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September 2012

www.strate.co.za

StrateTalk

South Africa inches into the top 3 spot in a World

Economic Forum report

Building resilience to withstand the unexpected

- The new CPSS IOSCO recommendations

BankservAfrica signs up to Strate's SWIFT Services

Newsflash: 66th Segregated Depository Account (SDA)

opened

Standard Chartered CSD Participation extends to money

markets and bonds

The importance of a Trade Repository for over-the-counter

(OTC) derivatives

Legal Entity Identifiers - Need for financial entity

'fingerprint' rises to mitigate systemic risks

The Kgosi Neighbourhood Foundation gets R25 000 and

a vegetable garden

Strate scores higher in economic transformation rating

Saddened by the loss of Strate Charity Shares' board

member and founder, David Cobbett

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L e a v i n g n o t h i n g t o c h a n c e

STRATETALK 2

South Africa's financial market development rank hasclimbed to 3rd in the World Economic Forum's The GlobalCompetitiveness Report 2012-2013, from 4th in the prior year,scoring 5.7 out of 7.

The Global Competitiveness Index (GCI) takes into account 12pillars or drivers: institutions, infrastructure, macro-economicenvironment, health and primary education, higher educationand training, goods market efficiency, labour market efficiency,financial market development, technological readiness, marketsize, business sophistication and innovation.

Monica Singer, the CEO of Strate, says: “It is an exceptionalachievement for South Africa to be ranked in the top three in theworld out of 144 economies for the financial market developmentpillar. When you look at it in more detail, the South Africaneconomy showed improvements across all eight categories withinthis pillar.”

According to Singer, a stable financial market that is well regulatednot only attracts investors, but it also indicates that a country likeSouth Africa has developed financial market infrastructures thatare on par with that of first-world countries, offering marketservices in line with global best practice.

“As a financial markets infrastructure and as South Africa'sCentral Securities Depository (CSD), it is Strate's core duty toensure that we facilitate risk mitigation through transparency,regulation and those products and services that enhance investorprotection, while contributing to the greater economy. Followingthe collapse of Lehman Brothers in 2008, which ultimately ledto the global financial crisis and trouble in the Eurozone, theranking stands testament to the resilience of the South Africanfinancial environment,” adds Singer.

Hong Kong and Singapore have continued to rank in the top twounder the financial market development pillar in the WorldEconomic Forum's The Global Competitiveness Report, whileFinland jumped to rank fourth in the index.

South Africa inches into the top 3 spot in a WorldEconomic Forum report

Values are on a 1-to-7 scale unless otherwise annotated with an asterisk (*)

Financial market development rankand value

Availability of financial servicesAffordability of financial servicesFinancing through local equity marketEase of access to loansVenture capital availabilitySoundness of banksRegulation of securities exchangesLegal rights index, 0-10 (best)*

Hong Kong1 with a value of 5.9

6.26.05.74.44.56.55.710

Singapore2 with a value of 5.9

6.15.85.14.74.46.56.010

South Africa3 with a value of 5.7

6.45.25.43.53.16.76.510

Finland4 with a value of 5.5

5.95.54.54.43.96.56.18

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September 2012

2012-2013 2011-2012 (current) (prior year)

Financial market development rank and value 3 with a value 4 with a value of 5.7 of 5.48

Availability of financial services 6.4 6.3Affordability of financial services 5.2 4.9Financing through local equity market 5.4 5.1Ease of access to loans 3.5 3.3Venture capital availability 3.1 2.9Soundness of banks 6.7 6.6Regulation of securities exchanges 6.5 6.4Legal rights index(rated on a scale of 0 to 10 where 10 is best) 10 9.0

Values are on a 1-to-7 scale unless otherwise annotated with an asterisk (*)

An annual comparison of South Africaís financial market development rank

Top four financial market development rankings

STRATETALK 3

Turn back the clock five years and many thought that large bankswere too big to fail. The events of 2008 have reversed thisperception and financial institutions and regulators are lookingto create stability - which is one of the reasons the Committeeon Payment and Settlement Systems (CPSS) and the TechnicalCommittee of the International Organisation of SecuritiesCommissions (IOSCO) have reviewed and updated standardsfor Financial Market Infrastructures (FMIs).

