Transcript T 3 Impact Analysis

The move to T+3
Brett Kotze
Clearing & Settlement Division
08 February 2010
www.jse.co.za
Copyright© JSE Limited 2008
1
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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2
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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3
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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4
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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5
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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6
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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7
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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8
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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9
Current T+5 Settlement Cycle
T+1
T
T+2
T+3
T+4
T+5
Settlement Order
Deal Execution
Deal Allocation
Deemed Affirmation
Client / Broker
Contract Note
Client Affirmation to CSDP or
Client Rejection to Broker
Broker Re-Allocation
Client Affirmation on Re-Allocation
Broker Net
Non-Controlled
Client Breach
Principal Assumption
CSDP Commitment
SA Margining
Broker Borrowing
CSDP
Commit
SA
Borrowing
Failed Trade
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Settlement
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 InterCSDP
Min T+1
Min T+0
14h00 (S)
15h00 (S)
15h00 (S-1)
17h00 (S-1)
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Off-markets activities current versus future Cont…
Type
Current
Settlement
Cycle
Reporting
Time
Commit /
BTB Time
Future
Settlement
Cycle
Reporting
Time
Commit /
BTB Time
Portfolio
Moves Intra –
CSDP
Min T+0
18h00 (S)
18h00 (S)
Min T+0
18h00 (S)
18h00 (S)
Portfolio
Moves on RD
N/A where
elective CA
Min T+0
09h00 (S)
10h00 (S)
Off-market
SLB
Min T+1
15h00 (S-1)
17h00 (S-1)
Min T+1
13h00 (S-1)
14h00 (S-1)
SLB BP
Min T+1
15h00 (S-1)
17h00 (S-1)
Min T+1
13h00 (S-1)
14h00 (S-1)
SLB Rev
Substitution
Min T+1
10h00 (S-1)
12h00 (S-1)
Min T+1
17h00 (S-1)
18h00 (S-1)
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…
Type
Current
Settlement
Cycle
Reporting
Time
Off-market
SLB on RD –
By Exception
N/A
SLB BP on
RD – By
Exception
Min T+0
09h00 (S)
Same day
SLB Returns
(Off-markets
and BP on RD
– By
Exception
Min T+0 (BPs)
09h00 (S)
Commit /
BTB Time
Future
Settlement
Cycle
Reporting
Time
Commit /
BTB Time
Min T+0
09h00 (S)
10h00 (S)
10h00 (S)
Min T+0
09h00 (S)
10h00 (S)
10h00 (S)
Min T+0
09h00 (S)
10h00 (S)
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Separation of Controlled Clients from Proprietary accounts
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
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Controlled Clients Net
S
Client A
1,000 AAA
P
S
Client B P
200 AAA
S
Client C
P
800 AAA
Controlled client net created for DVP 400 AAA shares
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Brokers Net- Same Broker
S
Stock Acct A P
2,000 AAA
S Stock Acct B P
200 AAA
S Stock Acct C P
600 AAA
Brokers net created for RVP 1,200 AAA shares
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Settlement Allegements EOD T+1
Brokers Custody
Acct
Brokers Net
ECS
Controlled Clients
Net
Strate
Controlled Clients
Custody Acct
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Controlled Clients Net
S
Client A
1,000 AAA
P
S
Client B P
200 AAA
S
Client C
P
800 AAA
No Securities
Compulsory Reverse
Substitution
Brokers net created for DVP 400 AAA shares
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Compulsory Reverse Substitution Controlled clients
S
Brokers custody
Acct
MT 586
200 AAA
P
RVP
1,200 AAA
S
Controlled Clients
P
Acct
DVP 400 AAA
MT 586
200 AAA
Reverse Substituted
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Daily Reconciliation
MT 535
MT 535
Controlled Clients Custody
Acct
Brokers Custody
Acct
MSS
MSS
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Rolling Of Settlement
New Leg Process
NON-CONTR
S CLIENT B
P
NON-CONTR
S CLIENT A
P
100 AAA
100 AAA
100 AAA
100 AAA
BROKER C
BROKER D
P
S
100 AAA 100 AAA
100 AAA 100 AAA
0
S
100 AAA
P
100 AAA
NEW CONTRACT
NOTE FOR NEW
SETTLEMENT DATE
WITH ORIGINAL
TRADE DATE
100 AAA 100 AAA
0
SETTLEMENT AUTHORITY
WILL BOOK SETTLEMENT ORDERS
100 AAA
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Failed Trades Retransactions
Settlement Process
NON-CONTR
S CLIENT B
P
NON-CONTR
S CLIENT A
P
100 AAA 100 AAA
0
100 AAA
VOLUNTARY
REVERSE
SUBS
COMPULSORY
REVERSE
SUBS
BROKER C
100 AAA
100 AAA
0
S
100 AAA
0
CONTRACT
NOTE CANCELLED
BROKER D
P
S
100 AAA
P
100 AAA
0
SETTLEMENT AUTHORITY
WILL BOOK SETTLEMENT ORDERS
100 AAA
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Failed Trades Retransactions
New Leg Process
NON-CONTR
S CLIENT B
P
NON-CONTR
S CLIENT A
P
100 AAA
100 AAA
0
BROKER C
S
100 AAA
BROKER D
P
100 AAA
S
100 AAA
P
100 AAA
NEW CONTRACT
NOTE WITH
