Guiding SA’s financial markets to be the world’s best
PHILIPPA Larkin (PL), the business content editor for Independent News & Media, with Business Report, interviews Monica Singer (MS), the chief executive of Strate.
History Strate, as a South African Central Securities Depository, is licensed to be an independent provider of post-trade products and services for the financial markets.
Singer set up Strate in 1998 and back then had the unenviable task of getting JSE-listed companies and top executives to buy into electronic clearance. At the time the JSE operated on a paper-based settlement system.
Singer met heavy resistance and came under personal attack trying to get companies on to the electronics settlement system as people were used to “shuffling paper”.
Harmony Gold Mine had the insight to become the first company to make the bold move and Strate went live in 1999, according to Singer.
“Harmony goes Strate,” said a Business Report poster, which Singer says she took from a tree and framed.
Then everyone chickened out with Y2K in 2000, she said. The JSE was doing 4 000 trades a day and needed this to happen. Strate now handles 300 000 equity on market trades in any one day.
Strate then scheduled listed companies to come on board and it was non-negotiable.
Strate since then has grown to provide electronic clearing, settlement and depository services for all listed companies on the JSE as well as for bonds and money market instruments.
Singer played a pivotal role in guiding South Africa as one of the worst financial markets to one of the global top markets.
Strate also services new exchanges, ZAR X and 4 Africa Exchange (4AX).
Q&A: PL: At the moment South Africa is in a technical recession. Has this effected Strate? The JSE has just had to retrench people.
MS: For us people come first, so the last thing that I will allow is to retrench people. I have managed the finances in a very conservative way. That is why we are profitable and we have a lot of cash. Yes, we are subjected to the levels and volumes in the stock market, so when stock market volumes come down we settle less, therefore, we earn less.
But we have a very good buffer, because our expenses are under control. What we did knowing that the volumes are not good in the next six months.
I took the forecast for the next six months and cut all discretionary spending. All the entertainment and travelling. Now the books balance, meaning we will make the same return we expected. But the last thing I will ever consider as chief executive of this company is retrenchment.
PL: When did you notice the volumes going down?
MS: From the beginning of the year. You compare budget revenue with actual and already January was a discrepancy, which was weird, because every other year, even during the financial crisis in 2008, our projected revenue was always lower than actual.
The good news is that January was a terrible month, but we budgeted very conservatively, because our revenue in the last six months balances off. We are now balancing actual to budget.
The reason why we had to be conservative with our forecast was that we were a little bit concerned if the JSE felt so drastically (as in retrenchments), maybe they can see less turnover coming through.
The one thing you have to be aware of is that Strate settles for all the new exchanges too, even though the JSE may face strong competition from 4AX, for us it is not competition, it is an opportunity. Every new exchange that is able to get a licence for us it is new revenue sources. Truth be told, 80 percent of our revenue comes from one source, which is the settlement of equity transactions. The volumes of equities and transactions effects Strate. What has kept us very strong financially is that the buffer between revenue and expense is big and we can absorb a lot of reduction in volumes, because we are conservative. For example when the JSE moved office, they left all their furniture. I bought the secondhand furniture for Strate.
PL: You mention that you expect the volumes to be lower for the next six months, is that after the rating agencies lowered South Africa to junk status?
MS: Definitely that, but also banks are warning us of a further downgrade. If that is the expectation for the end of the year, you know the time of the lean and the fat cows. We are in the time of the lean cow period.
PL: T+3 was introduced last year and have you noticed a difference in trading volumes? (South Africa’s financial markets took a major step forward with the launch of a shorter three-day settlement cycle, known as T+3)
MS: It is difficult to say with political risks with the political risks we have been facing.This has effected stocks and trading.
PL: Monica, you recently won the company category of the Conscious Company Awards. What makes Strate a conscious company?
MS: We are aware of our inter-dependency. We are not an island. My motto is people first. Not only my staff, but my clients, my suppliers everybody that makes people. In our (Strate’s) reason for existence, we have a clear why. We were created knowing that we were making a difference in our financial markets.
At the World Economic Forum, every year an international company comes and says we are doing a great job. We have an obligation to do more. The only pressure we have is to take the risk out of the market, increase revenue and diversify into new products. The drive is not to make profit. We have to make sure the “jaws” don’t close. For us this is the guiding light, the difference between the revenue line and expenditure. If they close you are in trouble.