Such FMIs include Central Securities Depositories (CSDs), astheir role gained prominence during the market uncertainty.According to CPSS IOSCO, FMIs were a 'source of strength'during the financial crisis and were generally able to settleobligations when due, giving market participants the confidenceto continue transacting.

No one could predict the crisis and no one will be able to predictwhat will happen in the future, so to support the goals andmandates of the G-20 and Financial Stability Board to strengthenthe safety and soundness of the financial markets, CPSS IOSCOwanted to ensure FMIs are truly resilient as markets tread intoan uncertain tomorrow, so that they cope with the worst-casescenario.

The Financial Stability Board's progress report encourages aregulatory framework to be in place. CPSS IOSCO, which arerecognised as international standard-setting bodies by theFinancial Stability Board, have undertaken to establish Principlesthat are in line with the Financial Stability Board's initiatives tomeet the G-20's commitments.

CPSS IOSCO have published the CPSS IOSCO Principles forfinancial market infrastructures, which raises the bar on theprevious requirements. It provides 24 principles with more detailedguidance by broadening the scope of the standards to covernew risk-management topics. Furthermore, other types of FMIsare included in the Principles, which now include systemicallyimportant payment systems, CSDs, securities settlement systems,central counterparties (CCPs) and Trade Repositories (TRs).

They have also drafted the Disclosure framework for financialmarket infrastructures and the Assessment methodology for theprinciples for FMIs and the responsibilities of authorities, whichhave been released for public comment, to promote consistentdisclosures of information by FMIs and assessments of FMIs byinternational financial institutions and national authorities.

As a member of the G-20, CPSS and IOSCO, South Africa isadopting the new principles applicable to its FMIs, such as Strate.

The CSD has constantly endeavoured to adhere and supportglobal efforts that promote the mitigation and management ofrisk and strengthen market infrastructures. These include theCPSS IOSCO standards, which harmonise and, whereappropriate, strengthen the existing international standards thatare systemically important for FMIs.

Strate aims to comply with the 24 principles released by theCPSS IOSCO to the extent that those principles are applicableto Strate as a CSD.

Citing CPSS IOSCO, the 24 Principles are:

Principle 1, which requires that an FMI have a strong legal basisfor its activities, and Principle 2, which requires that an FMI haverobust governance arrangements that focus on the safety andefficiency of the FMI and that support stability. The latter includesguidance on the roles, responsibilities and composition of boardsof directors.

In Principle 3, the framework for the comprehensive managementof risks is a new principle that requires an FMI to take an integratedand comprehensive view of its risks, including those it bearsfrom and poses to its participants, their customers and otherentities.

Principles 4 through 7 address the management of the creditand liquidity risks that arise from an FMI's payment, clearing andsettlement processes. CPSS IOSCO says that unlike previousinternational standards, this report distinguishes between creditand liquidity risks and provides separate principles to addressthe management of these risks. Settlement risk, which is the riskthat settlement will not take place as expected, is addressed inPrinciples 8 through 10.

Principle 11 relates to CSDs and Principle 12 to exchange-of-value settlement systems. It consolidates and harmonisesprevious guidance regarding the unique risks faced by thesetypes of FMIs associated with their function and design. Whilethe nature and scope of activities performed by CSDs vary basedon jurisdiction and market practices, CSDs play a critical role inthe protection of securities and help ensure the integrity ofsecurities issues and transactions. Principle 11 requires that aCSD maintain securities in an immobilised or dematerialisedform for their transfer by book entry. Similarly, exchange-of-valuesettlement systems play a critical role in mitigating principal risk.Principle 12 requires these systems to eliminate principal riskby ensuring that the final settlement of one obligation occurs ifand only if the final settlement of the linked obligation also occurs.

Building resilience to withstand the unexpected -The new CPSS IOSCO recommendations

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September 2012

Principle 13 for participant-default rules and procedures requiresall FMIs to have effective and clearly defined rules and proceduresto manage the default of a participant. Principle 14 refers tosegregation and portability - a new principle specific to CCPs.The principle requires that a CCP have rules and proceduresthat enable the segregation and portability of the positions of aparticipant's customers and the collateral provided to the CCPwith respect to those positions.

