CON­SCIOUS COM­PA­NIES DI­A­LOGUE

Guid­ing SA’s fi­nan­cial mar­kets to be the world’s best

The Star Early Edition - - BUSINESS REPORT - Philippa Larkin

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.

PHOTO: SUP­PLIED

Mon­ica Singer, the chief ex­ec­u­tive of Strate, has helped guide South Africa from one of the worst to be one of the best.

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