The move to T+3 Phase 3 - Johannesburg Stock …...5 T+3 Project Market Communication The aim of the...

The move to T+3 Phase 3

Brett Kotze & Tyrone Arendse

2

T+3 Project

Market Communication

Agenda

• Overview of the move to T+3

• Structure of the JSE’s T+3 project

• Detailed walkthrough of the Phase 3 scope

• Explaining the sub-phases in Phase 3

• Training & User Readiness

• Risks / Issues / Questions

3

T+3 Project


Agenda







4

T+3 Project


The aim of the T+3 project

The primary aim of the T+3

project is to shorten the

settlement cycle for equities from

5 to 3 days

5

T+3 Project


5

The aim of the T+3 project

Prior to the crisis, many markets had already settled on T3 since 1995. The JSE’s settlement cycle is notably out of step with global precedent (including emerging markets)

CCPs / Exchanges Settlement Cycle

Tel Aviv Stock Exchange (TASE) Israel, Kuwait Stock Exchange, Saudi Stock Exchange

T+0

Eurex – Eurex Clearing, HKEx – Hong Kong Stock Exchange, Bulgarian Stock Exchange, Ljubljana Stock Exchange (Slovenia)

T+2

LCH – LCH Clearnet, DTCC – The Depository Trust & Clearing Corporation, ASX – Australian Stock Exchange, TSX – Toronto Stock Exchange, BM&F Bovespa – Brazil Stock Exchange, Mexico, Oman Stock Market (MSM), Nasdaq

T+3 (moving to T+2)

JSE T+5

According to Thomas Murray, fail rates for most exchanges are between 2 and 8 percent

Source: Stock Exchange websites, Chevreux/Credit Agricole Markets Trading Guide 2012; Thomas Murray Sept 2006

6

T+3 Project


CONTEXT

Source: Extracted from Thomas Murray White Paper, October 2006; FSB license renewal letter Nov 2012

The move to T+3 has been on the cards for many years and is now mandated by South Africa’s Financial Services Board (FSB)

Thomas Murray findings in 2006:

South Africa should move to a T+3 settlement cycle even if it results in “some” failed trades. Global benchmarks would improve by moving to T+3 even if there are fails It is the only area where South Africa does not meet the FTSE requirements for an Advanced Emerging Market*

FSB mandate November 2012 license renewal letter:

‘ . . .concerns were raised by the Licensing Committee regarding the continued delay in the implementation of the T+3 settlement cycle for equities as well as the perceived lack of prioritising the shortening of the settlement cycle. We request that the JSE do whatever is necessary to ensure the successful completion of this project.’

Project Rationale

7

T+3 Project


CONTEXT

1. Exposure:

‘Client-side transactions between buy-side and brokers represent significant uncollateralised, unguaranteed exposure

The amount of this market risk depends on time and volatility and thus increases with longer settlement cycles’

2. Capital

CSDPs are starting to hold capital for exposures. Longer cycles mean more capital

3. Systemic Risk

Systemic risk increases when the magnitude of outstanding transactions increases (risk is based on number of outstanding transactions and the concentration)

Source: BCG (Oct 2012)

Why is a shorter settlement cycle relevant?

Project Rationale (cont.)

8

T+3 Project


CONTEXT

Source: BCG (Oct 2012)

• Align to global best practice – comply with the FSB mandate

• Harmonisation across international markets

• Increased liquidity – faster reinvestment of assets that are released from the settlement process quicker

• Margin will be called earlier in the cycle

• Reducing the number of outstanding unsettled trades will:

• reduce settlement exposure / credit risk

• reduce systemic risk

• improve efficiencies by causing participants to adapt and modify behaviours

The FSB has mandated the JSE to move to T3 settlement cycle – T3 is now a licensing requirement

What are the benefits of reducing the JSE’s settlement cycle?

Project Rationale (cont.)

9

CONTEXT

According to Omgeo (global standard for PTS efficiency):

“The world-wide shift towards shorter settlement cycles will increase the number of failed trades, unless post-trade operational practices are adapted to reduce the period between trade execution and settlement. The most important change required is that market participants should affirm trades on the day the trade is executed, enabling both timely and accurate settlement.”

Custodian banks and their clients cite inaccurate settlement and account instruction (SI) data as the most significant reason for failure, followed by the deliberate failure to settle by counterparties and mismatches between cash and securities cycles.