General business risk, custody and investment risks andoperational risk are addressed in Principles 15, 16 and 17,respectively.

Principles 18, 19 and 20 address the need for fair and openaccess to an FMI as well as management of risks posed byalternative access arrangements, while issues related to efficiencyare addressed in Principles 21 and 22.

Finally, Principles 23 and 24 address transparency and requirethat relevant information be provided to an FMI's participants,authorities and the public to inform sound decision making andfoster conf idence in the markets the FMI serves.

In the next edition of the Strate Talk, we will look at the keyprinciples applicable to Strate.

STRATETALK 4www.strate.co.za

September 2012

BankservAfrica forges relationship with Strate'sSWIFT ServicesAfrica's largest automated payments clearing house,BankservAfrica, through its BSVA Integrated Services business,will be utilising Strate's SWIFT infrastructure to allow it to sendand receive messages over the SWIFT network.

“After a long-standing working relationship with the BankservAfricagroup, we are excited to have them join and utilise Strate'sSWIFT infrastructure. We believe that we offer one of the bestSWIFT infrastructures in the world and are pleased to havemore clients seeing the benefits and coming on board,” saysRudi Steenkamp, Head of IT.

Strate manages one of Africa's largest SWIFT infrastructuresand it is one of the top 2% of SWIFT users globally. Strate'sSWIFT Bureau Service allows clients to save costs and ultimatelybring new efficiencies to their own organisations.

Dan van der Westhuizen, CEO for financial and technologysolutions at BSVA Integrated Services (a member of theBankservAfrica group) explains by joining Strate's SWIFTnetwork the cost of acquiring, upgrading and maintaining thehardware and software required to connect to SWIFT is sharedbetween all bureau participants. “The BSVA SWIFT bureauprovides our customers (in over 16 African countries) with anaffordable low cost (outsourced) solution in order to send andreceive messages on the SWIFT network. The SWIFT servicebureau also ensures automation and standardisation of

transactions using end-to-end solutions, leading to risk mitigationand increasing company service levels, all undertaken securelyand reliably.”

Strate's SWIFT infrastructure currently carries the bulk of financialmessages for the equity, money market and bonds settlementsystems as well as the JSE and brokers’ traffic. The infrastructureprovides full redundancy in the form of an on-site 'hot-standby'and an off-site Disaster Recovery (DR) infrastructure.

Steenkamp says: “We feel that Strate has the best SWIFTinfrastructure in Africa, and due to its varied network connectivityoptions, it has the capacity to host new clients, bringing themall the associated benefits. Strate has a Premium Plus Partnershipwith SWIFT and a cost-effective and state-of-the-art IBMinfrastructure, which are among the benefits Strate provides. Inaddition, Strate offers 24/7 monitoring and support, which includessupport of an on-call SWIFT engineer.”

“Clients who utilise the Strate SWIFT infrastructure, will benefitfrom the reduction of costs in terms of acquiring, upgrading andmaintaining the hardware and software components required toconnect to the SWIFT network as these are shared between allBureau participants,” concludes Steenkamp.

For further details please contact Leigh Bevison LeighB@strate.co.za, or 011 759 5466.

Newsflash: 66th Segregated DepositoryAccount (SDA) opened

The 66th Segregated Depository Account (SDA) hasbeen opened at Strate.

Clients who have their securities in safe-keepingaccounts opened directly in the books of the CSDhave quicker access to their assets in the event ofinsolvency proceedings. If there was a failure oftheir custodian, in a similar fashion to LehmanBrothers or MF Global overseas, their account wouldnot be frozen and the investor could continue tradingin that account in a relatively seamless manner.

SDAs significantly and conveniently enhance thetransfer of investors' listed dematerialised securities,allowing them to engage with an alternate custodianat short notice. SDAs have been operational in theSouth African market for over a year and aresupported by the country's legislation, as theamended version of the Companies Act (2008) allowsfor enhanced legal protection for investors.

