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Strate and Euroclear to address fund processing inefficiencies

11 September 2013 Strate and Euroclear

Strate and Euroclear have signed a Letter of Intent to explore a new approach to automate the processing of mutual fund (unit trust) transactions for South Africa. The initiative is strategically aimed at establishing a fully electronic environment for th

The current administrative processes associated with the South African mutual fund industry are fragmented, with no automated way to link cash payments with fund unit orders in a low-risk environment. Through the collaborative initiative with Euroclear, Strate are looking to work with the local industry to explore the implementation of an electronic and centrally hosted mutual fund settlement and custody platform for the South African market.

Strate and Euroclear will also investigate options to centralise recordkeeping as well as create added benefit by improving settlement and payment efficiencies.

Addressing these inefficiencies has the potential to save costs and diminish risk in the local fund market. The core element of the intended initiative is the provision of a platform where mutual fund transactions are processed on an automated basis from order routing to settlement and asset servicing. 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.

According to Monica Singer, Strate’s CEO, 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. We will investigate how Strate can improve this process, potentially centralising fund ownership registration and delivering a safer and more efficient means to enable our local fund industry to grow.”

“Strate, with the help of Euroclear, will determine the best way forward. Our next steps include engaging with local stakeholders to define the required functionalities as well as the timing for implementation,” says Singer.

Lieve Mostrey, Chief Technology and Services Officer of Euroclear, commented: “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.”

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