South Africa Boosts Presence

Terry Flanagan

Through a series of partnerships and alliances, the South African financial markets have advanced their standing on the global landscape.

The Johannesburg Stock Exchange has been closing at all-time record highs for the past several days, driven by encouraging financial results from the banking sector. The recent upswing is a testament to the growing strength of the local markets.

On Jan. 18, Clearstream and Strate signed a letter of intent to develop a new collateral management service whereby the local market will essentially outsource the process. The collateral management process calculates and manages the amount of collateral that participants have to post as a guarantee of a trade.

“This technology will be a key component of risk management in South Africa,” Monica Singer, chief executive officer of Strate told Markets Media. “Before Strate was implemented 13 years ago, trading volume was at about 4,000 trades a day, it’s now 250,000 trades per day. This is happening partially because we have been taking the risk out of the market.”

Collateral management has become key for financial institutions given the increasing pressure of Basel III requirements. Following the high profile collapses of Lehman Brothers and MF Global, regulatory scrutiny has jumped.

“Everything that happens anywhere in the world grabs the attention of regulators,” said Singer. We can all learn from that to assure that it doesn’t happen in our country.”

The partnership with Strate, which is South Africa’s only central securities depository, is the latest cross-border alliance to occur with the African nation. Chicago’s CME Group previously announced a partnership with the Johannesburg Stock Exchange which allowed the JSE to offer rand-denominated futures and options contracts on agricultural, metals, and energy products that settle to CME Group’s international benchmark settlement prices.

Strate is 45% owned by the Johannesburg Stock Exchange, with the remainder held by four local banks, ABSA, Nedbank, FirstRand and Standard Bank, and Citigroup, whcih holds a 0.1% stake.

Clearstream previously announced in August announced it had entered into negotiations with the Australian Securities Exchange to develop a new collateral management service for the Australian market. The company asserts that it is the only collateral management services provider in a position to manage collateral across time zones and regions while the assets stay in the respective domestic market, under local legislation, which is a regulatory requirement in many countries. Clearstream Banking is the clearing and settlement division of Deutsche Borse, and is based in Luxembourg.

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