The shorter settlement cycle does introduce the potential for failed trades, as less time is available for the resolution of any operational issues that may occur

Source: Omgeo (May 2012)

Does a shorter settlement cycle mean more failed trades?

Project Impacts

10

T+3 Project


CONTEXT

Plans to reduce fails:

• Further automation from trade execution to settlement – this includes going to real-time trade confirmation on T – part of the Phase 2 release

• Further automation across the market for Corporate Actions

• Removal of inefficiencies with regards to share removals between global and local markets – this has been the cause of all of failed trades since the go-live of electronic settlement. This will be compounded when moving to T+3 as the local settlement cycle will mirror global markets

• Increase Securities Lending & Borrowing liquidity – make more shares available for lending & borrowing to ensure settlement

• Preparing the market for the move to T+3

Behavioural change and efficient operations are vital to the process

How will the JSE keep failed trades low?

Project Impacts (cont.)

11

T+3 Project


Agenda







12

Phase 1 – Regulatory and Automation

Phase 2 – ECS go-live on T+5 Settlement Cycle

Phase 3 – Market on T3 settlement cycle

Phase Status

1 Implemented successfully - 22 July 2013

2 Implemented successfully – 20 October and 27 October 2014

3 Analysis in progress, commenced with development and iterative testing

May to July 2016 ready for go-live

Overview of the T+3 timeline Overall programme status

13

Functions per phase

Releases

Phase 1 (Regulatory and Automation) Phase 2 (ECS Go-live T+5)

• Split Brokers Prop and Controlled

• Client Pledge (electronic pledge to 3rd parties)

• SLB Automation to CSDP’s

• Corporate Actions Automation to CSDP’s

• ECS (First Phase – replacement of the equities clearing & settlement system)

• Deal Management

• Prime Broking

• Technology Roadmap Upgrade (ECS)

Phase 3 (ECS T+3 Implementation)

• ECS (Second Phase – functional migration to T+3)

• Change from T+5 to T+3 Settlement

• Fails Management Automation

14

T+3 Update Timeline review and overall progress update

Phase 3 Timeline

2015 2016 2014

SEP JUNE MAY APR MAR FEB JAN DEC NOV DEC NOV OCT OCT SEP AUG JUL JUN MAY APR MAR FEB JAN JUL

SIT Cycle 1 Internal

UAT Cycle 1

Regression Cycle

SYT (7 iterations)

ECS Development


Scheduled to

start beginning

September

SIT Cycle 3

External

SIT Cycle 4

External

SIT Cycle 5

External

Scheduled to

start end Oct

Strate ready for testing on

new code base

September

4 C

SD

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Se

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3 C

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ea

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UAT Cycle 2

User Training

Refresher Training

Ready for

go-live May –

July 2016

15

T+3 Project


Agenda







16

Overview of the Phase 3 scope

Functions changing / impacted JSE CSDPs JSE Equity Members

Strate Clients

T+5 to T+3 settlement cycle (timeline changes) x x x x x

Scrip Lending and Borrowing / Money Lending and Borrowing

x x

Terminating transactions BDA (Control clients and Brokers Prop)

x x x x x

Terminating transactions CSDP's x x x x x

Failed Trade Management x x x x x

Margining (SFA's) x x

Rework SFA's for prime broking x x

These changes affect a number of systems within the JSE

17

Reducing the timeframe in which to conduct the existing processes and activities will result in quicker settlement.

T+3 settlement cycle – old view

18

T+3 settlement cycle – new view

19

On-market activities current versus future

Action Current Timings – T+5 Future Timings – T+3

Settlement Orders – non-controlled clients

T - Batch T - Real-time 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)

20

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 (reverse substitution)

T+4 (12h00) T+2 (16h00)

Margining T+3 (EOD) T+1 (EOD)

Broker borrowing on Principal Assumption

T+4 (12h00 to 14h00) T+2 (16h00 to 18h00)

Settlement Authority SLB T+4 (14h00 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

21

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+0 18h00 (S) 18h00 (S)

Depository Receipts on RD

Not permitted on RD

Min T+0 09h00 (S) 10h00 (S)

Off-markets T+5 12h30 (S-2) 17h00 (S-2) T+3 12h00 (S-1) 15h00 (S-1)

Acct Transfers

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)

22

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

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+0 13h00 (S) 15h00 (S)

SLB BP Min T+1 15h00 (S-1) 17h00 (S-1) Min T+0 13h00 (S) 13h00 (S)

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+0 17h30 (S) 17h00 (S)

23

Off-markets activities current versus future (cont.)

