Copyright© JSE Limited 2008 Brett Kotze Clearing & Settlement Division 08 February 2010 The move...

Copyright© JSE Limited 2008

www.jse.co.za

Brett KotzeClearing & Settlement Division

08 February 2010

The move to T+3

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Agenda

Introduction

Settlement timelines – on-exchange and off-exchange

Separation of Proprietary Deals and Controlled Clients

Settlement Assurance for T+3

Corporate Actions

Securities Lending & Borrowing

Conversion from T+5 to T+3

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Moving to T+3 Project

Phase 1

Producing a document detailing the potential barriers and the high-level activities to overcome such barriers (to accompany the JSE’s 2008 license renewal application);

Phase 2

Nomination of responsible parties to further the investigations within their working groups, coordinated by the JSE, with their combined outputs being the creation of a “Blueprint for T+3” document; and

Phase 3

Impact analysis and agreeing an implementation plan for T+3 with all market participants

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Phase 1: Output

The JSE submitted the document detailing the barriers and the high-level activities to overcome such barriers to the FSB with the JSE’s 2008 license renewal;

The FSB accepted the document and requested a quarterly update on the status of the action items;

The JSE initiated Phase 2 with the parties that would address the 58 action items.

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Phase 2: Further Investigations

Phase 2 was about getting the nominated parties to further investigate the action items and identified issues and define solutions (the “blueprints”);

The workgroups reported into the JSE Clearing & Settlement Division;

Representatives from the Clearing & Settlement Division (and other JSE Divisions where applicable) sat on each committee or workgroup;

Forms of Business Requirement Specifications were created and signed off by the market; and

Blueprint completed by the JSE.

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Phase 2: Completion of blueprint

The output for Phase 2 was the creation of a blueprint for the move to T+3 which was tabled and approved by JSE Exco in May 2009

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Phase 3: Impact Analysis and Implementation Plan

Phase 3 is about the impact analysis and implementation plan for moving to T+3;

The implementation plan will detail how the transition from T+5 to T+3 is going to be managed;

Where possible, changes will be made immediately, as opposed to waiting for moving to T+3 (has already started); and

JSE SRP dependency - how the systems may be developed for T+3 and implemented in 2011 after SRP.

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JSE Impact Analysis and Implementation Plan

CSAC – sub-committee reconstituted

Met on 29 May 2009

All market constituents on sub-committee

JSE on committee – also Project Managed by JSE

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Phase 4

Project Management

System Changes

Management of timelines

Changes to Listing requirements

Changes to JSE and Strate Rules and Directives

Marketing and Education

Making sure everyone is ready to go-live

Go-live

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T+1 T+2 T+5T+4T+3T

Current T+5 Settlement Cycle

Principal Assumption

Broker Net

Non-ControlledClient Breach

Settlement OrderDeal Execution

Deal Allocation

Contract Note

Client Affirmation to CSDP orClient Rejection to Broker

Broker Re-Allocation

Client Affirmation on Re-Allocation

CSDP Commitment

Broker Borrowing

SA Margining

CSDPCommit

SA Borrowing

Settlement

Failed Trade

Deemed AffirmationClient / Broker

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Possible T+3 Settlement Cycle

Reducing the timeframe in which to conduct the existing processes and activities will result in quicker settlement.

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On-market activities current versus future

Action Current Timings – T+5 Future Timings – T+3

Settlement Orders – non-controlled clients

T - Batch T - Realtime after allocations

Client Affirmation to CSDP/Rejection to broker

T+2 (12h00) T+1 (18h00)

Deemed Affirmation Client T+2 (12h00) T+1 (18h00)

Broker re-allocation T+2 (16h00) T+1 (18h00)

Client affirmation of re-allocation T+2 (16h00) T+1 (18h00)

Brokers nets T+2 (EOD) T+1 (EOD)

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On-market activities current versus future Cont…

Action Current Timings – T+5 Future Timings – T+3

Non-controlled client breach T+3 (12h00) T+2 (12h00)

Principal Assumption T+4 (10h00) T+2 (16h00)

Margining T+3 (EOD) T+1 (EOD)

Broker borrowing on Principal Assumption

T+4 (10h00 to 12h00) T+2 (16h00 to 18h00)

Settlement Authority SLB T+4 (12h00 to 16h00) T+3 (08h00 to 10h00)

Failed Trade/Rolling Of Settlement T+4 (16h00 to 18h00) T+3 (10h00 to 12h00)

Settlement T+5 T+3

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Off-markets activities current versus future

