The Securities and Exchange Commission of Zimbabwe (SEC) says the Centralised Securities Depository (CSD) Company will go live “within the next six months”, effectively dematerialising all tradable securities through a book entry system.
The company would operate as a private entity responsible for issuing securities identification numbers (SIN) and keeping a register of securities, earning its income primarily from fees charged on the clearing and settlement of securities on behalf of clients.
Key clients include securities trading firms, licenced brokers, banks, securities custodial services companies, individual investors and the Zimbabwe Stock Exhange (ZSE), currently under demutualisation.
Alban Chirume, SEC CEO, says the securities regulator has finished evaluating bids for the CSD Company and short-listed two candidates in terms of the results of a due diligence by Ernst & Young.
The expression of interest opened in March and closed in May.
“We received four bids. Two of the bidders have already been eliminated because of compliance issues,” Chirume said. “We expect this project to be completed within the next six months. The CSD Company will be running.”
The CSD would be connected to the Reserve Bank of Zimbabwe (RBZ) real-time gross settlements system (RTGS) to facilitate a straight-through processing of securities under a payment-versus-delivery (PVD) arrangement.
A PVD system allows securities ownership to change simultaneously as payment is confirmed on a matched deal basis. The CSD Company would issue buyers with SINs in lieu of paper certificates.
The primary aim of the CSD is to uncertificate the ZSE and other securities exchanges, cutting both transaction costs and the settlement cycle.
The ZSE currently runs on a T+7 settlement cycle, under which payment and securities delivery are due seven days after a buy/sale deal, which creates inefficiencies.
Both securities traders and transfer secretaries have confirmed incidents where a buyer would sell before the settlement date is due, repeating the cycle through a reverse process until share certificates are lost.
CSD implementation entails the amendment of ZSE and transfer secretaries’ Articles of Association to authorise the transfer of securities in electronic form.
The system would also cover pipeline securities exchanges such as the commodity exchange and bond markets, as well as the secondary bourse for small-to-medium-size enterprises.
The project is being steered by a CSD committee drawn from local banks and the RBZ’s national payments system division.
Asked if the launch of the CSD Company would automatically supplant the ZSE’s call-over system with live trading, Chirume said the latter could lag behind slightly.
“These are separate, but related projects,” Chirume said. “Ideally, the two should happen at the same time, but they may come on stream at different times. But key players were ready.”
Transfer secretaries, for instance, already have a mini-CSD in place. Earlier, the ZSE reported it was pressing ahead with a plan to introduce computerised trades and phase out a call-over system based on the trading floor of the bourse.
Under a live trading system, buy and sell deals would be sent to an electronic network through which dealers would match bids and offers and confirm deals without physically shuttling between their dealing rooms and the ZSE.