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STRATE: Essential Shareholder FactsWhat is STRATE?STRATE is the approved Central Securities Depository (CSD) for equities in South Africa in terms of the Custody and Administration of Securities Act (1992). STRATE is also an electronic settlement system which is changing the face of the South African securities industry. STRATE achieves secure, electronic settlement of share transactions on the JSE and for off-market trades. The STRATE initiative is facilitated by the submission of share certificates to a custodian bank or qualifying stockbroker for conversion into an electronic record. This process is referred to as 'dematerialisation'. Why the need for STRATE?The successful introduction of the Johannesburg Equity Trading (JET) system highlighted the deficiencies in the JSE's paper-based settlement system. The demise of the open outcry floor in favour of the screen-based JET system has contributed to a massive leap in turnover and back-office support services are incapable of handling this increase in daily transactions efficiently in a paper-based environment. The JSE presently languishes at the bottom of the ratings of settlement risk amongst emerging markets and labours under the burden of this image at an international level. The transition to an efficient settlement system will undoubtedly increase market activity and will certainly improve the international perception of the South African market by reducing settlement and operational risk in the market, increasing efficiency and ultimately reducing costs. As a result, by heightening investor appeal, STRATE will allow South Africa to compete effectively with other international markets, and not just those of emerging countries. STRATE answers on the Dematerialisation ProcessWhat is dematerialisation? Dematerialisation is simply a technical term referring to the process whereby paper share certificates are replaced with electronic records of ownership. Investors will need to hand in their certificates which will then be sent to the relevant transfer secretary for validation. Once the authenticity of the certificate has been verified, the actual conversion process begins. For all intents and purposes, once you have submitted your share certificate for conversion to an electronic record, it ceases to exist in physical form. To whom must I submit my share certificates for conversion to an electronic record of ownership? Investors may hand their share certificates in to either a CSDP or qualifying stockbroker for conversion into an electronic record. What is a CSDP? CSDP stands for Central Securities Depository Participant. STRATE Ltd. is South Africa's Central Securities Depository (CSD) for equities and the CSDPs are the only market players who can liaise directly with STRATE. In order to qualify for this status, they had to fulfil the entry criteria set out by STRATE and approved by the Financial Services Board. These are the contact details of the current CSDPs:
What is a qualifying stockbroker? The JSE recently established a set of criteria with which its member firms will have to comply in order to be eligible to hold nominee registers in the STRATE environment. These entry criteria include issues such as internal controls and capital adequacy requirements. This should give investors the peace of mind that the JSE member firms holding their assets are indeed viable financial institutions. You will notice that we refer to the JSE member firms by the more colloquial term 'stockbrokers' during the course of this document. When must I deposit my share certificates into the STRATE environment? 23 April 2001 is the date as of which Italtile investors should submit their paper certificates to their selected CSDP or qualifying stockbroker for validation and ultimate conversion into an electronic record. Will all listed companies move to STRATE at the same time? No, a schedule has been compiled and circulated to all listed companies. After testing the system with selected stocks in 1999 and 2000, STRATE will start transferring other listed companies to the electronic environment in March 2001 and will continue steadily until December 2001 - by which time STRATE aspires to have the JSE transactions of all listed shares settling electronically. Can I hand in the certificates of all my different holdings at once? Yes, you may submit all your certificates at once to your selected CSDP or qualifying stockbroker. However, your selected agent will charge you a safe custody fee. This is because he will have to keep your certificates in safe custody until such time as the company in which you hold shares moves into the STRATE environment. Only then can your agent submit your certificates to the relevant transfer secretary for validation and transfer to STRATE. What evidence will I receive of having submitted my certificates to a CSDP or qualifying stockbroker? When you submit your certificates to your CSDP or qualifying stockbroker, you will receive a receipt as proof of ownership. Once the certificates have been deposited into the STRATE environment in electronic form, you will start to receive regular statements on your share account. How long will the conversion process take? The conversion into an electronic record generally takes a few days. However, depending on the volume of certificates due to be processed by the transfer secretary, it may take up to ten days. It is also worth remembering that if your certificates were not suitably registered in the first place, a delay may be caused. Can I trade during those few days it takes for my share certificates to be converted? While your shares are undergoing conversion into an electronic record, you will be unable to sell them. This is why it is advisable to submit your shares to your CSDP / qualifying stockbroker on or as soon as possible after the designated start date to avoid any future trading delays. What are the options open to me regarding the selection of an agent - CSDP / qualifying