Debt Instruments Solution (DIS) Project

Transcription

1 Debt Instruments Solution (DIS) Project 14 March 2017

2 Contents 1. Introduction Purpose of this document Settlements Settlement Cycles and Guiding Principles Transaction Types Settlements Processes On-Market Trade Reporting Off-Market Trade Reporting Commits, Back-to Back Links (BTB) and Dependency Link (DPL) On-Market and Off-Markets Settlement Process Operational Timelines and Other Settlement Windows (On-Markets) Operational Timelines and Other Settlement Windows (Off-Markets) Capital Events Capital Events - Timelines Capital Events - Coupon / Partial Redemption (Excluding Payment Date activities) Capital Events - Full Redemption (Excluding Payment Date activities) Capital Events - Payment Date activities

3 Introduction 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 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 Equities Securities will be the last migration and this is planned for the end of 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. Purpose of this Document 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. 3

4 Settlements 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). 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). 4

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

6 Settlements Processes On-Market Trade Reporting The following diagram depicts the On-Market Trade Reporting Process: Member A 1a Member B Request to Sell 1 2 Trade Leg Reporting Trade Leg Reporting 2 1 Request to Buy Client A Non-Member Settled JSE Nutron System Client B Member Settled Client Instruction (SSI) Status Intimation 4b 4a 3 Matched Trade Leg Reporting Client Instruction (SSI) Status Intimation Status Intimation 7 7 Settlement Allegement Settlement Allegement 4b 4b Participant A 6 6 Participant B Commit / BTB / DTL Commit / BTB / DTL 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.. 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. 6

7 Off-Market Trade Reporting The following diagram depicts the Off-Market Trade Reporting Process: Client A Buying 1 Trade with each other Client B Selling 4 Client Instruction (SSI) 2 2 Client Instruction (SSI) Off-Market Trade Leg Reporting 3 Status Intimation Off-Market Trade Leg Reporting 3 Status Intimation CSD Participant A 7 6 Commit / Link 6 Commit / Link 7 CSD Participant B Status Intimation Status Intimation 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. 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 0,00) 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. 7

8 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 1h1. 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. 8

9 Operational Timelines and Other Settlement Windows (On-Markets) Operational Timelines Table Transaction Type Settlement Cycle Reporting Time Commit Time On-market Transactions (T+3) T+3 End of Day T On-market Transactions (T+2) T+2 End of Day T On-market Transactions (T+1) T+1 1h00 S-1 On-market Transactions (T+N) T+N End of Day T On-market Same Day Transactions T+0 13h00 (S) 1h00 (S) Other Settlement Windows Back-to-Back Addition Time - All Transactions Back-to-Back Removal Time - All Transactions Un-commit Time - On-market / Off-market Transactions Moment of Finality of Instructions First Settlement Run Subsequent Settlement Runs Last Settlement Run Timelines 09h30 (S) 09h30 (S) Before every Settlement Run 10h00 Every hour on the hour (or as required under exceptional circumstances) 1h1 9

10 Operational Timelines and Other Settlement Windows (Off-Markets) Transaction Type Settlement Cycle Reporting Time Commit Time Off-market Transactions (T+3) T+3 1h00 (S-1) Off-market Transactions (T+2) T+2 1h00 (S-1) Off-market Transactions (T+1) T+1 1h00 (S-1) Off-market against payment Transactions (T+0) T+0 13h00 (S) 1h00 (S) Off-market free of payment Transactions (T+0) T+0 Off-market Transactions on RD 13h00 (S) 13h00 (S) SLB Transactions 13h00 (S) 1h00 (S) SLB Transactions on RD 09h00 (S) 10h00 (S) SLB - Loan Dependency Min T+1 1h00 (S-1) Off-market Repo (First and Second Leg) (T+3) Min T+3 1h00 (S-1) Off-market Repo (First and Second Leg) (T+2) Min T+2 1h00 (S-1) Off-market Repo (First and Second Leg) (T+1) Min T+1 1h00 (S-1) Off-market Repo against payment (First and Second Leg) (T+0) 13h00 (S) 1h00 (S) Off-market Repo free of payment (First and Second Leg) (T+0) Off-market Repo (T+n) Min T+n 1h00 (S-1) Off-market Repo on RD 13h00 (S) 13h00 (S) Account Transfer (Both Inter- Participant and Intra-Participant) Portfolio Movement (Both Inter- Participant and Intra-Participant) Collateral Account Transfers and Lending Account Transfers (Both Inter-Participant & Intra-Participant) Account Transfers on RD (Intra-Participant) (Inter-Participant not allowed) 09h00 (S) 10h00 (S) Portfolio Moves on RD (Intra-Participant) (Inter-Participant not allowed) 09h00 (S) 10h00 (S) Collateral Account Transfers and Lending Account Transfers on RD (Intra-Participant)(Client type 33) (Inter-Participant not allowed) 09h00 (S) 10h00 (S) 10

