)T+1Off-market Transactions (T+1)

13h00 (S) 15h00 (S)T+0Off-market “against payment” Transactions (T+0)

18h00 (S) 18h00 (S)T+0Off-market “free of payment” Transactions (T+0)

13h00 (S) 13h00 (S)Min T+0Off-market Transactions on RD

13h00 (S) 15h00 (S)Min T+0SLB Transactions

09h00 (S) 10h00 (S)Min T+0SLB Transactions on RD

15h00 (S-1) 17h00 (S-1)Min T+1SLB - Loan Dependency

15h00 (S-1) 17h00 (S-1)Min T+3Off-market Repo (First and Second Leg) (T+3)



13h00 (S) 15h00 (S)Min T+0Off-market Repo “against payment” (First and Second Leg) (T+0)

18h00 (S) 18h00 (S)Min T+0Off-market Repo “free of payment” (First and Second Leg) (T+0)

15h00 (S-1) 17h00 (S-1)Min T+nOff-market Repo (T+n)

13h00 (S) 13h00 (S)Min T+0Off-market Repo on RD

18h00 (S) 18h00 (S)Min T+0Account Transfer (Both Inter- Participant and Intra-Participant)

18h00 (S) 18h00 (S)Min T+0Portfolio Movement (Both Inter- Participant and Intra-Participant)

18h00 (S) 18h00 (S)Min T+0Collateral Account Transfers and Lending Account Transfers (Both

Inter-Participant & Intra-Participant)

09h00 (S) 10h00 (S)Min T+0Account Transfers on RD (Intra-Participant)

(Inter-Participant not allowed)

09h00 (S) 10h00 (S)Min T+0Portfolio Moves on RD (Intra-Participant)


09h00 (S) 10h00 (S)Min T+0Collateral Account Transfers and Lending Account Transfers on RD (Intra-Participant)(Client type 33)


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Other Settlement Windows Timelines

17h00 (S-1)BTB Addition Time - All Transactions except T+0 transactions

09h30 (S)BTB Removal Time - All Transactions except T+0 transactions

09h30 (S)Un-commit Time - On-market / Off-market Transactions

Before every Settlement RunMoment of Finality

10h00First Settlement Run

Every hour on the hour (or as required under exceptional circumstances)

Subsequent Settlement Runs

15h15Last Settlement Run

15h00 (S)BTB Addition / Removal Time - T+0 transactions

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The implementation of DIS will improve the processing and automation of Capital Events in the Debt

Instrument / Bonds market. Listed and Unlisted Debt Instrument / Bond Securities fall into four generic

categories of which the following principles will apply:

Capital Events


Category 1 (Zero)

Category 2 (Standard)

Category 3 (Variable)

Category 4 (Non-standard)

• Fixed Term / Zero Coupon • Fixed Term / Fixed Coupon • Fixed Term / Variable Coupon Rate

• Variable Term / Variable Coupon Rate / Variable Redemption Value

• Input from JSE not required for Coupon or Redemption Rate

• Input from JSE not required for Coupon or Redemption Rate

• Coupon Rate is fixed for a specific period of Coupon Payments.

• If Coupon Rate varies between periods of Coupon Payments. • Issuer Agent to provide either the weighted average coupon rate or total coupon amount for the period.

• For sources other than JIBAR, Issuer Agent to provide the new rate of the reset date.

• Coupon Rate is fixed for a specific period of Coupon Payments.

• If Coupon Rate varies between periods of Coupon Payments. • Issuer Agent to provide either the weighted average coupon rate or total coupon amount for the period.

• For sources other than JIBAR, Issuer Agent to provide the new rate of the reset date.

• Preliminary Notice of Event sent on PD-30

• Final Notice of Event (FNOE) sent on PD-20







• No Books Closed Period except for Coupon.




• Record Date will be PD-1 for Redemption

• Record Date will be PD – BCP (Books Close Period) for Coupons• Record Date will be PD-1 for Redemption



• Balances for Partial and Full Redemptions confirmed on PD-1




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Capital Events – Timelines

The following is a generic timeline which all Debt Instrument / Bond Securities Capital Events follow:

GeneratePreliminaryNotification

GenerateFinal

Notification

Snapshot of Holdings

Compute Entitlements

Issue Agent Notification

If Issuer Agent Notification Not Received

1. CSD Participant Eligible Notification

On Issuer Agent Confirmation

1. CSD Participant Eligible and Entitlement Notification

On Issuer Agent Confirmation

1. CSD Participant Eligible and Entitlement Notification

Generate Payment Advice to Issuer’s Settling Bank

Receive Fund Confirmation from Central Bank

Generate PaymentNotification to Central Bank

Receive PaymentConfirmation from Central Bank

Generate Event Confirmation to the CSD Participant

BCP

RDPD-20PD-30 PD

RD+1 PD-1

1 1 1

2

3

4

5

1 1

2

3

4

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Capital Events – Coupon / Partial Redemption (Excluding Payment Date activities)

The following diagram depicts the Coupon / Partial Redemption processes and it excludes Payment Date activities:

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1. Strate to create Capital Event based on the ISIN attributes.

2. Strate to notify Capital Event notification to the CSD Participant as per the agreed timelines.

3. Strate to compute Eligible positions as soon as the Settlement Runs are completed on Record Date.

4. Strate to notify Issuer Agent with the Eligible positions on Record Date.

5. Issuer to confirm the Payment Amount to the Issuer Agent on or before PD-2 (for ISINs with Books Close Period)

or before end of Record date (for ISINs with Books Close Period as one Business Day).

6. Issuer Agent to confirm to Strate on the Payment Amount confirmation.

7. Strate to confirm CSD Participants with Payment Amount.

5 AmountConfirmation

AmountConfirmation

AmountConfirmation

EventNotification

EligibilityComputation

CACreation

76

Issued AmountNotification

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Capital Events – Full Redemption (Excluding Payment Date activities)

The following diagram depicts the Full Redemption processes and it excludes Payment Date activities.

1. Strate to create Capital Event based on the ISIN attributes.

2. Strate to notify Capital Event notification to the CSD Participant as per the agreed timelines.

3. Strate to compute Eligible positions as soon as the Settlement Runs are completed on Record Date.

4. Strate to notify Issuer Agent with the Redemption Amount on Record Date.

5. Issuer to notify Issuer Agent on the Redemption Amount.

6. Issuer Agent to reconcile with the amount provided by the Issuer.

5

6

Redemption AmountConfirmation

Redemption Amount

Confirmation Redemption Amount

Confirmation

EventNotification

EligibilityComputation

CACreation

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Capital Events – Payment Date Activities

1. Strate to notify the Issuer’s Settling Bank of the Coupon / Redemption Amount due.

2. Issuer must ensure cash is available in the designated cash account. Issuer’s Settling Bank to fund the designated Central Bank

Account. On cash confirmation from Central Bank based from the Issuer’s Settling Bank, Strate will initiate the funding messages to

the Central Bank.

3. Central Bank to transfer cash to the relevant CSD Participants’ Settling Bank.

4. CSD Participants to disburse proceeds to the relevant Bond holders.

1st Floor, 9 Fricker Road, Illovo Boulevard, Illovo, Sandton, 2196, South Africa

Tel: + 27 (0) 11 759 5300 Fax: + 27 (0) 11 759 5500

Email: [email protected]

Documents

Debt Instruments Solution (DIS) Project - Strate · Debt Instruments Solution (DIS) Project ... The “TCS BaNCS MI” system was chosen and Money Market ... the South African Debt