1 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services AMEDA LEADERSHIP FORUM PRESENTED BY: Anthony van Eden DATE: 28 th April 2009 Risk Management and Depository Services Interbank Money Markets and Payment Systems: A Two Way Relationship

2 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services Glossary of Terms and Acronyms Capital Event :Coupon or Maturity payments CSD:Central Securities Depository ETME:Electronic Trade Matching Engine ISIN:International Standard Identification Number ISO:International Standards Organisation JSE:JSE Limited – licensed stock exchange MM:Money Market MMCCR:MM Central Client Register MMSR:MM Securities Register MMPBPR:MM Participant & Business Partner Register MMSS:Money Market Securities System On-us:Settlement of counterparties intra-bank Participant:CSD Participant RTL:Real Time Line SARB:South African Reserve Bank SAMOS:South African Multi-Option Settlement System SFIDVP:Simultaneous Irrevocable Delivery versus Payment SOR:Securities Ownership register STP:Straight Through Processing SWIFT:Society for Worldwide Interbank Financial Telecommunications USD:United States Dollar ZAR:South African Rands

3 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services South African Money Market statistics; Background to the South African Money Market; Risk management through the deployment of infrastructure in MM - The South African Dematerialisation of MM Project; Other benefits associated with a dematerialised MM. Presentation Overview

4 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services South African Money Market Statistics Approximate Monthly Nominal Value (billions) (Extracted May 2008) ZARUSD (USD1=ZAR10) Primary Issues78,607,86 Secondary trades243,5024,35 Maturities85,98,59 Aggregate Value in Issue514,051,40 Average Nominal Trade Value35,003,50 Average Duration per Issue -100 days

5 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services Informal market– no exchange or Automated Trading Systems; Clearing and settlement unchanged since inception of MM; No formal Market Association; Bearer certificates; telephonic trading ; paper based settlement instructions; physical custody; manual recording of “ownership” and coupon calculations; no guaranteed SFIDvP; certificate splitting; physical delivery against Capital Events; Stringent exchange controls; Background to the South African Money Market

6 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services Securities Services Act; National Credit Act; Deposit Taking Institutions Act; Central Bank (SARB) responsible for monetary policy and supervision; Capital Adequacy Ratio: Required 9,75%; Actual 2008 between 12% - 14%; Liquid Asset Requirement - Banks can only use 50 % intra-day and 25% of collateral at SARB inter-day; Banking IT systems, processes and procedures robust and relatively advanced; Background to the South African Money Market (continued)

7 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services Risk Reduction: OOperational; CCredit; SSettlement; SSystemic; and RReputational. Risk Management Through the Deployment of Infrastructure in Money Markets

8 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services Strate’s Money Market Securities System – Phase 1

9 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services MMS MMPBPRMMCCR MMSR ETME Bulk Matching Bilateral Bulk Trade Allocation SOR MFA JSE (NNA) Traders Settling Bank CLIENTS Settling Banks SAMOS RTL 9A Optional B Message Router A FULL Participant Trader Custodian Issuer Agent Corporate Participant 1 Issuers Custodian Issuer Agent Trader Information Flows: A - Client Maintenance2 - ISIN Issue4 - Trade Reporting6 - Allegement8 - Payment Request10 - Payment Advice12 - SFIDVP 1 - ISIN Request3 – Amend Issue5 - Trade Matching7 - Commit9 – Payment Instruction11 – Settlement Confirmation13 – Status Confirmation A A Cash Movement… A 5 2 A Ref Nos Optional 3 High Level Interaction Issuer

10 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services Accurate and complete recording  End to end STP – from ISIN issue to Maturity;  Standardised electronic communication with MMSS – ISO message types;  All MM securities will be:- standardised into four generic categories; allocated an ISIN real-time via the CSD; issued, traded and settled electronically;  Use of unique identifiers - Participants, Business Partners, investors, security issuing, SOR Securities Accounts, trade matching, clearing and settlements trades and Capital Events;  Electronic Trade Matching Engine (“ETME”) – post trade/pre-settlement validation trade information; Reduction of Operational risk

