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Market participants should do what they can to keep post-trade services in South Africa for the benefit of the region, according to Farzana Khan, head of collateral services at Strate.
The South African Securities Lending Association (SASLA) hosted its annual conference in Cape Town, where panellists of its Collateral panel discussed the future of triparty.
In reviewing the use of local custodians versus the use of offshore custodians, Khan indicated that, in South Africa, collateral is largely managed bilaterally, which is “very inefficient”.
She continued: “Last year, we heard from Alistair Trotman on how triparty was the norm offshore, but not yet locally. There is a strong case to consider using a local custodian and triparty agent, because of the cost and the ability to automate and optimise collateral on a single platform in South Africa for the benefit of the region.”
Khan highlighted that there are growing opportunities in the market to automate and optimise collateral on the Strate platform.
The South African principal central securities depository and central collateral platform will be completing a proof of concept with the South African Reserve Bank (SARB). If implemented into production, this initiative will introduce around ZAR 800 to 900 billion (£32.8 billion - £37.0 billion) worth of assets into a triparty environment.
While comparing the use of local and offshore custodians, Khan said market participants can look to reduce the regulatory cost of doing business for ZAR payments by using a local provider.
“So much of our trading investment opportunity has already been externalised to offshore markets. Let us do what we can to keep post-trade services in South Africa for the benefit of South Africa,” she added.
The panel discussion also analysed the challenges faced by foreign clients when transacting with South African participants.
Kimberley Azuelos, senior securities financing sales, Global Markets at BNP Paribas, confirmed that in terms of securities lending, when transacting with South African participants, there are three main challenges.
The first is the diversification and the reuse of collateral — she explained that when receiving a ZAR asset, it comes at a liquidity cost, “the more diverse the collateral, the better we can repost and reuse it elsewhere”.
The second barrier is the ability for a South African counterparty to use an international triparty, “that would allow the whole ecosystem to internationalise the flow and to scale up the business”. The third challenge is from a tax aspect, such as the requirement for stamp duty, which can provide complications when growing a business.
The SASLA conference has, over time, pivoted from a securities lending focus to a more financing repo and collateral focal point, according to Joseph Gillingwater, senior vice president and global head of fixed income securities finance trading at Northern Trust Capital Markets.
This is a trend Northern Trust has noted with other large custodian banks globally. He added: “More recently, we have seen challenges with the US regional banks, the Credit Suisse and UBS merger, all of these things lead to nervousness and will lead to a flight to quality and lead providers to be better at mobilising collateral.”