Standard Chartered CSDParticipation extends to

money markets and bonds

Following the March 2012announcement of the approval ofStandard Chartered as a CSD

Participant in the equitiesenvironment, it was recently

accepted as a CSD Participantfor money market and bonds.

This brings a total number of 10and 7 Participants in the moneymarket and bond environmentsrespectively. Strate welcomes

Standard Chartered to the marketand looks forward to working with

them in this new area.

In the aftermath of the global financial crisis,great concern was expressed over the lack oftransparency and risk management of the over-the-counter (OTC) derivatives market, whichmany believed to be one of the fundamentalcauses for the events which placed the worldon the brink of financial turmoil. As a resultmuch regulation has been promulgated toinclude the recording of OTC derivativescontracts in a Trade Repository (TR) to enablethe evaluation of build-up of concentration riskassociated wi th these agreements.

A TR is in line with recommendations set forthby the G-20 where all standardised OTCderivative contracts should be traded on anexchange or electronic platform, whereappropriate, and cleared through centralcounterparties by end-2012 at the latest. “Thisaims to enhance the stability of global financialmarkets and protect investors and financialinstitutions in the event of a crisis,” says Anthonyvan Eden, Strate’s Chief Operating officer.

As a member of the G-20, South Africa iscommitted to and acknowledges the need toconform to reporting of OTC transactions toenhance regulatory oversight and improvetransparency.

Prior to 2008, extensive financial risk existedin OTC derivatives market as considerablevolumes of these instruments were traded offexchanges. “Financial institutions internationallyhad their blinkers on as they failed to managethe accumulation of risk as the market’s appetitefor OTC instruments grew. Using OTCderivatives correctly, such as the use of creditderivatives for example, helps mitigate creditrisk and improve liquidity, which is why theseinstruments are popular,” adds van Eden.

However, some large international financialcompanies reportedly misunderstood the risksassociated with these contracts and failed toadequately collateralise these exposures andhad no understanding of whether their collateralwas being reused or where it finally ended up.Furthermore, regulators had no oversight ofthe build-up of concentration risk amongstneither institutions nor their systemic impacton their economies.

Consequently, when investment banks likeLehman Brothers cracked and filed forbankruptcy, regulators immediately becameconcerned over the credit exposures betweencounterparties. The lack of central oversight ofa largely unregulated market created a waveof panic, as unreliable information led to a widercollapse in the financial markets – and theglobal financial crisis emerged.

In South Africa, the Financial Markets Bill, whichis expected to be promulgated in the next fewmonths, is providing a new framework toregulate the financial markets sector of thefinancial markets with enabling legislation fora TR.

“An approved Trade Repository will bringtransparency to the market and greatly enhanceregulator’s oversight and ability to respond tomarket risks or manipulations,” says van Eden.

A TR for OTC derivatives is a centraliseddatabase that maintains a secure and reliableelectronic database of the records of open OTCderivatives transactions. The primary publicpolicy benefit of a TR stems from the improvedmarket transparency facilitated by its recordkeeping function, the integrity of information itmaintains and effective access to thisinformation by relevant authorities and thepublic in line with their respective informationneeds. It provides reporting to market authoritiesand to its customers, as well as aggregatedinformation to the public.

“In line with Strate’s core purpose to mitigaterisk, improve transparency and bring efficienciesto the South African financial market, thecompany will apply for the license to operatethe Trade Repository for the South Africanfinancial market that is compliant with bothglobal and local regulations as well asinternational standards,” adds van Eden.

The benefits of a local Trade Repository includea quick and timely access to data in a time ofcrisis, which would safeguard SA’s financialmarkets. Regulators globally have recognisedthe need to use a Trade Repository to reducesystemic risk, improve transparency and protectinvestors.

STRATETALK 5www.strate.co.za

The importance of a Trade Repository for over-the-counter (OTC) derivatives

September 2012

STRATETALK 6

A system of Legal Entity Identifiers (LEIs) will be an essentialtool to collect over-the-counter (OTC) derivatives data to measureand mitigate systemic risk, according to The InternationalOrganisation of Securit ies Commissions (IOSCO).

