STP with a drive to T+3 Brett Kotze, General Manager Johannesburg Stock Exchange Limited

Copyright© JSE Limited G30 Recommendation Recommendation 2 Harmonise messaging standards and communication protocols Recommendation 3 Develop and implement reference data standards Recommendation 5 Automate and standardise institutional trade matching STP AND THE DRIVE FOR T+3 10 MARCH 2006

Copyright© JSE Limited G30 Recommendation (cont) Recommendation 8 Automate and standardise asset servicing processes, including corporate actions, tax relief arrangements and restrictions on foreign ownership STP AND THE DRIVE FOR T+3 10 MARCH 2006

Copyright© JSE Limited G30 Recommendation (cont) What is the driving focus of these G30 Recommendations Globalisation (common standards) Automation between entities Level playing fields – Standards and Legal STP AND THE DRIVE FOR T+3 10 MARCH 2006

Copyright© JSE Limited GLOBAL PERSPECTIVE In 2002, the US Securities Industry Association (SIA), announced that was moving away from a focus of T+1 to a broader objective of achieving industry-wide STP In November 2002, GSTPA was forced into liquidation, shortly after go-live of its Trade Matching Platform (many believe that this was because of the removal of the T+1 mandate) In November 2004, SIA reaffirmed its view that the focus should be on STP and not T+1 STP AND THE DRIVE FOR T+3 10 MARCH 2006

Copyright© JSE Limited GLOBAL PERSPECTIVE (Cont) STP AND THE DRIVE FOR T+3 10 MARCH 2006 “STP is not just a buzzword, but a vital reality in the way the securities industry must operate going forward” Industry Standardization for Institutional Trade Communications (ISITC) Charter “T+1 conversion requires a radical rethink of today’s entire trading environment” Diane Schueneman, Merrill Lynch “The demand for STP solutions will be monumental” The Tower Group “STP is so important that investment spending will match that of Y2K” Marshall Carter, State Street “Global STP investments will save billions by reducing fails” Arthur Barton, Clay Finley “STP must go far to include a wide array of complex transactions before we can enter a new period of growth and service innovation” Dick Taggert, Chase Manhattan

Copyright© JSE Limited GLOBAL PERSPECTIVE (cont) STP AND THE DRIVE FOR T+3 10 MARCH 2006 “ I believe that achieving T+1 and straight-through processing is critical to the continued success of our markets. … I urge you to focus closely and promptly on what changes your firm must make to prepare for T+1 and to dedicate the resources necessary for this effort.” Arthur Levitt, SEC Chairman, February 2001 “We need to embrace state-of-the-art technology to remain in the premier league of world financial centers. The reforms of our securities and futures markets are substantial and their implication far-reaching.” The Financial Security of Hong Kong, March 1999

Copyright© JSE Limited THE DEFINITION OF STP (SOUTH AFRICA) Automated activities from beginning to end that is, from order placement through to confirmation of the recording of cash received on cash account and the recording of the securities received in the safe custody account. Includes machine to machine and organisation to organisation. Information interchange (STP forum, September 2003) STP AND THE DRIVE FOR T+3 10 MARCH 2006

Copyright© JSE Limited STP IN THE SOUTH AFRICAN CONTEXT STP has been broken down to the following elements STP AND THE DRIVE FOR T+3 10 MARCH 2006 ProcessSub-Process Electronic Trade Initiation (ETI) Indication of interest Order placement / amendment / cancellation Notification of execution Allocations Electronic Trade Confirmation (ETC) Contract Notes Trade affirmation Electronic Trade Settlement (ETS) Settlement instructions Allegement Status intimations Commitment Settlement (DvP) Securities lending and Borrowing Corporate Actions

Copyright© JSE Limited STP BENEFITS WHAT ARE THE BENEFITS OF STP? Reduction of risk Better risk management Reduction of costs One common language recognised by all Better utilisation of resources Simplication of operations Reduction of settlement cycles Enhanced liquidity STP AND THE DRIVE FOR T+3 10 MARCH 2006

Copyright© JSE Limited WHAT WILL LIMIT STP Industry-wide STP requires a high degree of coordination across all participants at all levels from technology to business operations to reference data. In many cases, participants have different focuses and priorities. STP is not simply about automation of existing processes, but about business process re-engineering. Existing IT investments have, in many cases, not been made with interoperability within and between market participants’ systems in mind – a move to STP in some cases necessitates investment in new front, middle and back-office systems or the building of middleware to interact between systems and participants. STP AND THE DRIVE FOR T+3 10 MARCH 2006

Copyright© JSE Limited SETTLEMENT CYCLES IN SOUTH AFRICA BONDS T+3 (looking to shorten cycle to T+1) EQUITIES T+5 FOREIGN EXCHANGE T+2 STP AND THE DRIVE FOR T+3 10 MARCH 2006

Copyright© JSE Limited SETTLEMENT CYCLES IN SOUTH AFRICA (cont) DERIVATIVES T+0 WHAT IS THE RIGHT SETTLEMENT CYCLE FOR THE SOUTH AFRICAN MARKET T+5 ? T+4 ? T+3 ? STP AND THE DRIVE FOR T+3 10 MARCH 2006

Copyright© JSE Limited T+3 FOR EQUITIES? The focus has to be on internal and external automation. Once we (G30 Recommendations) as a market are fully automated we could go to any settlement cycle. Let the automation drive the settlement cycle and not the settlement cycle drive the automation. Technology is an enabler. The JSE’s focus is to encourage the market to automate as much as possible and to facilitate automation through the use of their systems and networks. This has to be a market initiative. It cannot be driven by one entity. STP AND THE DRIVE FOR T+3 10 MARCH 2006

Copyright© JSE Limited STUMBLING BLOCKS FOR T+3 The market has highlighted the following hurdles which have to be addressed before we go to T+3 for Equities: End-to-end system integration Securities Lending and Borrowing Corporate Actions Cross border transactions and settlement cycles STP AND THE DRIVE FOR T+3 10 MARCH 2006

Copyright© JSE Limited 2005 STP AND THE DRIVE FOR T+3 10 MARCH 2006

Copyright© JSE Limited 2005 STP AND THE DRIVE FOR T+3 10 MARCH T+1T+2T+5T+4T+3T Deal Execution Deal Allocation Contract Note Client Affirmation to CSDP or Client Rejection to Broker Broker Re-Allocation Client Affirmation on Re-Allocation CSDP Commitment Broker Borrowing SA Margining CSDP Commit SA Borrowing Settlement Broker Net Non-Controlled Client Breach Principal Assumption Deemed Affirmation Client / Broker Failed Trade Settlement Order Near Real Time

Copyright© JSE Limited 2005 BROKER STP AND THE DRIVE FOR T+3 10 MARCH 2006 SAA FRI MESSAGE BROKER Fund Manager SWIFTNET AFFIRMATIONS CONTRACT NOTE AFFIRMATIONS CONTRACT NOTES AFFIRMATIONS CONTRACT NOTES AFFIRMATIONS CONTRACT NOTE API/FTP

Copyright© JSE Limited 2005 BROKER STP AND THE DRIVE FOR T+3 10 MARCH 2006 STP LISTENER FRI MESSAGE BROKER Fund Manager HERMES VPN AFFIRMATIONS CONTRACT NOTE AFFIRMATIONS CONTRACT NOTES AFFIRMATIONS CONTRACT NOTES AFFIRMATIONS CONTRACT NOTE API/FTP

Copyright© JSE Limited 2005 STP AND THE DRIVE FOR T+3 10 MARCH 2006 QUESTIONS & ANSWERS Copyright© JSE Limited

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