JOHANNESBURG – Local stock exchange ZAR X, in conjunction with technology provider Adhara and Computershare South Africa, have launched the first distributed settlement system in South Africa for unit trusts.
The unit trust industry in South Africa is worth R2.6 trillion, with roughly 1 500 unit trusts, according to Etienne Nel, the chief executive of ZAR X.
“We have identified the unit trust industry as being a significant opportunity given the multiplier... We are looking at how asset managers distribute their product. What we are doing is adding another arrow to their quiver to distribute more products, more efficiently. “
Nel said the exchange was holding extensive talks with the asset management industry. The project will go live in the last quarter of this year.
“Unit trusts technically were defined as securities and could be traded," he said. “It was a natural fit for blockchain. We saw a distribution gap that is not available in South Africa.”
Nel said the equity space was difficult at present, which “everyone acknowledges”, although the exchange had a pipeline of upcoming listings. As a fintech firm ZAR X had decided to pivot and focus on driving investment products, he said.
In a statement yesterday the companies said, “Using the blockchain, it enables the public to purchase and settle unit trusts directly from fund managers in a secure environment.”
At present if a South African wants to buy unit trusts you have to go to an adviser or directly to a unit trust. You would then speak to someone and become their client.
Nel explains that effectively ZAR X would become a wholesale platform for unit trusts, all in one place with all the information you need. At present you had to physically go to each asset manager’s website and download the information.”
Instead of monthly administration fees, investors pay a once-off transaction fee. The system will be available via the ZAR X website (www.zarx.co.za) and the ZAR X Mobi App available in Apple iOS and Android app stores.
People can transact in unit trusts either through their ZAR X broker or on any mobile device using the ZAR X Mobi App.
Nel explains,”You are given the market net asset value price. ZAR X has a contract with the asset manager. The asset manager opens up their books to ZAR X clients.”
Nel said, “We have prioritised cost reduction in both the listing process and for investors. To this end, we are driving even more efficiencies by offering unit trusts on the blockchain, which is likely to be the future of financial markets settlement.”
According to the statement, the system provides regulators and investors with full transparency and transaction history in real-time. As the blockchain serves as a ledger of events that are distributed or shared between different parties, it can only be updated by consensus of the participants in the system. This effectively means the blockchain provides a single version of the truth and eliminates the need for reconciliations.
The Adhara components allow for the unit trusts and cash to be tokenised on the same ledger. This ensures all transactions occur “on-chain”, providing real-time Delivery vs Payment (DvP) settlement.
Nel explained further, “Our definition of a broker at ZAR X is broader than the JSE’s, which is that of a stockbroker. Effectively, we have widened the field. Wealth mangers buy and sell unit trusts. We cast the net wider. We are adding more distribution to asset managers than existed before.”
The JSE settles on a T+3 cycle , which takes four days, where as ZAR X settles in real time, which makes the unit trust move possible.
Ryk de Klerk, an independent analyst, said, “This surely is the development that I have been waiting for so many years. Yes, the first Unit Trust Exchange where you as individual investor will be able to buy and sell unit trusts directly without going through the hassles of putting in buy or sell orders, waiting for someone to confirm the orders etc... .
“I think there will be teething problems, but this development is the basis for the future. It will put immense pressure on unit trust management companies to slash administration costs passed on to an individual investor.”