11 Other Settlement Windows BTB Addition Time - All Transactions except T+0 transactions BTB Removal Time - All Transactions except T+0 transactions BTB Addition / Removal Time - T+0 transactions Un-commit Time - On-market / Off-market Transactions Moment of Finality First Settlement Run Subsequent Settlement Runs Last Settlement Run Timelines 09h30 (S) 1h00 (S) 09h30 (S) Before every Settlement Run 10h00 Every hour on the hour (or as required under exceptional circumstances) 1h1 11

12 Capital Events 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: 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. 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. 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. For sources other than JIBAR, Issuer Agent to provide the new rate of the reset date. Preliminary Notice of Event sent on PD-30 Preliminary Notice of Event sent on PD-30 Preliminary Notice of Event sent on PD-30 Preliminary Notice of Event sent on PD-30 Final Notice of Event (FNOE) sent on PD-20 Final Notice of Event (FNOE) sent on PD-20 Final Notice of Event (FNOE) sent on PD-20 Final Notice of Event (FNOE) sent on PD-20 No Books Closed Period except for Coupon. No Books Closed Period except for Coupon. No Books Closed Period except for Coupon. 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 Record Date will be PD BCP (Books Close Period) for Coupons 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 Balances for Partial and Full Redemptions confirmed on PD-1 Balances for Partial and Full Redemptions confirmed on PD-1 Balances for Partial and Full Redemptions confirmed on PD-1 12

13 Capital Events Timelines The following is a generic timeline which all Debt Instrument / Bond Securities Capital Events follow: RD+1 BCP PD-1 PD-30 PD-20 RD PD Generate Preliminary Notification Generate Final Notification 2 3 Snapshot of Holdings Compute Entitlements Issue Agent Notification 1 On Issuer Agent Confirmation 1. CSD Participant Eligible and Entitlement Notification 1 2 Generate Payment Advice to Issuer s Settling Bank Receive Fund Confirmation from Central Bank 4 If Issuer Agent Notification Not Received 1. CSD Participant Eligible Notification On Issuer Agent Confirmation 1. CSD Participant Eligible and Entitlement Notification 3 4 Generate Payment Notification to Central Bank Receive Payment Confirmation from Central Bank Generate Event Confirmation to the CSD Participant 13

14 Capital Events Coupon / Partial Redemption (Excluding Payment Date activities) The following diagram depicts the Coupon / Partial Redemption processes and it excludes Payment Date activities: Amount Confirmation Eligibility Computation CA Creation Issued Amount Notification Event Notification 6 Amount Confirmation 7 Amount Confirmation 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.. 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. 14

15 Capital Events Full Redemption (Excluding Payment Date activities) The following diagram depicts the Full Redemption processes and it excludes Payment Date activities. Redemption Amount Confirmation 6 Eligibility Computation CA Creation Event Notification Redemption Amount Confirmation Redemption Amount Confirmation 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.. Issuer to notify Issuer Agent on the Redemption Amount. 6. Issuer Agent to reconcile with the amount provided by the Issuer. 1

16 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. 16

17 1st Floor, 9 Fricker Road, Illovo Boulevard, Illovo, Sandton, 2196, South Africa Tel: + 27 (0) info@strate.co.za Fax: + 27 (0)