Since the financial crisis, transparency and regulation havebecome critical under the theme of risk management, which hasunderpinned the need to create accurate information for all partiesthat enter into financial contracts and transactions.

As the data that currently exists is fragmented and stored in anumber of systems, the market is preparing to witness the birthof a universal company 'fingerprint' that can provide standardisedinformation about entities worldwide, which can be accessibleacross the global industry.

A new global LEI will soon be adopted by international and localentities to offer a standard that allows regulators to receiveaccurate, up-to-date information that will enhance risk mitigation,

as the complete view of transactions with all counterpartiesacross jurisdictions will assist with an overview of systemic risk.

In May this year, the International Organisation for Standardisation(ISO) created the ISO 17442 standard for LEIs to ensure theywere structured and reliable.

The LEI will be a unique 20-character alphanumeric code assignedto any legal entity that is counterparty to financial transactionsthrough ISO 17442.

The importance of creating a common system of identifiers hasbeen recognised in statements by the Financial Stability Board,IOSCO and G-20 finance ministers and leaders. As such, theindustry is making headway to prepare for the launch of the LEIsystem in 2013.

Legal Entity Identifiers - Need for financial entity'fingerprint' rises to mitigate systemic risks

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The Kgosi Neighbourhood Foundation gets R25 000and a vegetable garden

In August, Strate donated R25 000 to the Kgosi NeighbourhoodFoundation to establish a computer room at its preschool andpurchased books for the children.

Strate staff also planted a vegetable garden for the Foundation,which will be maintained by parents in the community, andarranged for a surprise visit by Father Christmas bearing giftsfor the children.

“Investing in local communities isan essential part of Strate's businessphilosophy. Strate supports a number of worthy causes that have had a positive impact on people's livesand their future.”

The Kgosi Neighbourhood Foundation was founded in 2004with a mission to bring educational light into the lives of vulnerablechildren in the Jeppestown community. Its first initiative, theWings of Hope preschool, provided members of the localcommunity with excellent preschool education to ensure schoolreadiness and academic success in the years that followed.The Foundation has now assisted 413 students and theirparents, providing education, advocacy and compassionatecare to those in need.

The Kgosi Neighbourhood Foundation continues to serve thecommunity by offering 96 children free preschool education,two hot meals and a snack every day.

September 2012

STRATETALK 7

Strate has been awarded a level three Broad-Based BlackEconomic Empowerment (B-BBEE) rating by verification agencyEmpowerdex, with an overall score of 78.44%.

This is an improvement from its level four rating awarded in 2011,where it scored 70.34%. Companies that use Strate's servicesare able to claim additional points for their own B-BBEE scorecard,due to Strate's rating. As Strate also retained its accreditation asa value-adding supplier, customers can also claim an additional25% for B-BBEE purposes.

In the 2012 Audit, based on the 2011 Audited Financial Statements,Strate was rated as a Level 3 Contributor with a 110% recognitionlevel, an improvement on the previous rating of Level 4 (100%recognition level). The main reason for the improved rating is theimproved scoring in Ownership, Enterprise Development andSocio-Economic Development.

Since 2004, B-BBEE has been adopted as a South Africangovernment initiative to promote economic transformation to enablemeaningful participation of black people in the country.

To encourage B-BBEE, the Codes of Good Practice were gazettedand released in February 2007 with a clear framework to measureB-BBEE against seven generic elements. These are Ownership,Management and Control, Employment Equity, Skills Development,Preferential Procurement, Enterprise Development and Socio-Economic Development.

In Strate's 2012 Audit, the accreditation highlightedimprovements in three of the seven scorecard elements:Ownership, Enterprise Development and Socio-EconomicDevelopment.

A large contribution to the 2012 score was initiatives relating toEnterprise Development. Over the year, Strate largely supportedsmall BEE businesses that are more than 50% black owned witha special early payment system. This helped Strate to achieve anincreased rating from 7.88 in 2010 to 15 out of 15 in 2011. Thecompany also focused on those enterprises that are more than25% black owned with a BEE level of between one and six. Stratealso added further beneficiaries and used the early-paymentsystem to support its current and new base of small BEEbusinesses.

