Unpacking the Transfer Secretarial Market with SA’s latest STRATE-endorsed transfer secretary

Singular Systems has been authorised to commence the provision of transfer secretarial services in the STRATE Equities Production Environment making Singular one of only four official STRATE-endorsed transfer secretaries in South Africa. To honour the occasion, BizNews.com interviewed Helga De Vasconcelos, Director at Singular Systems to get an in-depth understanding of exactly what Transfer Secretaries do, how the system works, and how this essentially impacts shareholders and companies that are either listed, or looking to list. – LF

LUCIENNE FERREIRA: In this special podcast brought to you by Singular Systems, we have Helga de Vasconcelos with us this afternoon. I hope I pronounced that correctly, Helga.

HELGA DE VASCONCELOS: Yes, you did.

LUCIENNE FERREIRA: I’m Lucy Ferreira from the Biznews studios. We’re going to be talking to Helga about something that I don’t think the industry in the business world and the financial sectors know quite enough about – it’s not something we talk about very often -, and that’s Transfer Secretaries. Recently, Singular Systems received the accolade that it had officially been endorsed by Strate as the fourth Transfer Secretary in South Africa, and that’s what we’re going to be speaking to Helga about. Helga is a Director at Singular Systems and she’s Head of Outsourcing Services. Thanks for joining us today, Helga.

HELGA DE VASCONCELOS: Thanks, Lucy. Thank you so much for having me.

LUCIENNE FERREIRA: It’s great to have you in the studio with us. Let’s start off with the easy question, to open it up for our listeners. What is a Transfer Secretary?

HELGA DE VASCONCELOS: Okay, traditionally, a Transfer Secretary is known to be the official keeper of the register of the shareholders of a company, as well as making sure that that register is always in balance with the issued share capital of a company. That’s the traditional view, but Transfer Secretaries do a lot more than that and I’ll just list a few of them. An important one is attending the Annual General Meetings of companies, assisting them in all the voting procedures and the proxy procedures for these Annual General Meetings, and other special meetings where applicable. Transfer Secretaries are also responsible for posting official notices for companies. They’re responsible for managing the entire dividend process, from paying the shareholder all the way through to retaining the 15 percent dividend withholding tax and paying that over to SARS.

In the event that companies undergo corporate actions for example, Transfer Secretaries are quite involved, particularly when it comes to implementing that corporate event into the shareholder registers, and with shareholders. In a nutshell, that covers what it is.

LUCIENNE FERREIRA: It does.

HELGA DE VASCONCELOS: It explains it.

LUCIENNE FERREIRA: Perfectly, very well, and it’s nice to make it clear because often, these things can be quite opaque. Singular Systems is primarily a software business. How does a software company end up providing financial services, such as Transfer Secretary Services?

HELGA DE VASCONCELOS: Okay. All right. No, you’re spot on. We are primarily (and foremost) a software company – that’s our roots. We’ve been building software for the last 12 years or so, and really, to solve clients’ business problems. We’ve actually developed a lot of different financial products and services as a result of the software. I’ll just give you a very good example that I’ve personally been involved with, and that’s our Capital Gains Tax software. It’s called CGT Express and it does the computations of Capital Gains Tax and Section 20 for J interest computations on financial instruments, particularly where taxpayers have a large holding in these financial instruments. If you think about life insurers, asset managers, and portfolio manager, those are the people who need the software to compute these calculations. Some of them use our software and they do it themselves, and some of them just say ‘we don’t want to build the capability in-house.

We don’t want to have a dedicated CGT function’. They’ll say ‘Singular, can we just outsource this actual, financial service to you’, so that’s an example of how we build the software and it evolves into providing the financial service and particularly, using our own software to provide that financial service. A Transfer Secretary is a similar evolution of that.

LUCIENNE FERREIRA: It’s fascinating that you’ve taken the serious need for compliance regulation because in the South African market, that has become the first and foremost priority in most boardrooms, as we know. You’ve integrated that within the software perspective, to deliver an overall platform for your users. It’s great.

HELGA DE VASCONCELOS: Yes, it is fantastic. Actually, in the beginning Lucy, it was about compliance but we what we were very excited about is when Capital Gains Tax came into being in 2001, there were a lot of transitional measures that companies could take to compute their Capital Gains Tax. Our software optimised the Capital Gains Tax to reduce this tax burden for them, and so we saved companies so much money. That was initially, the most exciting part of it. As you say, it’s really about real compliance.

LUCIENNE FERREIRA: Yes, and it serves that dual purpose. It’s fascinating.

HELGA DE VASCONCELOS: Yes,

LUCIENNE FERREIRA: So how did you get into the transfer secretarial market, specifically? How did that develop?

