Strate has eliminated the problems that were encountered in settling American Depository Receipts (ADRs) during the paper settlement era, says James Green, The Bank of New York's head of European ADR broker and institutional marketing.
ADRs represent shares of foreign companies traded in US dollars on US stock exchanges. Corporations outside of the US use ADRs to allow US citizens to invest easily in their stocks. Technically, they are tradable receipts for shares on deposit at a bank.
"Prior to the introduction of Strate, South African settlement of ADRs was slow, unreliable and, therefore, risky," he said at the Strate conference in Johannesburg yesterday.
"Difficulties were experienced in breaking up jumbo certificates, while a special procedure was required for processing corporate events. Most frustrating was the non-occurrence of equity settlement on the specified settlement date. As much as 25% of deliveries were late."
Green said The Bank of New York had been involved in South African depository receipts for the past 30 years and was therefore in a good position to assess the huge improvement that Strate had brought to the settlement process.
"Importantly for SA, Strate's impact on global investors has been immensely positive," he added.
"Control of settlement and operational risk is crucial for the Depository Bank since depository receipt business is based on local market efficiency and integrity.
"In these spheres, Strate has made our job simpler and safer, in the process encouraging more companies to take the ADR route."
He said 67% of the JSE's index constituents were represented by depository receipt programmes.
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