Type Current Settlement Cycle

Reporting Time

Commit / BTB Time

Future Settlement Cycle

Reporting Time

Commit / BTB Time

Depository Receipts

Min T+1 15h00 (S-1) 17h00 (S-1) Min T+1 11h00 (S-1) 15h00 (S-1)

Off-markets T+5 12h30 (S-2) 17h00 (S-2) T+3 11h00 (S-1) 15h00 (S-1)

Acct Transfers Inter- CSDP

Min T+1 15h00 (S-1) 17h00 (S-1) Min T+0 14h00 (S) 15h00 (S)

Acct Transfers Intra- CSDP

Min T+0 18h00 (S) 18h00 (S) Min T+0 18h00 (S) 18h00 (S)

Acct Transfers on RD

N/A where elective CA

Min T+0 09h00 (S) 10h00 (S)

Portfolio Moves Inter-CSDP

Min T+1 15h00 (S-1) 17h00 (S-1) Min T+0 14h00 (S) 15h00 (S)

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Off-markets activities current versus future Cont…


Reporting Time

Commit / BTB Time


Reporting Time

Commit / BTB Time

Portfolio Moves Intra –CSDP


Portfolio Moves on RD

N/A where elective CA

Min T+0 09h00 (S) 10h00 (S)

Off-market SLB


SLB BP Min T+1 15h00 (S-1) 17h00 (S-1) Min T+1 13h00 (S-1) 14h00 (S-1)

SLB Rev Substitution


SLB Returns (Off-market and BPs)

Min T+0 (BPs) 09h00 (S) 10h00 (S) Min T+1 17h00 (S-1) 18h00 (S-1)

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Off-markets activities current versus future Cont…


Reporting Time

Commit / BTB Time


Reporting Time

Commit / BTB Time

Off-market SLB on RD – By Exception

N/A Min T+0 09h00 (S) 10h00 (S)

SLB BP on RD – By Exception


Same day SLB Returns (Off-markets and BP on RD – By Exception

Min T+0 (BPs) 09h00 (S) 10h00 (S) Min T+0 09h00 (S) 10h00 (S)

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From A risk management perspective agreed to separate controlled clients and proprietary deals

Linked to T+3 due to Impact of system

Separate custody accounts

May be same or different CSDP for custody accounts

EOD T+1 a brokers net will be created for proprietary accounts and a controlled clients net for controlled clients

Per instrument /per trade type/per settlement day

Separation of Controlled Clients from Proprietary accounts

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Controlled Clients Net

S PClient A

1,000 AAA

S P S PClient B Client C

200 AAA 800 AAA

Controlled client net created for DVP 400 AAA shares

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Brokers Net- Same Broker

S PStock Acct A

2,000 AAA

S P SStock Acct B Stock Acct C

200 AAA 600 AAA

Brokers net created for RVP 1,200 AAA shares

P

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Settlement Allegements EOD T+1

ECS Strate

Brokers Custody Acct

Controlled Clients Custody Acct

Brokers Net


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S PClient A

1,000 AAA

S P S PClient B Client C

200 AAA 800 AAA

Brokers net created for DVP 400 AAA shares

No Securities Compulsory Reverse Substitution

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Compulsory Reverse Substitution Controlled clients

S PBrokers custody Acct

1,200 AAA

S P Controlled Clients Acct

DVP 400 AAA

Reverse Substituted

RVPMT 586200 AAA

MT 586200 AAA

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Daily Reconciliation

MSS

MSS

MT 535

MT 535

Controlled Clients Custody Acct

Brokers Custody Acct

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Rolling Of SettlementNew Leg Process

S P

NON-CONTRCLIENT A

S P

BROKER C

S P

BROKER D

S P

NON-CONTRCLIENT B

100 AAA

100 AAA

100 AAA100 AAA

100 AAA

100 AAA

0

100 AAA

NEW CONTRACTNOTE FOR NEW SETTLEMENT DATEWITH ORIGINAL TRADE DATE

SETTLEMENT AUTHORITYWILL BOOK SETTLEMENT ORDERS100 AAA

100 AAA

100 AAA

100 AAA100 AAA

0

100 AAA

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Failed Trades RetransactionsSettlement Process

S P

100 AAA

NON-CONTRCLIENT A

S P

BROKER C

S P

BROKER D

S P

NON-CONTRCLIENT B

100 AAA

0

100 AAA 100 AAA

0

COMPULSORY REVERSESUBS

100 AAA 100 AAA

100 AAA

0

100 AAA

0

VOLUNTARYREVERSE

SUBS

CONTRACTNOTE CANCELLED


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Failed Trades Retransactions

