Strate and a leading international provider of securities services are exploring a new automated process to make unit trust transactions more efficient, which could result in cost-savings for unit trust companies and asset managers and, ultimately, their investors.
However, the initiative between Strate and Brussels-based Euroclear, which will be pursued in conjunction with the unit trust industry, is at a very early stage and the extent of the potential cost-savings have yet to be determined, Louis Rushin, head of Strate’s project and innovation management office, says.
Euroclear is the world’s largest provider of domestic and cross-border settlement and related services for bond, equity, derivative and unit trust transactions.
Strate provides electronic settlement for securities on the Johannesburg Stock Exchange – including equities, bonds, derivatives and exchange traded funds – and for money market securities.
Rushin says that, currently, unit trust transactions are routed through FinSwitch, which provides a platform for, among other things, transaction instructions, confirmation of transactions, price information and income distribution.
The larger unit trust companies are the shareholders of Finswitch.
The transactions are routed from linked-investment services providers (Lisps), and the bulked orders are fed to the unit trust management companies to create or redeem units in a particular fund.
The orders are paid for individually upfront. However, there could be some delays, Rushin says.
Strate and Euroclear hope to make the order and payment occur at the same time.
Rushin says that transactions could be bulked and routed through the different parties’ bank accounts held at the Reserve Bank.
Strate and Euroclear’s initiative aims to achieve cost-efficiencies by automating and centralising both the payment and order process.
As a result, the processing of the payment and the transaction will be quicker and more efficient, he says.
Leon Campher, chief executive of the Association for Savings & Investment SA, says that, although the proposal makes sense intuitively, the association’s unit trust company members will have to be shown evidence that the process has merit before they will accept it.
Unit trust companies and fund managers will be interested in the initiative if it will result in transactions taking place faster and at less cost, and if the process itself is not expensive to implement, he says.
It is not possible to say at this stage whether any cost-efficiencies will be passed on to investors, Campher says.
Rushin says the new process, which could be implemented in a few years’ time, will not affect you, the unit trust or Lisp investor.
It is unlikely that the new process will affect the cut-off time for accepting purchases and sales of units in unit trust funds each day, Rushin says.