Type Current

Settlement Cycle

Reporting Time

Commit / BTB Time

Future Settlement

Cycle

Reporting Time

Commit / BTB Time

Off-market SLB on RD

N/A Min T+0 09h00 (S) 10h00 (S)

SLB BP on RD Min T+0 09h00 (S) 10h00 (S) Min T+0 09h00 (S) 10h00 (S)

Same day SLB Returns (Off-markets and BP on RD

Min T+0 (BPs)

09h00 (S) 10h00 (S) Min T+0 09h00 (S) 10h00 (S)

24

Mandatory Events Corporate Actions

25

Mandatory Event Corporate Actions activities

Action Current Timing - T+5 Future Timings - T+3

Declaration Date RD-15 RD-13 or earlier

Finalization Date RD-10 RD-8

LDT RD-5 RD-3

First day to trade new entitlement RD-4 RD-2

RD RD RD

Payment Date RD+1 RD+1

Settlements for new entitlements RD+1 RD+1

26

Mandatory Event Information

The minimum required information on Declaration Date for Mandatory Events will 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

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

27

Elective Event Corporate Action cycle

28

Elective Event Corporate Actions activities

Action Current Timing - T+5 Future Timings - T+3

Declaration Date RD-15 RD-13 or earlier

Finalization Date RD-10 RD-8

LDT RD-5 RD-3

First day to trade new entitlement RD-4 RD-2

Election RD (13h00) RD (13h00)

RD RD RD

Payment Date RD+1 RD+1

Settlements for new entitlements RD+1 RD+1

29

Elective Event Information

The minimum required information on Declaration Date for Elective Events will 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 by the CSDPs at 13h00 with possible

amendments being submitted up until 14h00. CSDPs and brokers will update

their client mandates to ensure that they receive their clients’ elections

timeously to align to these agreed timelines

Amended elections will only be allowed in the event that the JSE’s fail trade

procedures affect elections

Strate to forward Election Instructions to Transfer Secretary at 15h00

30

Fails Management by JSE Settlement Authority

Primary

Securities Lending and Borrowing

Money Lending and Borrowing

Then

Rolling of Settlement:

If circumstances are correct

Then

Failed Trade:

Retransactions

Compensation

For Failed Trade procedures we need to find opposite transactions

Failed Trade procedures

31

Back-to-Back Links – MT 598-103

MT598-103

Same settlement cycle

Must include details of linked transactions:

On-Market report only

SLB

Collateral

Account Transfer

Portfolio move

SLB return

Collateral return

Off-markets

Could be multiple links

32

Back-to-Back Links – MT 598-104

MT598-104

Future settlement cycle

Must include details of linked transactions:

On-Market report only

SLB

Collateral

Account Transfer

Portfolio move

SLB return

Collateral return

Off-markets

Could be multiple links

33

BDA terminating and non-terminating transactions

ECS will request terminating and non-terminating transactions from BDA

BDA will supply:

Controlled Clients transactions; and

Broker proprietary – net amount

34

Equities Clearing System (ECS)

Updates from Strate for links

MT598-103

MT598-104

Failed Trade procedures

Look for a terminating transaction:

Equal and opposite; then

Highest to lowest

Look for a non-terminating transaction with least impact:

Account transfers

Portfolio move

Collateral

SLB return

Off-market

Then

Equal and opposite; then

Highest to lowest

35

Message instruction

MT598-116

Advising instrument with potential problems

This could happen multiple times

MT598-117

Settlement orders selected for Failed Trade procedures

MT598-118

Problem resolved

MT598-117 is sent to STRATE and the CSDP.

Strate will lift the commit based on this message and break links where applicable.