stockbroker - to settle on my behalf in the STRATE environment Under the STRATE system, there are essentially two types of clients: controlled and non-controlled. A controlled stockbroker client is one who elects to keep his shares and cash in the custody of his qualifying stockbroker and therefore indirectly the stockbroker's chosen CSDP. Owing to the fact that CSDPs are the only market players who liaise directly with STRATE, all qualifying stockbrokers must have accounts with CSDPs and communicate electronically with them using an international network called S.W.I.F.T (Society for Worldwide Inter-bank Financial Telecommunications). A controlled client deals directly and exclusively with his stockbroker and his regular share statement comes from his stockbroker. For those who already have a relationship with a qualifying stockbroker, it is recommended that you verify whether your client mandate has been updated in order to render it valid for settlement in the STRATE environment. A non-controlled stockbroker client is one who appoints his own CSDP to act on his behalf. The investor surrenders his certificates and opens an account with his selected CSDP while dealing with his stockbroker only when he wants to trade. He would have to provide his stockbroker with the details of his share account at the CSDP when trading. A non-controlled client receives his share statements directly from his CSDP. Must I complete an application form / contract with my selected agent? Once you have decided which category of client you would like to be in, you should approach your selected CSDP or qualifying stockbroker. You will be required to complete a client mandate which will allow you to define more closely the kind of relationship you elect to conduct with your agent. When opening your account, the CSDP or qualifying stockbroker will capture all share information as well as any pertinent personal details into digital format within STRATE Ltd., the CSD. How do I ensure that my agent does not take full control over my portfolio? It is advisable to define - by means of your mandate - the level of control your CSDP / qualifying stockbroker has over your portfolio. Certain shareholders may wish to empower their agents to trade, make corporate action decisions etc. on their behalf. This is known as discretionary control. Other shareholders may elect to remain in complete control of their portfolio. They would be classified as non-discretionary clients. Issues such as these should be discussed with your CSDP / stockbroker and recorded in your mandate. Will I still be able to register my shares in my own name or will my selected agent insist on registering my shares in his nominee name? Qualifying stockbrokers are obliged to register clients' shares in their nominee name. Of the CSDPs, only Mercantile Bank has thus far announced that they will offer 'own-name registration'. All other CSDPs have indicated that they will register your shares in their nominee name. If my agent registers my holdings in a nominee name, will I cease to receive information from the companies in which I hold shares? The revised JSE listing requirements dictate that Issuers are obliged to distribute company information to all beneficial shareholders who wish to receive it, irrespective of how their shares are registered. As such, there will be a designated field on the mandate you sign with your qualifying stockbroker or CSDP which gives you the option to elect to receive such information from the company. So, if you would like to receive annual reports etc., it is imperative that you indicate this preference on your mandate. How will I receive my dividends under the new system? Dividends will be transferred electronically into your CSDP / qualifying stockbroker account on the due date. The Dispossessed Members' FundTainted scrip is an inherent problem in a paper-based settlement world. It typically arises when genuine share certificates are lost or stolen and subsequently negotiated with a forged transfer document. A dispossessed member is therefore a person who holds a genuine share certificate and claims the right to the securities indicated on it, but who is no longer reflected in the register of members as the owner of these securities. Instead, the subsequent holder, who holds tainted scrip, evidencing title to the same securities to which the dispossessed member lays claim, has already converted the shares into an electronic record within the STRATE system. Although under the electronic STRATE system, tainted scrip will be eliminated, certain shareholders may be told at the point of dematerialisation that the shares to which they lay claim have already been converted into electronic form. STRATE has taken the responsibility of preparing the market to deal with this potential problem: these dispossessed shareholders will need to be compensated for the failure of the market players to ensure the safe maintenance of their legal title in the paper-based environment. The solution comes in the form of a Fund whose objective it is to provide quick, efficient compensation to bona fide dispossessed members in a dematerialised environment. STRATE has called upon all parties due to benefit from the elimination of tainted scrip in the market to contribute to the Fund. As such, Issuers, CSDPs, qualifying stockbrokers and Investors will all contribute to the Fund in proportions agreed to in principle. It is STRATE's intention to ensure that the electronic register remains sacrosanct and STRATE therefore encourages dispossessed shareholders to seek recourse in terms of the Dispossessed Members' Fund instead of seeking rectification of the register in terms of s115 of the Companies Act (1973). Should you have any queries regarding STRATE, please do not hesitate to contact Alma Claassen at the STRATE Liaison Desk: Tollfree Infoline: 0800 004 727
or visit STRATE's new website at www.strate.co.za For information regarding Italtile Limited, contact:
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