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Electronic settlement on the wayFOR the past 110 years, the JSE has depended on the issue of new paper share certificates each time ownership changed. These certificates have been shareholders' proof of ownership and, as with any paper-based system, leaves the door wide open for fraud, loss, theft and other problems. Paper introduces a host of other problems into stock exchanges. Trades cannot be settled until share certificates are physically delivered to the broker, and brokers must account to the Equities Clearing House (ECH) operated by the JSE for the net securities and cash positions resulting from all trades during a given week. All this is about to change. In future, proof of share ownership will be fully computerised on what is known as a central securities depository (CSD). Shareholders will receive statements detailing their holdings instead of share certificates, and capitalisation issues will be handled by the computer. Settlements on the JSE currently takes place from the Tuesday after the week when the trade takes place. It is estimated that up to 45% of JSE trades do not settle during the week following trade, as settlement is non-contractual. Most other stock exchanges have moved to rolling settlement, where trades are generally settled three to five days after trade takes place. By bringing banks into the loop, cash can be transferred directly from the buyer's account and proceeds paid directly into the seller's account. This process is being co-ordinated by STRATE (share transactions totally electronic), steered by the JSE in consultation with other role players, such as the major banks. Shareholders will be called on to surrender their share certificates over a period of several months. The move will be gradual and an electronic share register is the long-term aim for STRATE.
"This will have a dramatic impact on the JSE," says Monica Singer, project manager for STRATE. "Electronic settlement will improve efficiencies, reduce risks, uphold shareholders' rights and put the JSE in line with the leading equities markets of the world. This will help in attracting more foreign investment to the JSE."
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