Johannesburg - The consolidation of the settlement systems of the JSE Securities Exchange and the Bond Exchange may result in cheaper transaction costs for investors.
Share Transactions Totally Electronic (Strate), the Universal Exchange Corporation (UNEXcor) and the central depository plan to merge under the Strate banner and work towards converging the systems used to settle transactions in stocks, bonds and money market instruments.
The merger follows similar consolidations internationally. It makes sense as the South African market is too small to have separate settlement systems.
Alex Fourie, the chairman of UNEXcor and director of SCMB, said the main point of the merger was to drive down costs by running a unified structure. The merged entity's new management would "spend a lot of time looking at using existing resources with a view to making it cheaper" for investors.
The ability to clear and settle different financial instruments over a single system in a consolidated infrastructure could allow investors to offset risk positions in equities, bonds and futures, Fourie said.
Monica Singer, the chief executive of both Strate and the new entity, would not commit to whether transaction costs could be reduced, as it would depend on the intermediaries to pass cost savings on to investors.
Singer and Ray Ayres, the chief executive of UNEXcor, met this week to discuss the practical implementation of the merger. The duo had identified areas where economies of scale could be investigated with the aim of reducing operational costs.
Ayres, the executive director of operations of the merged firm, said the merger would kick off by agreeing on the roles and responsibilities of management and staff. Executives would then prepare a project plan for various stages of the merger.
The merger will dilute the JSE's shareholding in Strate to 40.8 percent from 50 percent. A JSE-appointed director on the board of Strate will be replaced by an independent director. The 50 percent held equally by the big four banks in Strate will increase following the transaction.
UNEXcor is owned by the Standard Bank, FirstRand, Absa and Nedbank.