HELGA DE VASCONCELOS: Okay. Well, it actually goes back to one of our oldest clients. In fact, it probably is our oldest client. We built a share scheme administration software, particularly for them and we’ve been maintaining it and enhancing it over the years, right up until now, and it’s helping them manage their large amounts of share incentive schemes in their group. About three years ago, this company had another problem that they wanted our help with. They had these two large BEE companies, okay. They were unlisted companies, owned by black individuals (that were unlisted), and so they had no trading capability. They needed to provide some trading and liquidity for their shareholders, but restricted to black individuals/black companies or historically disadvantaged. We worked very closely with this client and we built this really powerful over-the-counter trading platform on steroids.

You’d probably know it today as Equity Express. It’s really wonderful. It’s like a combination of matching engine, a settlement engine, and a broking solution – all in one. We solved that problem for the client but what we were doing then is we were supplying the existing Transfer Secretaries with the registers for this platform on a regular basis. However, we now had access to the entire shareholder register and every movement as well, on a real-time basis. For example, if you had to buy one of these shares right now, in a few seconds’ time I could tell you what your holding position was, whereas if you compare in the listed environment it takes a minimum of a week for a Transfer Secretary to understand what the holding position is of a shareholder. Anyway, we were providing the Transfer Secretaries with these registers and the clients realised that there’s a bit of duplication going on.

They said ‘hang on. Why don’t we just simplify and make this process much more efficient? Why don’t you (Singular) just maintain the register for us because you’re right there?’ They asked us whether we wouldn’t consider becoming their Transfer Secretaries. It was a bit new for us because we weren’t in that space, but we did a bit of research, figured out that we could do this, and we accepted the offer. We became their Transfer Secretaries, built a little bit more functionality in our software, and then five other clients followed.

LUCIENNE FERREIRA: So it’s really been a ‘needs-based’ solution to your clients and your customers.

HELGA DE VASCONCELOS: Absolutely. Just responding to those needs.

LUCIENNE FERREIRA: That’s excellent. In your recent announcement, you said that you’ve been providing Transfer Secretarial Services for the last 18 months in the unlisted environments, but you’re only going live now in the listed environment. Why this distinction and why is there such a time lag before the offering of the services to the listed market?

HELGA DE VASCONCELOS: A key difference: in the listed environment, Transfer Secretaries need to communicate with Strate. Strate is South Africa’s only CSD, which is the Central Security Depository. On a daily basis, Transfer Secretaries need to report back to Strate the electronic share holdings, to reconcile – to make sure they’re always in balance. In addition, when corporate events happen, Transfer Secretaries need to communicate to Strate and there are a few other instances where we need to communicate to Strate. However, the way we have to communicate to them now is via the Swift network, using the Swift Messaging international standards, and complying completely with Strate’s requirements. They have directives and rules on what you need to follow, and how you need to communicate with them. We therefore needed to implement the Swift infrastructure.

We needed to learn those messaging standards, and then we needed to understand the Strate requirements. Finally (right at the end), we needed to go through a rigorous testing process with Strate. Strate would send us certain test pack scenarios and they’d make us go through a few test cycles. If we achieved close to, let’s say 100 percent, which you needed to get, they would approve us. For the last few months, we’ve basically been implementing the Swift infrastructure, learning this international messaging, and learning the Strate process in being tested. At the end of September, we passed the test and on the 6th of October, as you see in our announcement, we were approved.

LUCIENNE FERREIRA: Tell me, Helga, what gives Singular the edge over the competition? Who is the competition? How does that all fit together?

HELGA DE VASCONCELOS: Well, there’s very little competition in terms of the number of Transfer Secretaries out there. There are two big ones: Computer Share, which is the largest, Link Market Services is the second largest and then there’s a newish player, called Trifecta Capital Services. There are those three, there’s us, and that’s it. Traditionally, Computer Share and Link Market Services were really, the players and now Trifecta’s and ourselves are breaking through as well. That’s the competition out there. In terms of our competitive edge, there are a number of things but a few particular things come to mind. First on that list is our strong software capability. We develop and we own all of our software. We own the IP for it. I’m talking about the software that we use to provide financial services okay, and so we’re quite quick and flexible in responding to client needs because of this.

We’re certainly not vulnerable to any third party if we need to modify or change our software. We can do it when we want, how we want, and if our clients need it, we can modify it very quickly. We really just want to make sure our clients get the information they need – quality information – in a timeous fashion. If I can just give you a quick example of that… We used to provide some of our clients’ reporting on a monthly basis and as reporting requirements grew and evolved, we were providing these big, fat reporting packs at month-end and it was starting to get quite large. What we did was we actually developed an online reporting portal where our clients can now log in, go and download, pull their own reports, whether they’re in Mauritius or on holiday, or at home at 12:00 at night – wherever – and they can run these reports whenever they wish, not having to rely on us at month-end.

In addition, they can run these reports for the period that they want. They can run a certain report for five days or five months. That’s just an example of how we can react, we can be innovative, and we can make processes more efficient.

LUCIENNE FERREIRA: Yes, and it’s completely unique to the user. Just to get an idea… I don’t know how much information you can divulge, but what is the typical makeup of your client? What are the attributes of your clients? What are the needs that they’re looking to fulfil?

