Monday, 29 September 2008

For Efficient Clearing System



The Security Exchange Commission, SEC, plans the introduction of electronic system in the nation's capital market for faster transaction of stocks.

By Onu Okorie


To say that the rush by the banks in Nigeria to raise public fund in the capital market at the wake of recapitalization policy has brought boom in the industry is to state the obvious. With the publicity blitz that went with the efforts, every part of the country was reached, thereby creating an awareness on the opportunities available in capital market.
The result of this situation was that doors in the market were opened for everybody who wanted to be part of opportunities that were created in that sector.
But opportunities do not come without a price. Part of the challenges that trailed the new bullish capital market order was that it became so enlarged that regulators and operators could not cope with transacting business manually. For instance, as a result of certain intricacies involved many investors were not getting their share of certificates. Some times the complaints may be late arrival of certificates or even non-receipt of dividends. Unclaimed dividends were put at a region of N19 billion.
Public quoted companies were equally not helping matters, as investors claim that months after investing in the offer of such companies their monies would be returned as un-accommodated subscription without interest. Unclaimed dividends used to be the only major cases in stocks investment, but the volume of unclaimed certificates and the complaints by the investors about the treatment meted to them by firms are creating new round of fears.
Not only that unscrupulous elements were having a field day as unethical practices were gaining movement into the market making report of loss of certificate and dividends the order of the day.
To stem the tide and restore confidence in the system, the apex regulatory body of capital market, Security Exchange Commission, SEC, introduced a number of electronic transaction method, such as e-dividend payment, e-allotment and e-certificate. With this development, transactions in the capital market are now shifting to become electronic-driven and dematerialised.
Director General, SEC, Alhaji Musa Al-Faki said that the introduction of electronic transactions would provide leverage for the operators and investors. For instance, it would eliminate issue of wrong name or address supplied by investor on the subscription form; it would take care of postal delay and establish a level playing field for all investors as they would have access to the stock exchange at the same time through the electronic transaction system. It will also eliminate unclaimed share certificates and reduce cost of transaction.
At the centre of this electronic transaction in security is the Central Security Clearing System, CSCS.
According to Managing Director, CSCS, Mr. Onyewuchi Asinobi, CSCS operates as computerised securities clearing settlements and delivery systems for all eligible and listed shares on the Nigeria Stock Exchange, NSE. It equally operates a central security depository for the capital market. This is a system that provides facility for holding securities which enables securities transactions to be processed by book entry. The implication is that physical securities may be immobilized by the depository while securities may be dematerialised so that they exist only as electronic records.
For an investor to qualify to engage in electronic transactions in securities, he is expected to create CSCS and investor Account Numbers. This is done through any authorised stock broking firm, registered by SEC and licensed by the NSE. Such investor must also disclose their CSCS clearing house numbers to new stock broking firm they engage, to avoid multiple clearing house numbers. The brokerage firms are to ensure that clients' names are forwarded to the CSCS.
A stock broker and financial analyst, Dr. Obinna Enema told Newsworld that, the Automated Trading System, along side the CSCS trading engine reduced transactions period to T +3 that is transaction day plus three days from an average transaction period of three months. This implies crediting a buyers' account within three days after the transaction, while the seller collect his cheque within the same period.
These developments were introduced to redress delays associated with concluding securities market transactions and to align the market with contemporary global practices where very significant information technology transformations in securities transactions have already taken place.
SEC also explained to Newsworld that with CSCS, the risk of loss of share certificate in transit is now history. Also transacting on share becomes more transparent and dynamic.
The clumsiness of gathering share certificates over years and stock reconciliation becomes a thing of the past with the CSCS in place. It also drastically reduced paper work and unnecessary processing bottlenecks involved in share certificate verification. It also standardizes allotment, thereby placing the Nigeria Capital Market on the same pedestal with international market.

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