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Investors, brokers violate CSD rules


A NUMBER of investors and stockbrokers are selling shares before the completion of the dematerialisation process and Central Securities Depository (CSD) account opening procedures in violation of regulations on the securities holding and settlement platform.


Dematerialisation refers to the process whereby paper share certificates are replaced with electronic records of ownership.
“During the ongoing dematerialisation phase, we have encountered problems with investors and stockbrokers that were selling shares before completing the dematerialisation and CSD account opening procedures. This is in breach of the CSD rules which state that one can only sell shares after dematerialisation, and that for any investor to trade, they must open a CSD account first,” Campbell Musiwa, Chengetedzai Depository Company chief executive told NewsDay last week.

Musiwa said investors who have gone ahead to trade before meeting the requirements have seen their trades not settling on time.
“There has been a marked improvement which resulted from continuous lobbying with market players to observe the rules,” he said.
The CSD went live on September 8 with three counters.

Currently 43 counters have been onboarded on the system and the remainder would join the platform by April.
Musiwa said the major challenge they were encountering was for market players to adjust to the CSD environment as well as the custodian settlement model adding that the CSD was intensifying awareness initiatives so that the investors can understand the new roles for stockbrokers and custodians in the new dispensation.
“For example, investors are still adjusting to only trading with stockbrokers and making settlement inquiries through custodians.

“Previously stockbrokers were playing both roles for trading and settlement, and these have now been split between brokers and custodians (brokers trade, custodians settle),” he said.
Musiwa said the CSD has also faced concerns from investors about the custodial fees being on the higher side.

After investigations, Musiwa said, it was discovered that this was common with retail clients because they previously did not settle via custodians.
“Most institutional investors have been using custodians before the CSD and they understand the economics behind the model. We have introduced a retail custodial model which is currently being implemented through CBZ Custodial Services and it has proved to be affordable for retail investors,” he said.
He said 1 557 accounts have been opened so far.

Of those accounts, foreigners account for 61% while locals settle for 39% and Musiwa said as more retail (local) investors are joining the CSD, “we expect the percentage of locals to outweigh the foreign investors”.
He said foreign pension funds invest through global custodians, who in turn access the market through local custodians.

In September, Musiwa said the reduced settlement time to T+5 (transaction plus 5 days) from T+7 (transaction plus 7 days) would lure foreign investors like the American pension funds which are not allowed to invest in a market where there is no CSD.
Musiwa said it was difficult to determine from CSD statistics the number of new foreign pension funds, “but the portion of foreign investors should be a good proxy for foreign pension funds participating in the market”.

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