“As we begin a new partnership with Strate, the South African market can be sure that the primary objective of our collaboration is to deliver greater operational efficiencies while reducing risk,” said Lieve Mostrey, Chief Technology and Services Officer of the world’s largest domestic and cross border settlements company, Euroclear, in a press release on Monday.
Strate, South Africa’s licensed Central Securities Depository (CSD), stated that the initiative is strategically aimed at establishing a fully electronic environment for the industry and investors in local funds.
According to Strate, the current administrative process associated with the South African mutual fund industry is fragmented as there is no automated way to link cash payments with fund unit orders in a low risk environment.
“There are inefficiencies and risks at present in the mutual fund industry. The fund unit and cash components of mutual fund subscriptions and redemptions in the South African market are credited or debited several days after cash has been received for settlement,” explained Monica Singer, Chief Executive Officer of Strate.
She proposed that Strate and Euroclear would be exploring a process that could potentially centralise fund ownership registrations as well as deliver a safer and more efficient means to grow the South Africa’s local fund industry.
A platform would therefore have to be established where mutual fund transactions are processed on an automated bases from order routing to settlement and asset servicing.
According to the statement, this end-to-end solution would be sufficiently robust and resilient to serve as an infrastructure for both domestic and international market participants, with settlement conducted in central bank money for South African investors.
“We look forward to working with Strate on this initiative for South Africa. Sharing our decades of experience in fund processing for domestic and cross-border transactions with Strate and its clients is an efficient and cost-effective way to add value to an important emerging fund market.” said Mostrey.
The South African mutual fund industry is currently valued around 1.3 trillion rand and comprises of 42 fund management companies with over 1,200 active funds.