Johannesburg | Tuesday
SOUTH Africa’s electronic stock settlement group Strate said on Monday it was hiking fees by over 50% to help cover its set-up costs after trading volumes on the Johannesburg market failed to meet expectations.
Strate said it was adopting a new pricing model that would raise the fees for each on-market settlement to R12 on June 1 from eight rand. It would also introduce an ad-valorem levy of 0.005% on each settlement.
Investors gave the news an icy reception. Henk Beets, chief operating officer of the country’s biggest fund manager Old Mutual Asset Managers, said he was astounded by the increases, on which big institutions were not consulted.
”It’s a huge increase and I’m not convinced enough thought was given to the underlying transaction structure and the way fees are levied,” he said.
Trades of less than R200 000 would be charged a minimum ad-valorem levy of R10 and trades of more than one million rand would have a maximum charge of R50.
Strate’s ”netting” model, which bundles together the trades executed by a brokerage in each stock over the day, meant that only 40% of trades resulted in settlement, compared with the 67% it had projected.
”And since our current fee structure is based on settlement volumes, revenues have fallen short of projections while costs have remained constant,” Strate Chief Executive Monica Singer said.
She added in a statement that Strate’s charges had initially been based on forecasts of 19 000 trades a day, but the Johannesburg Stock Exchange was currently only seeing 15 000 trades daily.
Strate, which stands for Share Transactions Totally Electronic, aims to make settlement faster and safer. It has led to the ”dematerialisation” of shares with the exchange of paper certificates for an electronic record of ownership.
Old Mutual’s Beets said the higher fees marked a move away from making the share market more accessible to small investors.
”Ultimately it’s not the institutions that carry the cost, it’s the pension funds,” he said, adding that those would then be passed on to members.
”I feel enormously let down by a process that hasn’t delivered. I think several of the decisions Strate took early on led to this result,” Beets said.
Strate is half-owned by the JSE Securities Exchange. The rest is held by Absa, Standard Bank, Nedcor, First National Bank and Citibank.
JSE chief Russell Loubser said the new fee structure was ”essential to ensure Strate’s viability”.
It would also push out the payback period for the JSE and investing banks’ R190-million investment to 2009 from 2004.
Singer said despite the rise, Strate’s fees would decline over time as the introduction of electronic settlement boosted trading volumes. She also said the new fees would be more than offset by savings resulting from reduced back office overheads. – Reuters