11 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services Accurate and complete recording (continued)  Any change in beneficial ownership must be reported to ETME;  Trade details cannot be modified or cancelled once matched;  Carries, Repurchase Agreements (Repos) and Reverse Repos treated as Sale and Buy Back transactions –change in beneficial ownership of Securities;  Both legs to Buy Backs reported simultaneously - all four legs must match;  Amendment to 2 nd leg of Buy Back reported by both counterparties to ETME for matching;  ETME warns trading party where counterparty leg match not made within Market agreed time interval;  Standardised generic settlement procedures for trades and Capital Events; Reduction of Operational risk (continued)

12 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services Security  Securities issued into and retained in electronic format in the SOR in CSD;  SOR legally regarded as record of definitive ownership;  Communication with MMSS via SWIFT or Strate WAN – reliable, secure and robust;  Use of unique identifiers for Participants and Business Partners linked to roles in the MMSS;  Transfer of ownership based on SFIDvP;  Capital Events paid to entitled investors’ Participants in total for dissemination.via accounting entry.  Existing secure and proven inter-bank settlement systems via SARB SAMOS RTL using ISO messages over SWIFT infrastructure; Reduction of Operational risk (continued)

13 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services Carries; Repurchase and Reverse Repurchase Agreements treated as change in beneficial ownership i.e. Buy Backs; All four legs to Buy Backs reported MUST matched for settlement of 1 st leg; Amendment to 2 nd leg of Buy Back reported to ETME; Matched bulk trades cleared and settlement instructions processed on a gross principal-to- principal basis; Participants have access to real time records of client Securities accounts. Participants commit to delivery of securities/settlement for client’s matched trades “Against” and “Free” of Payment; Reduction of Settlement Risk

14 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services Payment instructions only sent to Participant by CSD once commitments for delivery and settlement matched by MMSS; Securities committed to delivery “reserved/locked” in SOR Securities Account pending confirmation of final and irrevocable settlement; Pledged securities reserved/locked in SOR Securities Account until Pledge Release instructions received or security matures; Participants notified immediately by CSD when insufficient securities for delivery ; Trade settlement only fails at close of SARB settlement windows; Reduction of Settlement Risk (continued)

15 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services Settlement status messages sent by MMSS to Participants which can also query on-line, real- time ; “Real-time” settlement in Central Bank funds (SAMOS RTL) or intra-bank (“on-us”;) for trades and Capital Events; Existing secure and proven inter-bank settlement systems via SARB SAMOS RTL using ISO messages over SWIFT infrastructure;; Transfer of securities simultaneous with confirmation “Final and Irrevocable” settlement in Central bank Funds or “on us.” Capital Events settled electronically on payment date; Standardised generic settlement procedures for trades and Capital Events; Reduction of Settlement Risk (continued)

16 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services Participants have to commit to cash settlement before securities are reserved/locked; Use of SARB SAMOS RTL:-  Final and irrevocable settlement;  Real time availability of funds on settlement date;  Facilitates more efficient and accurate credit management – cash flow forecasting; SARB has real time statistics of compliance with Liquid Asset Requirements; Reduction of Credit Risk

17 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services Bulk trades cleared and settled on Gross principal to principal settlement – avoid one “fail all fail;” Participants have ability to electronically freeze Securities Accounts of its clients; Curator appointed by the SARB has the ability to place freeze over all of a banks Securities Accounts. SARB has real time statistics of compliance with Liquid Asset Requirements; Reduction in Systemic risk

18 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services Combating Money Laundering  Ownership maintained in CSD at beneficial owner level in SOR;  Only foreign companies can open Nominee accounts in SOR;  SOR legally regarded as the “definitive record of ownership.” Settlement excellence  Achieved through risk mitigation outlined above. Reduction in Reputation risk

19 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services Improvement in Liquidity  More timely settlement of trades and Capital Events via SAMOS RTL should increase activity in the secondary market; Enhanced STP  Commensurate Cost savings associated with paper driven issuing, recording, custody and settlements. Other Benefits Associated with a Dematerialised MM

20 AMEDA Leadership Forum – Alexandria, Egypt, 27 th -30 th April 2009 Risk Management and Depository Services THANK YOU