New Leg Process

S P

NON-CONTRCLIENT A

S P

BROKER C

S P

BROKER D

S P

NON-CONTRCLIENT B

0

100 AAA

100 AAA

100 AAA

0

100 AAA

NEW CONTRACTNOTE WITHORIGINAL TRADEDATE

100 AAA100 AAARETRANSACT

100 AAA100 AAA

0

CLAIM LOSS/PROFIT

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Failed Trades Compensation Settlement Process

S P

100 AAA

NON-CONTRCLIENT A

S P

BROKER C

S P

BROKER D

S P

NON-CONTRCLIENT B

100 AAA

0

100 AAA 100 AAA

0

COMPULSORY REVERSESUBS

100 AAA 100 AAA

100 AAA

0

100 AAA

0

VOLUNTARYREVERSE

SUBS

CONTRACTNOTE CANCELLED


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Failed Trades Compensation Compensation Process

S P

NON-CONTRCLIENT A

S P

BROKER C

S P

BROKER D

S P

NON-CONTRCLIENT B

100 AAA 100 AAA

0

100 AAA 100 AAA

COMPENSATION PAID

0

Copyright© JSE Limited 2008

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T+3: Barrier 4 – Corporate Actions

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The types of Corporate Action Events have been broken down into the following

categories:

Mandatory Events;

Elective Events Choice/Voluntary Events; and

Warrants

Barrier 4.1 - Corporate Action Model

Analysis

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The Corporate Actions Model for T+3 has been devised to adhere to the following

principles:

Entitlements can be traded on LDT + 1;

Payment Date is as close to Record Date as possible (RD + 1)

Based on the high-level recommendations from the Giovannini Group and

International Organization of Securities Commissions (IOSCO)

Best Practice Principles

Analysis

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Corporate Action Events

Mandatory Events

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The minimum required information on Declaration Date for Mandatory Events

must be:

Last Day to Trade (Cum), Ex Date, Record Date and Expected Pay Date

Cash Rates and Share Ratios can be announced no later than Finalisation

Date by 12h00.

Exceptions to this will be dealt with on a case by case basis.

If applicable (Mandatory Security or Mandatory Cash and Security):

Delisting Date/Termination Date, Suspension Date, Effective Date

New ISIN

Market Decision: Event Information

Mandatory Events

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The Market has agreed on the following:

Should not all information have been made available on Declaration Date

then the cut off date for the Event Finalisation should be no later than 12h00

on Finalisation Date.

Exceptions to this will be dealt with on a case by case basis.

Record Date will always be a Friday. In the event of a Public Holiday, Record

Date will be the previous business day.

Pre-Advices will be sent from Strate from 16h00 onwards.

Market Decision

Mandatory Events

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New Timeline (all Mandatory Events)

Mandatory Events

Declaration Date

RD – 13or earlier

Finalisation Date

RD - 8

Last Day to Trade

LDT

RD - 3

First Day to Trade with New

Entitlement

LDT + 1

RD - 2

Record Date

LDT + 3

RD

Payment Date

RD +1

1 Day 1 Day

LDT + 2

Matched ready for Settlement for same dayreturns

10h00

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Corporate Action Events

Elective

Choice/Voluntary Events

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New Timeline - Elective Events (Excluding Dividend Reinvestments)

Elective Events - Choice/Voluntary Events

Declaration Date

RD – 13or earlier

Finalisation Date

RD - 8

Last Day to Trade

LDT

RD - 3

First Day to Trade with New

Entitlement

LDT + 1

RD - 2

Record Date&

Election Deadline Date

LDT + 3

Payment Date

Withdrawal Date (if applicable)

RD + 1

1 Day

LDT + 2

14h00

1 Day

Strate to send Pre-Advice

Security Entitlements Posted B.O.D

Cash Entitlements paid on receipt of Cash

10h00 Broker submits elections to CSD Participants

13h00 Elections submitted to Strate (Projected Holdings if settlement has not taken place)

10h00 Matched ready for Settlement for same dayreturns

12h00 Event Eligibility Calculated (where settlement has taken place)

Amended elections may be submitted

15h00 Strate to send elections to TS

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Market Decision: Event Information


The minimum required information on Declaration Date for Elective Events must be:

Last Day to Trade (Cum), Ex Date, Record Date, Election Deadline Date and

Expected Pay Date

Cash Rates and Share Ratios can be announced no later than 12h00 on

Finalisation Date.