“We dedicated ourselves to supporting such an important part ofour economy - small businesses. These companies represent98% of the total number of firms in South Africa and employ morethan half of the country's work force, yet most of them fail because

of cash flow constraints. That is why Strate is committed to supportsmall B-BBEE businesses by paying them quickly,” says MonicaSinger, Strate's CEO.

'Ownership' was the second biggest increase from 2010 to 2011,resulting in a score of 12.93 out of 15, from 11.48 in 2010. Thevoting rights of black women, economic interest of black womenand the net value of Strate's shareholder base - namely the JSE,ABSA, FirstRand Bank, Standard Bank and Nedbank - were largecontributors to the rise in this element.

In addition, Strate continued to support worthy causes and charitiesin line with its socio-economic development policy. It spends 1%of Net Profit After Tax (NPAT) to identified charity organisationsand, as a result, achieved an increased rating to five out of five,from 4.29 in 2010.

“At Strate, we understand that transformation is a strategic andcrucial requirement, but more so as a business opportunity ratherthan a matter of complying with legislation,” says Singer.

She adds: “I am proud of the exceptional effort we have put in toempower local businesses and individuals. Our values align toour commitment in the initiatives that ensure a sustainable SouthAfrica of tomorrow.”

Strate scores higher in economic transformation rating

www.strate.co.za

September 2012

STRATETALK 8

On Friday 3 August, David John Cobbett, the founder and aboard member of Strate Charity Shares (SCS), suddenly passedaway. He was 85 years old.

“David was a special person and our prayers are with his familyand friends during this difficult time. He made remarkablecontributions to Strate's charitable initiatives as a member andfounder of the Strate Charity Shares board and he will be missed,”says Monica Singer, Strate CEO.

A little over ten years ago, Cobbett travelled to the UK and thenreturned to South Africa with a vision of a charity donationprogram. He wanted to create a convenient model to allow andencourage investors to easily contribute small or large amountsof their shares to charity and eliminate the cost of conversion toan electronic record of ownership, which included brokerageexpenses. In most of these instances, the value of shares islower than the cost to dematerialise them.

Strate Charity Shares, a non-profit organisation charity donationprogramme run by Strate and Computershare Investor Services,was soon established.

As investors find their portfolios untidy and cumbersome, andissuing companies continue to incur the considerable costs ofretaining a record of these holdings on their registers, SCS wasthe charitable solution that helped investors tidy up their portfoliosand giving issuers the benefit of smaller registers to upkeep.

“With SCS, investors neatened up their portfolios by getting ridof small holdings of shares that are too costly to sell through astockbroker than they are worth, since shareholders incur nocost if they donate their shares in this unique way to charity andthe donation is tax-deductible as the donation to SCS. In termsof section 18(A) of the Income Tax Act, all donations to qualifyfor tax relief. The donations of small holdings of shares in anycompany listed on the JSE gives much needed financial supportto needy causes,” explains Singer.

To date, SCS has donated in excess of one million rand tovarious charities, such as the Salvation Army, the AfricanChildren's Feeding Scheme, Hospice, the Red Cross, the WorldWildlife Fund SA and Bethany House.

Cobbett served on the SCS board for more than ten years.

Donating shares is as simple as filling out the necessary formand returning it at no cost in the prepaid envelope provided.Should you have any queries regarding obtaining orcompleting the forms, please call the Strate Charity Shares'toll-free helpline on 0800 202 363 or +27 11 870 8207 if youare phoning outside South Africa. You can also emailcharityshares@computershare.co.za.

Saddened by the loss of Strate Charity Shares' boardmember and founder, David Cobbett

www.strate.co.za

September 2012

David Cobbett with representatives from the Strate CharityShares Board and previous charity recipients

STRATETALK 9

Follow Strate Ltd

Tel: +27 (11) 759 5300 • Fax: +27 (11) 759 55001st Floor, 9 Fricker Road, Illovo Boulevard, Illovo, Sandton, 2196, South Africa.

Email: info@strate.co.za • www.strate.co.za

September 2012