36

ECS will: 1. Generate cancellation to Strate for Client B to cancel purchase (MT 598-117 and then MT 598-122) 2. Generate Settlement Order for Broker D (purchase) to replace failing trade for Client B 3. Generate Settlement Orders to move purchase from Broker D ROS settlement account to Broker C’s

Reverse Sub account 4. Hold margin for original failing deal – Client A Sale

S P

100 AAA

R500 (4)

S P

S P

100 AAA

R500

0

100 AAA

R500(598-113) 100 AAA (3)

R1,000 (598-113)

R500

Compulsory

Reverse Substitution

100 AAA

R1,000

0

BDA to cancel original

Contract Note

100 AAA (1)

R1,000 (598-122)

S P

100 AAA (3)

R1,000(598-113) 100 AAA (2)

R1,000 (598-113)

0

Non-Controlled Client Acct

Client A


Client B

Reverse Subs Acct

Broker C

ROS suspense Acct

Broker D

Flows Fails Management Rolling of Settlement

37

ECS will: 1. Generate Settlement Orders for future settlement date 2. Return Margin held for original failing deal (Client A sale) once settled 3. Generate message to BDA with defaulting and non-defaulting transaction details including future

settlement date

Flows Fails Management Rolling of Settlement

S P

100 AAA

R500 (2)

S P

S P

100 AAA

R500

100 AAA

100 AAA

R500 100 AAA

R1,000

0

Broker C to

Do manual

Allocation

100 AAA

R1,000 100 AAA

R1,000 100 AAA (1)

R1,000 (598-113)

100 AAA

100 AAA (1)

R1,000 (598-113)

100 AAA

R500

100 AAA

R500

BDA to issue new

Contract note for new

Settlement date

S P

100 AAA

R1,000

100 AAA (2)

R1,000 (598-113)

0

100 AAA (1)

R1,000 (598-113) 100 AAA (1)

R1,000 (598-113)


Client A Non-Controlled Client Acct

Client B

Reverse Subs Acct

Broker C

ROS suspense Acct

Broker D

38

T+3 Project


Flows Fails Management Retransaction

38

Settlement Authority will -

1. Generate cancellation to Strate for Client B to cancel purchase (MT 598-117 and then

MT 598-122)

2. Generate Settlement Order for Broker D (purchase) to replace failing trade for client B

3. Generate Settlement Orders to move purchase from Broker D’s Failed Trade suspense

acct to Broker C’s Rev Sub Acct

S P

100 AAA

R500

S P

S P

100 AAA

R500

0

100 AAA

R500(598-113) 100 AAA (3)

R1,000 (598-113)

R500

Compulsory


100 AAA

R1,000

0


Contract Note

100 AAA (1)

R1,000 (598-122)

S P

100 AAA (3)

R1,000(598-113) 100 AAA (2)

R1,000 (598-113)

0


Client A


Client B

Reverse Subs Acct

Broker C

Failed Trade Suspense Acct

Broker D

39

T+3 Project


Flows Fails Management Retransaction

39

S P

100 AAA

R500 (2)

S P

S P

100 AAA

R500

0

100 AAA

R500

100 AAA

R1,000

R500

100 AAA

R1,000

0

100 AAA

R1,000 100 AAA (1)

R1,000 (598-113)

BDA to issue new

Contract note for new

Settlement date

ECS will -

1. Generate Settlement Orders for future settlement when re-transacted to move re-booked

purchase to Client B

2. When re-transaction done send update message to BDA with future settlement

transactions

3. Return Margin held for original failing trade – Client A Sale once settled

S P

R500

100 AAA

R1,000

Re-transaction 100 AAA (1)

R1,000 (598-113)

CLAIM LOSS/PROFIT

100 AAA

R1,000

100 AAA

R1,500


Client A


Client B

Reverse Subs Acct

Broker C


Broker D

40

T+3 Project


Flows Fails Management Compensation

40

S P

100 AAA

R500 (4)

S P

S P

100 AAA

R500

0

100 AAA

R500(598-113) 100 AAA (3)

R1,000 (598-113)

R500

Compulsory


100 AAA

R1,000

0


Contract Note

100 AAA (1)

R1,000 (598-122)

S P

100 AAA (3)

R1,000(598-113) 100 AAA (2)

R1,000 (598-113)

0

ECS will -

1. Generate cancellation to Strate for Client B to cancel purchase (MT 598-117 and

then MT 598-122)

2. Generate Settlement Order for Broker D (purchase) to replace failing trade for client B

3. Generate settlement orders to move purchase from Broker D’s ROS suspense acct to

Broker C’s Rev Sub Acct

4. Margin retained by ECS for original failing trade – Client A Sale


Client A


Client B

Reverse Subs Acct

Broker C


Broker D

41

T+3 Project


Flows Fails Management Compensation

41

S P

100 AAA

R500

S P

S P

100 AAA

R500

0

100 AAA

R500

100 AAA

R1,000

R500

Compulsory


100 AAA

R1,000

0

100 AAA

R1,000

S P

100 AAA

R1,000

100 AAA

R1,000

0

COMPENSATION PAID

1. Release margin to Broker A once compensations has settled


Client A


Client B

Reverse Subs Acct

Broker A


Broker D

42

Margin under T+3

Under T+3 settlement the JSE will margin at EOD T+1 (collect on morning

of T+2 respectively) – 35 to 40% of trades will be margined – figures

depending on how market practice will adjust

Margin will be retained in the case of Fails Management and returned on

final settlement of the transaction:

Rolling of Settlement

Retransactions

Compensation

43

Change in practice

JSE has moved to real-time systems – members may do allocations on a

real-time basis on T and commits to flow on T

Market practice will change – Investors will send instructions and CSDPs

will commit on T or T+1

Per JSE Rules and Directives – brokers can claim margin from clients

44

Commits statistics

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Jan-0

5M

ar-

05

Ma

y-0

5Jul-0

5S

ep-0

5N

ov-0

5Jan-0

6M

ar-

06

Ma

y-0

6Jul-0

6S

ep-0

6N

ov-0

6Jan-0

7M

ar-

07

Ma

y-0

7Jul-0

7S

ep-0

7N

ov-0

7Jan-0

8M

ar-

08

Ma

y-0

8Jul-0

8S

ep-0

8N

ov-0

8Jan-0

9M

ar-

09

Ma

y-0

9Jul-0

9S

ep-0

9N

ov-0

9Jan-1

0M

ar-

10

Ma

y-1

0Jul-1

0S

ep-1

0N

ov-1

0Jan-1

1M

ar-

11

Ma

y-1

1Jul-1

1S

ep-1

1N

ov-1

1Jan-1

2M

ar-

12

Ma

y-1

2Jul-1

2S

ep-1

2N

ov-1

2Jan-1

3M

ar-

13

Ma

y-1

3Jul-1

3S

ep-1

3N

ov-1

3Jan-1

4M

ar-

14

Perc

en

tag

e

Date

Average Monthly Commits Non-controlled Clients

Percentage committed EOD T+1 Percentage committed EOD T+2 Percentage EOD T+3

45

New status intimations

New MT 548 - Reasons for uncommits

No securities

No clients instructions

Timings:

• EOD T;

• Real-time T+1; and

• Real-time T+2.

46

Fractions and spreadsheets

Raised in 2009

Recently approved at CSDP Forum

Investigating implementing before T+3 Phase III

Preferred option as previously agreed

VWAP on LDT+1 less 10% (for market movements) used for fraction payment;

JSE to announce rate so everyone uses same rate; and

Surplus shares sold by participant / broker to cover pay out.

Spreadsheets will remain for

IPO’s;

Excess Take Up; and

Dual listed companies where home Exchanges regulations prevail.

47

Freezing of registers

Dual Listed companies

Freeze registers once currency conversion is booked – aligned to JSEs Listing

Requirements

Securities can’t move between registers – creates settlement problems

Change – currency conversion on LDT-1 and announcement to the market

48

Migration

W T F M T W T F M T

T T+1 T+2 C T+3 T+4 T+5

T T+1 O T+2 T+3 T+4 T+5

T N T+1 T+2 T+3 T+4 T+5

V T T+1 T+2 T+3 CA

E T T+1 T+2 T+3 CA

R T T+1 T+2 T+3

S T T+1 T+2 T+3

I T T+1 T+2

O

N LDT RD/RD PD/PD

49

Recap of BDA T+3 phase 2 and other automation:

Automation of Prime Broking Transactions

Real Time Deal Management

Real Time Contract Notes

Same Day Allocations Upload

Same Day Deals Upload

CLMNT Upload

Demat Holding Upload

Corporate Actions Elective Events upload

Functionality provided in previous phases

50

Migration assumptions

Limit amount of Corporate Actions (including IPO’s/private placements) if

possible

Move to a RD-3 LDT date – no LDT on Friday of conversion

Jobbing across settlement days – warn members about SLBs and funding

for a period of time

Resources will be available across the market for 2 weeks after go-live to

manage issues

Migration will not take place over a month-end

Migration will not take place over a futures close-out

51

T+3 Project


Agenda







52

T+3 Update Timeline review and overall progress update

Phase 3 Timeline

2015 2016 2014

SEP JUNE MAY APR MAR FEB JAN DEC NOV DEC NOV OCT OCT SEP AUG JUL JUN MAY APR MAR FEB JAN JUL


UAT Cycle 1

Regression Cycle

SYT (7 iterations)

