Secure stocks with a separate account
Johannesburg – How can you know whether your shares are really yours?
Until 1999 a share certificate was the only proof of ownership of shares in a company listed on the JSE. When you bought shares you received a certificate from the previous owner and you paid for them by cheque.
But the transaction was concluded only when a messenger delivered your cheque or certificate.
When the JSE switched over to an electronic trading system in 1990s, so many deals were struck each day that messengers were unable to keep up.
Strate was established to solve the problem and it is thanks to chief executive Monica Singer and her team that share trading on the JSE is now settled electronically.
Singer says messengers previously always rode around on bicycles but today everything takes place electronically.
In 1999 the Harmony Gold Mining Company [JSE:HAR] became the first JSE-listed company to use electronic statements as proof of shareholding.
Before that the only proof that you owned a share was a piece of paper that could get lost or stolen, she explains.
South Africa has nine banks that work directly with Strate. These banks keep the assets of their clients – such as stockbrokers – and, when the clients buy or sell, cash and proof of shareholding move between these banks.
Singer says about 20% of South African shareholders still hold share certificates.
She says some investors still find it a huge adjustment to depend on electronic proof.
They want to hold on to their share certificates and be able to take them out and look at them.
These investors feel safe with their share certificates locked away in a safe, but investors using today’s electronic system are more concerned about the security of their assets.
Singer says panic flooded global markets in the wake of the Lehman Brothers bankruptcy.
When Lehman folded, some investors realised that their assets were entwined with those of the bank. They joined the bank’s creditors, says Singer.
This meant that some investors had to wait six months before they could again trade their own shares. Their assets were frozen with those of the bank.
Singer says not only is this type of situation a headache for individual investors, but it can also restrict liquidity in the market.
Strate and its foreign peers have overcome the problem by giving brokers and investors the opportunity to set up their own segregated accounts on their systems.
This means that a separate and transparent record of investors’ shares is kept, which are no longer recorded only in the books of the bank operating on investors’ behalf.
International investors who have burnt their fingers come to South Africa and insist on segregated accounts, says Singer.
She says investors with segregated accounts would be able to trade their shares almost immediately after their banks go bankrupt.
Strate’s charges for the segregated accounts are small because the company believes this service really helps to remove risk from the financial market.
Singer says it offers something that is good for the market which attracts foreign investors to South Africa’s financial markets.
It would be unproductive to charge high fees, she adds.
Despite the particularly low cost – a segregated account costs R100 a year – only 66 such accounts have so far been opened by Strate.
These accounts represent only a very small proportion of South Africa’s more than 2 million shareholders.
The accounts have generally been opened at banks on behalf of their large international clients.
Only a few local brokers use the service, but any investor can ask his or her broker to open a segregated account in his or her own name.
What should you do with your old share certificate?
The JSE’s electronic trading system means that one cannot sell shares without first having lodged one’s share certificates in the Strate system.
The cost of doing so however often exceeds the value of the shares, especially in the case of small numbers.
Strate, Computershare and PSG therefore decided to convert these share certificates into “charity shares”.
The three companies work together to capture the certificates in the electronic system free of charge and then to sell them and donate the proceeds to charity.
More than R2m has so far been given to charity in this way.
* Contact your broker if you want to get rid of an almost worthless share certificate, or contact Strate on 0 0800 202 363.
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