HELGA DE VASCONCELOS: Transfer secretarial is a service that clients don’t ask for and they don’t particularly want. They need to appoint it. It is largely, an administrative function, especially for the smaller clients. I think it’s just something that has to be done and they have to pay for it, and that’s it. In the bigger list environment however, bigger clients have very special needs. Some of our clients literally want us to help them with the presentations for their AGM’s and do a lot more value-added stuff, than just attending the AGM’s and voting, for example. It really will vary from client to client, but principally, I think it’s something they have to have. Later on, we can add more value to the service.

LUCIENNE FERREIRA: Absolutely.

HELGA DE VASCONCELOS: I wanted to highlight three areas. The first was our software capability.

LUCIENNE FERREIRA: Yes.

HELGA DE VASCONCELOS: The second one is really, our shareholder analytics division. We have a little division that focuses purely on analysing the shareholder registers for listed companies and they currently do about 70 listed companies. They take these registers and they analyse it for information such as fund managers. What are the top fund managers? What are the beneficial holders of these shares? What is the black nature of the shareholders (if they’re doing a black ownership report)? They do a lot more examples that I haven’t mentioned, as well. Often, the company secretary or the Board generally finds this information very valuable and this information is not readily available in this enriched state.

LUCIENNE FERREIRA: Yes, they can’t digest it yet.

HELGA DE VASCONCELOS: Yes, but also, when you get the data – the consolidated share register – from Strate, it’s not in such a format that you can tell, off the cuff, who the actual beneficial shareholders are. For example, if you (Lucy) have a holding with three different brokers and they’re in different CSDP’s (that’s what they call them) in the register, you might come up three different times and we might not even know that you’re the same Lucy. Our team will therefore go in there and they’ll actually match you to the other records, and we’ll be able to tell the company who their true, largest shareholders are, and so it’s a real, value-added service. You can see how it complements the Transfer Secretary power because it’s all relating to the share register, so that’s one area where we have that capability and other Transfer Secretaries don’t generally do that, and so companies have to go and get that service as a stand-alone. That’s the second thing that I wanted to mention.

LUCIENNE FERREIRA: Yes,

HELGA DE VASCONCELOS: Thirdly, I just wanted to highlight something from my experience. We’ve worked with hundreds of thousands of shareholders – directly – over 300,000 to be exact. Just as an example, if you’ve attended one of the AGM’s we’ve attended, you’ll see that hundreds of people attend for whom we conduct the voting. In the listed environment, this is completely unheard of so if you go to an AGM of large, listed companies you might have 10/20/30/50 people there, but hundreds…that’s unheard of, and so we’ve dealt with those sorts of volumes of shareholders. Right now, as we speak, we’re busy preparing a file to send to SARS. It’s a dividend holding tax file, where we have to withhold all the 15 percent dividend tax for shareholders and that file is currently sitting at just under 200,000 records.

LUCIENNE FERREIRA: Wow.

HELGA DE VASCONCELOS: Now, you can ask a whole lot of brokers out there and other Transfer Secretaries, but very few of these entities would actually have worked with those large volumes of data. The reason why I want to bring this up specifically is that I just really want to tell people out there that we have solid experience in dealing with large shareholder bases and therefore, we can give large (top 40) companies the assurance of our capacity and capability to deal with a large shareholder base – no matter how large. It’s really to say ‘you have the comfort that we can really deal with a large shareholder base’.

LUCIENNE FERREIRA: It’s interesting. It’s a fascinating piece of the share trading environment – whether it’s OTC or on the JSE platform – that you don’t often think about. With all of that in mind, you’ve already highlighted aspects of the process and the reality that we don’t often think of. Where to from here?

HELGA DE VASCONCELOS: Firstly, we’d love to approach our current clients and just offer them the service as an additional value-add, and really, just give them something else that we can help them with, especially those that have good relationships with us and love working with us. That’s what we’re excited about and the second thing is that we would like companies that are currently on their way to listing: they haven’t listed yet, but they’re going to list. They have to appoint Transfer Secretaries. We’d love them to consider us and look at us as a potential Transfer Secretary when they get to that process. Lastly, I think just generally, any other listed company out there that just wants another option for a Transfer Secretary: we want to offer the service for them, to them, and particularly if they’re interested in our innovative and efficient process/methodology that we’re trying to bring to the table here.

LUCIENNE FERREIRA: Absolutely.

HELGA DE VASCONCELOS: I think that’s really, what we’re aiming for now.

LUCIENNE FERREIRA: I wish you guys well.

HELGA DE VASCONCELOS: Thanks.

LUCIENNE FERREIRA: It really does sound as though you not only have the platform and the expertise, but you have all the hard data as well, which effectively, is currently the power driving all industries. However, you do have that expertise and that experience too, and so I wish you well.

HELGA DE VASCONCELOS: Thank you.

LUCIENNE FERREIRA: Thank you so much for your time today, Helga. That was Helga de Vasconcelos from Singular Systems. She’s a Director at the company. My name is Lucy Ferreira and you have been listening to a special podcast brought to you by Singular Systems.