ECS Development


Scheduled to

start beginning

September

SIT Cycle 3

External

SIT Cycle 4

External

SIT Cycle 5

External

Scheduled to

start end Oct

Strate ready for testing on

new code base

September

4 C

SD

P’s

re

ad

y fo

r in

teg

ratio

n

Au

g –

Se

pte

mb

er

3 C

SD

P’s

re

ad

y fo

r in

teg

ratio

n

en

d O

cto

be

r

1 C

SD

P r

ea

dy fo

r in

teg

ratio

n

Fe

bru

ary

UAT Cycle 2

User Training

Refresher Training

Ready for

go-live May –

July 2016

53

T+3 Update Testing – market involvement

• Timing of phases:

• Required participation per phase:

• Pre-SIT Activities

• Initial reference data set-up

• Test pack review

• Per test cycle:

• Reference data review and health check (two days prior to test execution)

• Test pack refinement

• Test execution

• Results audit (2 days post test execution)

• Environment refresh (2 days prior to the next test phase)

SIT – Cycle 3 Scheduled to start

end Oct 2015

CSDPs (Voluntary)


mid Nov 2015

CSDPs (Compulsory)


mid Jan 2016

CSDPs (Compulsory) / Members (Voluntary)

UAT – Cycle 1 Scheduled to start

beginning Feb 2016

CSDPs & Members (Compulsory)

UAT – Cycle 2 Scheduled to start

end Mar 2016

CSDPs & Members (Compulsory)

54

Go-live communication

After a large portion of testing has been completed by affected parties a

narrower period for go-live will be announced

This is expected to be announced to the market in November 2015 - after

System Integration Testing (SIT) has started and good progress has been

made on the scheduled testing

The go-live dates will only be communicated after consultation with:

T+3 Market Steering committee

Clearing and Settlement Advisory Committee (CSAC)

The exact go-live date will be announced after first cycle of User

Acceptance Testing in 2016

55

May

Ap

r

Mar

System Integration Testing Graphical Overview (Dynamic Testing)

FUNCTIONAL / TECHNICAL EXECUTION

2015 2016

Dec

No

v

Oct

Sept

Au

g

Feb

Jan

Ref.

Data

Alignm

ent /

Backu

p

21 - 28

Aug

Cycle 1 Internal (Incl.

Migration) 31 Aug – 22

Sep

Cycle 1 External

(Incl. Migration) 22 Oct – 18

Nov

Cycle 2 External

(Incl. Migration)

19 Nov – 11 Dec

Cycle 3 External

(Excl. Migration) 11 Jan – 03

Feb

Final Benchmarking and reporting 03 Feb – 15 April

LIMITED

TESTING

(b

ased

on

availability)

14

DEC

– 06

JAN

STRATE

23-Sep

Cycle 2 Internal (Incl. Migration) 23 Sep – 21 Oct

System Performance Testing (SPT) 25 Aug – 20 Oct

Integrated Performance Testing (IPT) 25 Nov – 02 Feb

56

09

06

05

04

03

02

System Integration Testing Graphical Task Overview

Integration Testing Cycle 3 (Migration Testing)

November

28

27

26

23

22

30

29

17

16

13

12

11

10

18

October

Development, Support and Training

Revert to backup B 22 – 23 Oct

Communicate Test Scenarios covered in

the cycles to the market

26 – 27 Oct

Settlement Cycle 1 (old)




Settlement Cycle 1 (new)







Convert batch (BCX/JSE)

(Internal JSE action) 03 / 04 Nov

Testing Audit, Market Meeting and cycle 4

adjustments. 17 – 18 Nov

Bug Fixing / Retest 17 – 18 Nov

Perform Health Checks

26 - 27 Oct (CA Events) LDT 02 Nov

(4 events)

(CA Events) LDT = 05 Nov

(4 events)

(CA Events) LDT = 09 Nov

(4 events)

57

07

04

03

02

01

30

System Integration Testing Graphical Task Overview

Integration Testing Cycle 4 (Migration Testing)

December

25

24

23

20

19

27

26

11

10

09

08

November

14


Revert to backup B 19 – 20 Nov



23 – 24 Nov












(Internal JSE action) 01 / 02 Nov

Perform Health Checks 23 – 24 Nov

BDA Year-end

11 Dec

(CA Events) LDT = 01 Dec

(4 events)

