Granite looks to chisel into Strate market

A COMPETITOR to Strate, called Granite, has been licensed to act as a central securities depository (CSD) by the Financial Services Board.

“We have a licence to facilitate the deposit of uncertificated securities and to offer settlements and custody for uncertified securities. Our licence mandate is for bonds and money market instruments,” Granite CEO Leon Rossouw said yesterday.

“For now we are going to do bonds and later we will be in a position to do money market instruments.”

Mr Rossouw said that with the emergence of applicants for exchange licences to compete against the JSE, it made sense to add equities products to its CSD licence in the near future.

The plan is to be operational in the first quarter of next year.

Mr Rossouw said Granite had identified shortcomings in the bond settlement process. Granite aimed to introduce more settlement windows to avoid congestion at the liquidity desks of the settlement banks.

The settlement window is the time when delivery on payment takes place and value is exchanged in the form of cash for securities.

If a buyer of securities misses the last window the trade will probably fail to settle and will be rolled over to the next business day for settlement.

“Our intention is to have more frequent settlement windows, hourly if possible, and our intention is to keep the CSD system open until 6pm,” Mr Rossouw said.

Granite said it was introducing a more inclusive ownership model than Strate, which is owned by the JSE and the big four banks.

Granite intends inviting a number of local and international banks, black economic empowerment companies, asset managers, dealer brokers and listed companies to take an equity stake in the business. The company is privately owned.

Strate, SA’s sole CSD, said it welcomed the arrival of a competitor.

Strate CEO Monica Singer said the company had played a significant role in achieving the international ratings applied to the South African securities market and this had helped to make the market an attractive international investment destination.

Ms Singer said it was important these ratings were not jeopardised should a new entrant be unable to operate at the equivalent level.

On the issue of Granite beating Strate on costs she said: “Pricing reflects the level of the products and services offered and should be compared on a like-for-like basis. Strate is unable to comment on Granite’s pricing model.

“Strate has a strong, existing client base who have been using Strate’s services for many years. Their continued support is, we believe, based on the quality and value of the service and the risk mitigation that we offer.”

It is expected that Granite’s arrival will reduce after-trade costs such as custody and settlement fees.

Should the costs come down it is hoped institutions such as pension fund managers will pass on the cuts to the consumer.