The move to T+3 Phase 3 Post-Trade and Information Services Agenda - - PowerPoint PPT Presentation

The move to T+3 Phase 3

Post-Trade and Information Services

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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

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

4

The aim of the T+3 project

The primary aim

• f the T+3

project is to shorten the settlement cycle for equities from 5 to 3 days

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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

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Project Rationale

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.’

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

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Project Rationale (cont.)

Why is a shorter settlement cycle relevant?

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)

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Project Rationale (cont.)

• 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?

Source: BCG (Oct 2012)

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Project Impacts

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?

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Project Impacts (cont.)

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?

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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

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Overview of the T+3 timeline Overall programme status

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

Phase 1 – Regulatory and Automation Phase 2 – ECS go-live on T+5 Settlement Cycle Phase 3 – Market on T3 settlement cycle

May to July 2016 ready for go-live

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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

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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

SIT Cycle 2 Internal 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 CSDP’s ready for integration Aug – September 3 CSDP’s ready for integration end October 1 CSDP ready for integration February UAT Cycle 2

User Training Refresher Training

Ready for go-live May – July 2016

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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

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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

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T+3 settlement cycle – old view

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

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T+3 settlement cycle – new view

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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 - 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)

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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

On-market activities current versus future (cont.)

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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+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)

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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 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)

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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 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)

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Mandatory Events Corporate Actions

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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

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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

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Elective Event Corporate Action cycle

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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

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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

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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

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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

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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

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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

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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

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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.

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Flows Fails Management Rolling of Settlement

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 100 AAA R500(598-113) 100 AAA (3) R1,000 (598-113) R500 Compulsory Reverse Substitution 100 AAA R1,000 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) Non-Controlled Client Acct Client A Non-Controlled Client Acct Client B Reverse Subs Acct Broker C ROS suspense Acct Broker D

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Flows Fails Management Rolling of Settlement

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 S P 100 AAA R500 (2) S P S P 100 AAA R500 100 AAA 100 AAA R500 100 AAA R1,000 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) 100 AAA (1) R1,000 (598-113) 100 AAA (1) R1,000 (598-113) Non-Controlled Client Acct Client A Non-Controlled Client Acct Client B Reverse Subs Acct Broker C ROS suspense Acct Broker D

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Flows Fails Management Retransaction

S S 100 AAA R1,000 BDA to cancel original Contract Note 100 AAA (1) R1,000 (598-122) Non-Controlled Client Acct Client B 100 AAA (3) R1,000(598-113) 100 AAA (2) R1,000 (598-113) 100 AAA R500 S 100 AAA R500 100 AAA R500(598-113) 100 AAA (3) R1,000 (598-113) R500 Compulsory Reverse Substitution Non-Controlled Client Acct Client A Reverse Subs Acct Broker C Failed Trade Suspense Acct Broker D P P 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 P P S

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Flows Fails Management Retransaction

S P 100 AAA R500 (2) 100 AAA R500 Non-Controlled Client Acct Client A S P 100 AAA R500 100 AAA R1,000 R500 Reverse Subs Acct Broker C R500 S P 100 AAA R1,000 100 AAA R1,000 100 AAA (1) R1,000 (598-113) CLAIM LOSS/PROFIT Non-Controlled Client Acct Client B BDA to issue new Contract note for new Settlement date S 100 AAA R1,000 Re-transaction 100 AAA (1) R1,000 (598-113) 100 AAA R1,000 100 AAA R1,500 Failed Trade Suspense Acct Broker D 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

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Flows Fails Management Compensation

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

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• 1. Release margin to Broker A once compensations has settled

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Margin under T+3

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

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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

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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-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 Percentage Date

Average Monthly Commits Non-controlled Clients

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

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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.

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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.

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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

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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

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Functionality provided in previous phases

• 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

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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

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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

52

T+3 Update Timeline review and overall progress update

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)

SIT – Cycle 4

Scheduled to start mid Nov 2015

CSDPs (Compulsory)

SIT – Cycle 5

Scheduled to start 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)

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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

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System Integration Testing

Graphical Overview (Dynamic Testing)

May Apr Mar

FUNCTIONAL / TECHNICAL EXECUTION

2015 2016

Dec Nov Oct Sept Aug 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 (based 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

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System Integration Testing

Graphical Task Overview

57

System Integration Testing

Graphical Task Overview

58

System Integration Testing (cont.)

Graphical Task Overview

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

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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

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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

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

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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)

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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

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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

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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

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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)

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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.

Questions?

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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
• ffering 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