(CA Events) LDT = 03 Dec

(4 events)

Dummy Public Holiday 02 Dec

Testing Audit, Market Meeting and cycle 5

adjustments. 10 – 11 Dec

58

27

26

25

22

21

20

System Integration Testing (cont.) Graphical Task Overview

Integration Testing cycle 5 (Migration Testing)

February

15

14

13

12

11

19

18

02

01

29

28

January

03


Revert to backup B 11 – 12 Jan



13 – 14 Jan













(Internal JSE action) 21 / 22 Feb

BDA Month-end 29 May

Perform Health Checks 13 – 14 Jan

(CA Events) LDT = 20 Jan

(4 events)


(4 events)


(4 events)

59

Entry and Exit Criteria System Integration Testing

Entry-Criteria

Market documentation reviewed and signed off

Agreed and signed off test packs

Internal and external stakeholders

Market Test Plan completed, reviewed and signed off

Data aligned across applications and all relevant backups are completed

Internal and external stakeholders

Infrastructure verification tests complete (including configuration and connectivity)

Applications and services are operational in the test environment across all applications – Participants to manage internally

No defects with severity of critical or high are open from previous phase

Deviation could occur under the following circumstances

The defect does not affect any key component within your application

The Project team in conjunction with the affected market participant agree to continue with state of defect

60

Entry and Exit Criteria System Integration Testing

Exit-Criteria

All test procedures for a cycle is successfully executed by each market participant

Test results recorded in the agreed test management tool – Participants to manage internally

Screen shots, printouts, actual result, etc. attached to the test case in the test management tool - Participants to manage

internally

Approval for all test cases that are not executed i.e. deferred or not applicable is

quality assured by the Test Manager

All defects with severity of critical and high is fixed and retested during the cycle

Cycle will be extended, if required, to meet the above – Will be agreed by the market

Agreed resolution of all medium and low severity defects

Pass rate is greater than equal to a specified percentage

Pass rate is measured across all applications involved in the cycle

61

T+3 Project


Agenda







62

T+3 Update Proposed training plan - brokers

• The following is the proposed plan for training – details will be confirmed in conjunction with

the T3 Marketing and Education Committee

• Timing - 2 training phases are envisioned:

• 1st phase in Jan / Feb 2016 for UAT participants and general market participants

• Structure:

• Entire programme lasts 6 hours - split into 2 modules (3 hours each)

• 2 x 3 hour sessions to be run each day (sessions will be alternated to give attendees flexibility)

• 5 total sessions to be run in the week - presentation style (auditorium)

• Planned training agenda:

1. Intro and T3 overview

2. T5 to T3 process changes

3. BDA changes demo

4. ECS changes demo

5. Elective Events (Corporate Actions)

6. Fails Management

7. Migration week - Process

63

T+3 Update User Readiness - Planned comms events (cont.)

• Educational Materials:

• Description: User guides / brochures / manuals explaining the move to T3 and additional concepts contained therein

• Frequency: Multiple drops – July to November

• Purpose: To enhance the knowledge of participants impacted by T3, to enable them to transition to the shorter settlement cycle

• Planned content:

1. T+3 Guide – JSE (Aug)

2. T+3 FAQs – JSE (Aug)

3. T+5 to T+3 process timelines – JSE (Aug)

4. Fails Management Process (to include roles

and responsibilities of SASLA & CSDPs) (Sep)

5. SLB Document – SASLA (Sep)

6. Corporate Actions Document – Strate (Sep)

7. Removal Process (Transfer Secs) – JSE (Sep)

8. SLB Tax Document – SASLA (Oct)

9. SLB Corporate Actions Document – SASLA (Oct)

10. Settlement Obligations Document – JSE (Oct)

11. Migration Document – JSE (OCT)

12. JSE & Strate Rules & Directives – JSE & Strate (Nov)

64

T+3 Update User Readiness - Planned comms events (cont.)

