Page 19 - PROJECT KHOKHA 2

Figure 5: Overview of debentures life cycle linked to relevant market infrastructures
THE CURRENT DEBENTURES OPERATING ENVIRONMENT
The debentures life cycle
The SARB debentures are auctioned off by the SARB’s FMD every Wednesday, should there
be a need to drain liquidity from the market. The treasury functions of eligible commercial banks as well as asset managers who have signed global master repurchase agreements with the SARB place bids in terms of volume, maturity term and interest rate during a bidding period, after which FMD allocates the volume
of debentures that they choose to sell into the market to the best bidders.
Once bids are allocated, debentures are issued by FMD within the CSD (i.e. Strate) and an ISIN is assigned to each debenture by the JSE as the NNA. Strate facilitates the purchase settlement leg of DvP via SAMOS and simultaneously transfers the debentures to the respective buyers’ accounts in the CSD’s SSS.
The SARB debentures are normally issued in units of ZAR1 million – while interest rates can vary, the maturity terms range from 7 to 56 days. During the life cycle of a debenture, it
can be traded between commercial banks in the secondary market. However, such trade
is limited since the SARB debenture is more often used as collateral for reserves in the SAMOS system and for liquidity at the JSE, making it more common for buyers to retain the instrument through to its maturity than to sell it in a secondary market. The number of debentures in issuance is relatively low, which also limits secondary market activity.
At maturity of debentures, the FMD ensures that sufficient funds are available to settle their obligations to commercial banks, and Strate facilitates the payout to the respective owners of SARB debentures of the combined principal and interest amount due, thus completing the life cycle of the debenture. Where an entity has given their SARB debenture up to be held as collateral for reserves at SAMOS or liquidity at the JSE, the settlement process completes
a ‘Maturity Financial Instrument Settlement Instruction’ (MaFISI). This instruction diverts funds from the beneficiary through to the holder of the collateral, to ensure that the beneficiary’s liabilities are managed.
Trading platform
1. The FMD auctions off debentures to eligible bidders on Wednesdays, should there be a need to drain liquidity from the market.
2. Debentures are issued over the counter and allocation happens in the FMD’s systems.
CSD
3. Debentures are issued by the FMD in Strate, a CSD.
4. Strate also enables trade in the secondary market and settlement of obligations at maturity.
RTGS SSS
5. Strate executes the trade by facilitating money settlement through the SAMOS, and the trade settlement by transferring ownership of the debentures to the relevant buyer’s accounts in Strate’s SSS.
PROJECT KHOKHA 2 19