ORIGINAL TRADE
DATE
100 AAA
100 AAA RETRANSACT
0
0
CLAIM LOSS/PROFIT
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Failed Trades Compensation
Settlement Process
NON-CONTR
S CLIENT B
P
NON-CONTR
S CLIENT A
P
100 AAA 100 AAA
0
100 AAA
VOLUNTARY
REVERSE
SUBS
COMPULSORY
REVERSE
SUBS
BROKER C
100 AAA
100 AAA
0
S
100 AAA
0
CONTRACT
NOTE CANCELLED
BROKER D
P
S
100 AAA
P
100 AAA
0
SETTLEMENT AUTHORITY
WILL BOOK SETTLEMENT ORDERS
100 AAA
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Failed Trades Compensation
Compensation Process
NON-CONTR
S CLIENT B
P
NON-CONTR
S CLIENT A
P
BROKER C
P
S
100 AAA
BROKER D
100 AAA
0
S
100 AAA
P
100 AAA
0
COMPENSATION PAID
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T+3: Barrier 4 – Corporate Actions
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Copyright© JSE Limited 2008
Analysis
Barrier 4.1 - Corporate Action Model
The types of Corporate Action Events have been broken down into the following
categories:
Mandatory Events;
Elective Events Choice/Voluntary Events; and
Warrants
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Analysis
Best Practice Principles
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)
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Corporate Action Events
Mandatory Events
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Mandatory Events
Market Decision: Event Information
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
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Mandatory Events
Market Decision
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.
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Mandatory Events
New Timeline (all Mandatory Events)
1 Day
1 Day
Matched ready for
10h00 Settlement for same day
returns
Declaration
Date
RD – 13
or earlier
Finalisation
Date
Last Day to
Trade
RD - 8
LDT
RD - 3
First Day to
Trade with New
Entitlement
Record Date
Payment Date
LDT + 3
RD +1
LDT + 2
LDT + 1
RD
RD - 2
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Corporate Action Events
Elective
Choice/Voluntary Events
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Elective Events - Choice/Voluntary Events
New Timeline - Elective Events (Excluding Dividend Reinvestments)
1 Day
1 Day
[
15h00
Strate to send elections to TS
14h00
Strate to send Pre-Advice
13h00
12h00
10h00
10h00
Declaration
Date
RD – 13
or earlier
Finalisation
Date
Last Day to
Trade
RD - 8
LDT
RD - 3
First Day to
Trade with New
Entitlement
LDT + 1
RD - 2
LDT + 2
Amended elections may be submitted
Elections submitted to Strate (Projected
Holdings if settlement has not taken place)
Event Eligibility Calculated (where settlement
has taken place)
Broker submits elections to CSD Participants
Matched ready for Settlement for same day
returns
Cash Entitlements
paid
on receipt of Cash
B.O.D
Security
Entitlements
Posted
Payment Date
Record Date
&
Election Deadline
Date
Withdrawal Date
(if applicable)
LDT + 3
RD + 1
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Elective Events - Choice/Voluntary Events
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.
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Strate to forward Election Instructions to Transfer Secretary at 15h00
Elective Events - Choice/Voluntary Events
New Timeline - Dividend Reinvestments
E.O.D
Send Record Date
Positions
13h00 Elections submitted to Strate
10h00 Broker submits elections
to CSD Participant
10h00 Matched ready for
Settlement for same day
returns
Declaration
Date
RD – 13
or earlier
Finalisation
Date
Last Day to
Trade
LDT + 1
RD - 2
RD – 8
LDT
Announcement
of SA Dividend
Rate
RD - 3
LDT + 2
Cash
Entitlements
paid on receipt
of Cash
Record Date
Record Date + 10
Cash Payment
Date
LDT +3
Election Deadline
Date
RD + 20
Share Ratio
advised by
Transfer
Secretary
RD + 39
Security
Entitlements
processed by
Transfer
B.O.D Secretary
Securities and
Fractions
Payment Date
RD + 40
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Elective Events – Dividend Reinvestments
Market Decision: Before Declaration and Finalisation Date
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
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Spreadsheets and Fractions
Spreadsheets and
Fractions
Barrier 4.9 and Barrier 4.3
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Spreadsheets and Fractions
Market Decision
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.
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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 & Borrowing
Increase 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 & Borrowing
Automation
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 & Borrowing
Settlement 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
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
E
T
T+1
T+2
T+3
T
T+1
T+2
T+3
CA
T
T+1
T+2
T+3
T
T+1
T+2
T+3
T
T+1
T+2
RD
PD
R
S
I
O
T
F
M
T
T+5
CA
N
LDT
LDT
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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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51