• Roadshows / Conferences:

• Description: External presentations to stakeholders (local and foreign) regarding the T3 project

• Frequency: Multiple sessions

• Purpose: To allow impacted stakeholders not based in JHB to attend T3-focussed presentations and engage with project staff

• Planned schedule:

• July 2015 - Namibian Stock Exchange visit

• August 2015 - Buy-side Roadshow (CT)

• November 2015 - Buy-side Visit (CT) / NEMA Africa (LDN) / JSE Roadshow event (LDN)

• February / March 2016 – potential UK/USA roadshow (TBC)

• March / April 2016 – CT visit

65

Current T+3 Committees

T+3 Market and Educational Committee

Purpose: to agree the approach and plan for all market-facing User Readiness activities

Current focus:

Review educational paraphernalia to be circulated to the market

Assist with setting up roadshows and meetings

T+3 Market Steering Committee

Purpose: to review market readiness and updates and agree any future steps

Project Managers

Purpose : to review milestones and updates

Test Managers

Purpose: agree and manage testing requirements

66

T+3 Project


Agenda







67

External risks and Issues

Risk Risk Description Mitigation Risk Factor

External

External unforeseen (black swan events)

Unforeseen major events – the length of the program, geo political, economic or JSE industry factors – could change the landscape and affect T+3 viability and delivery

• Monitor the external environment for changes • Incorporate outcomes from stress testing and group

economics analysis • Accept residual risk in the event that a black swan

happens. We may be forced to focus senior resources on the resolution of the black swan event instead of T+3

Unanticipated regulatory demand

Any unknown legislative or regulatory changes might dilute focus and compromise market commitment

• Continuous monitoring of legislative and regulatory developments and assessing impacts as and when they arise

• Deferring changes where possible if they impact the T+3 project

Perception that the global precedent is moving

Global markets are moving to T+2, while South Africa is currently only implementing a T+3 cycle

• Continue to reinforce the reason why agreement was reached on a target of T+3 with both the FSB and the market

• Ensure delivery to target timeline to avoid delays (and circumventing further pressure to move directly to T+2)

68

External risks and Issues

Risk Risk Description Mitigation Risk Factor

Market

Competing industry initiatives dilute focus and compromise market commitment

The JSE’s T+3 project is one of many concurrent industry initiatives. While the market has agreed to rank T+3 as the top priority industry initiative, they have warned that a delay in timelines will cause them to re-evaluate priorities and shift delivery focus to other projects.

• Ongoing engagement with market participants to ensure commitment. • High confidence planning to ensure on-time delivery

Market readiness / behavioral changes

There is a concern that the market and participants may not be ready for T+3 (i.e. brokers and fund managers have current processes based on T+5 and may not be prepared for T+3 processes) which will compromise go-live.

• User readiness activities include road shows, communication and educational documentation to be distributed to market participants. • Meetings are frequently being held with various stakeholders from the market to confirm progress on their systems and readiness in line with their planned schedules. • Extensive communication is underway to the market explaining the benefits of the move to T+3. • Early and regular engagement with clients during the course of the project. • Upfront consideration given to the technical impacts on clients.

Offshore market readiness

International investors that arbitrage trade in dual listed stocks on a T+2 cycle in the UK (and a T+5 cycle in SA) might not move shares between registers within the allocated time to meet the new settlement cycle requirements.

• Extensive communication and education about the move to T+3. • Work with transfer secretaries to identify and introduce more efficient processes for the removal of shares between markets. • Increase liquidity for securities lending and borrowing.

69

Questions

70

Broker Workgroup - Post Trade STP (Equities)

• Workgroup comprises Institutional Broker Members

• Initiated this 2015Q2, initially to tackle challenges faced by Brokers with 3rd Party vendors offering electronic confirmation /matching platforms to BuySide clients.

• Identified the need to review the evolving Equities Post Trade landscape in SA.

• Formalised monthly meetings, with adhoc/as needed sub project teams to tackle certain initiatives/challenges.

Background

• To establish best practice, guidelines and education of broker members, fund managers, vendors, JSE as regards current practice, challenges, current process of post trade confirmation between all market participants and critical success factors for T+3

• To engage with 3rd party Vendors, JSE, Investment Administrators, FundManager groups as a group with common purpose, to drive towards an efficient and cost effective post trade landscape within SA market for all participants

Objectives

• Assessing the current challenges faced by the broker members, with the view to socialise with Fund Managers, Investment Administrators and JSE to solution these existing challenges

• Regular engagement with 3rd Party Vendors (Omgeo, Bloomberg and Iriss)

Current Actions

• Engage with Fund Managers/Representatives in understanding their current challenges in the post trade environment

• Socialise amongst all market participants T+3 critical success factors. Next Actions

The move to T+3 Phase 3 - Johannesburg Stock …...5 T+3 Project Market Communication The aim of the...

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