Default Option and whether Part Elections and/or Restrictions are applicable

Elections will be sent to Strate at 13h00 with possible amendments being

submitted up until 14h00.

Pre-Advices will be sent from Strate from 14h00 onwards.

Strate to forward Election Instructions to Transfer Secretary at 15h00

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New Timeline - Dividend Reinvestments


Declaration Date

RD – 13or earlier

Finalisation Date

RD – 8

Announcement of SA Dividend

Rate

Last Day to Trade

LDT

RD - 3

LDT + 1

RD - 2

Record Date + 10

Election Deadline Date

Cash Payment Date

RD + 20

LDT + 2

13h00Security Entitlements processed by Transfer Secretary B.O.D

Cash Entitlements paid on receipt of Cash

10h00 Broker submits elections to CSD Participant

Elections submitted to Strate

Record Date

LDT +3

Send Record DatePositions

E.O.D

Securities and Fractions

Payment Date

RD + 40

RD + 39

Share Ratio advised by Transfer Secretary

10h00 Matched ready for Settlement for same dayreturns

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The minimum required information on Declaration Date for Dividend

Reinvestments must be:Last Day to Trade (Cum), Ex Date, Record Date, Election Deadline Date and Expected Pay Date, SA Rate Conversion Date

SA Dividend Rate announced no later than 12h00 Finalisation Date.

Dividend rate in foreign currency and whether Part Elections are applicable

Restrictions

All announcements on Finalisation Date will be made by 12h00.

Strate to send Record Date Positions at E.O.D Record Date

Elections will be sent to Strate at 13h00 on Election Deadline Date

Market Decision: Before Declaration and Finalisation Date

Elective Events – Dividend Reinvestments

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Spreadsheets and Fractions


Barrier 4.9 and Barrier 4.3

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It has been decided that for all companies listed locally, the rounding convention

utilised will be to round down all entitlements. Fractional payments will be paid in

cash, with a tolerance level to be decided on at a later stage.

Spreadsheets will be required for Initial Public Offerings (IPOs).

For Foreign and Dual-Listed Companies, their rounding principles/conventions will

be applied.

Restrictions will be communicated and it will be the beneficial owner’s obligation

to observe such restrictions and adhere to legislative requirements of their own

jurisdiction. CSD Participants will not monitor this and should an investor remain

silent or make an election, it will be deemed to indicate that the investor can

receive such entitlements.

Market Decision


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Parked Action Items

Parked Action Items

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Parked Action Items

It was agreed by all Market participants that the following action items will be

parked and discussed at a later stage:

The Elimination of Spreadsheets for surplus rights take-ups, and;

The impact of tax legislation on the Corporate Actions model for T+3.

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Securities Lending & BorrowingIncrease Liquidity

Securities Lending & Borrowing is an enabler for T+3

Focus is on creating more liquidity around Securities Lending & Borrowing:-

• Education with lenders that they will be protected on any corporate action entitlements – do not have to recall

• Education that lenders may start lending out entitlements from LDT+1 for PD

• Increase limits for lending – Pension Funds,etc

• More lenders

• Controlled clients loaning out shares

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Securities Lending & BorrowingAutomation

Same day Securities Lending & Borrowing

Same day Securities Lending & Borrowing returns

Collateral movements – securities – Linked to STT

Changes to Securities Lending & Borrowing for Corporate Actions

Automation of loan confirmations - FIX

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Securities Lending & BorrowingSettlement Authority

Educate the market on the role of the JSE Settlement Authority – settlement related

Set up direct arrangements with Pension Funds, etc

Possible systems to be implemented

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Conversion

W T F C M T W T F M T

T T+1 T+2 O T+3 T+4 T+5

T T+1 N T+2 T+3 T+4 T+5

T V T+1 T+2 T+3 T+4 T+5

E T T+1 T+2 T+3 CA

R T T+1 T+2 T+3 CA

S T T+1 T+2 T+3

I T T+1 T+2 T+3

O T T+1 T+2

N

LDT LDT RD PD

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Assumptions

Limit amount of Corporate Actions

No huge market activity – price movements

No jobbing across settlement days

Migration will not take place over a month end

Migration will not take place over a futures close out

No public holidays on week of migration

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Actions

Market education on conversion process and requirements

Securities Lending & Borrowing

Rolling Of Settlement

Off-market timelines may be moved to facilitate settlement with no penalties

Align timelines where possible before go-live of T+3

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Copyright© JSE Limited 2008 Brett Kotze Clearing & Settlement Division 08 February 2010 The move...

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