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Electronic system to get the JSE share records Strate
Looks at the new share settlement system With nearly 700 listed companies, the new system will have to be phased in over time IF YOU keep your share certificates under your pillow and feel a comforting sense of wealth when you hold them, then prepare yourself for some traumatic changes. The Johannesburg Stock Exchange will begin phasing in an electronic share settlement system next year rendering share certificates virtually obsolete by 2001. The project aims to create a market environment where all shares are settled electronically instead of using paper share certificates and transfer deeds. When the JSE implements its new Share Transactions Totally Electronic (Strate) system, shareholders will have to transfer their existing share certificates to an electronic register. This transfer from paper to computer is known as "dematerialisation", and although nobody will be forced to part with paper certificates, you will not be able to sell the shares until they have been dematerialised. If your shares are kept by your broker or a nominee company, they will dematerialise your certificates for you when the company in which you hold shares moves onto the Strate system. If you keep your shares in your cupboard, you will need to take the certificates to a broker or an approved Strate participant, known as a Central Securities Depository Participant (CSDP). While these participants have not yet been announced, eight financial institutions including the four big banks, have been provisionally approved to act as CSDPs. Your chosen CSDP will transfer the information from your share certificate to their electronic sub-register, and you will be given a receipt. This sub-register can be accessed by Strate. The entire dematerialisation process will take 10 days or so, and you may not be able to sell your shares during this period. Your paper share certificate will be destroyed and your CSDP will, in future, send regular statements of your share holding and its current value. This statement will also act as proof of ownership. However, unlike a certificate, if you lose the statement or it is stolen, you can simply request a new statement or wait for your next one to be posted to you. The danger of forged share certificates will be eliminated when Strate is implemented as shareholder information will be stored in electronic registers and not on paper. David Eliot, head of Private Clients & Fund Management at BOE Securities, says: "Another Strate plus is that speedier transactions will discourage speculative trading by those who bet that the market will rise in the time it takes for lengthy payment settlement to be completed. "These speculators hope to create a profit without the need to advance ready money." The first few companies to join the Strate system will be selected before the year end and are expected to begin electronic settlement by July next year. But with nearly 700 JSE listed companies scheduled to move to the electronic system, Strate will have to be phased in over time. Strate spokesperson Linda Newton Thompson says moving all the companies to electronic settlement will take about a year. "We hope that once the system is totally stable, up to 50 companies a month will be moved over." You only need to dematerialise your shares once the company in which you hold shares joins the Strate system, she says. Lists of when the companies are scheduled to move to the Strate system will be regularly published in newspapers. The company in which you hold shares, or your broker, may also post you such an announcement. Although the CSDPs may decide to include a service fee, similar to a bank charge, this has not yet been decided. Shareholders who have not kept their shares with a nominee company or broker will probably not be charged for the CSDP's service. President of the JSE, Russell Loubser, says: "As far as possible, if you did not pay for a service previously, you won't pay now." He emphasises that Strate has cost the JSE R40-million and that shareholders will benefit from an "infinitely improved system". A spokesperson for the Shareholders' Association says the members consider Strate to be a "good thing" and the association will ensure the costs will not be shifted to the shareholders. At present the JSE is paper driven and all transactions are made via a transfer secretary who issues a share certificate and changes the name of the shareholder in the share register. After a shareholder sells shares, settlement can be delayed for several weeks. Because of the high risk that settlement will be delayed, SA was recently ranked the worst of 20 emerging markets in the world. The Strate system will ensure that all deals are settled five days after the trade. On the fifth day, transfer of share ownership and cash will happen simultaneously by means of a computer entry. This means the share buyer must be able to pay for his or her shares five days after the trade. Currently payment occurs on the Tuesday after the trade but this is not guaranteed and buyers can postpone payment for several weeks. The JSE bought the electronic system from Switzerland and it is currently being adapted to suit local market requirements. It is believed that once Strate is in place, the system will make the JSE's settlement procedures among the most efficient in the world. Strate's back office manager, Brian Balkind, says South Africa's current settlement system is long, laborious and inefficient. "The market should have gone this route 20 years ago."
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