Storm over CSD directive

October 21, 2021



A storm is brewing after the Securities Exchange Commission of Zimbabwe (SECZ)  directed that investors will move to a new central securities depository once an issuer migrates, a move critics say is tilted in favour of the Zimbabwe Stock Exchange’s (ZSE) outfit, Business Times can report.

Early this month, ZSE said its central securities depository (CSD)  had begun operations to challenge Chengetedzai Depository Company which began operations 7 years ago.

A CSD is a facility that holds and administers securities as well as enabling transactions to be processed by means of book entry.

The entry of a new player resulted in some issuers, notably Simbisa and FBC Holding, announcing their migration to the ZSE depository with effect from November 1.

In a directive to securities market intermediaries on migration of registers between central securities depositories, SECZ chief executive officer Tafadzwa Chinamo said all investors whose securities are deposited with a transferring or terminating CSD shall have their securities withdrawn from the transferring CSD.

The transferring CSD shall prepare an electronic file of all the securities holders and submit the file to the issuer’s Securities Transfer Secretary for reconciliation purposes, the directive said.

“For the avoidance of doubt, all investors’ securities holdings shall be transferred to the assuming CSD by way of electronic means in book entry form,” Chinamo said in a directive dated October 15.

The directive stipulates that the terminating CSD shall ensure that all transfers, dematerialisations, rematerialisations, outstanding trades and any other related transactions are cleared and settled by the effective date of termination to facilitate migration to the assuming CSD.

“Any outstanding dematerialisations, transfers, securities pledges and any other related documents with the terminating CSD shall be transferred to the receiving CSD for reprocessing by the receiving CSD,” it said.

The terminating CSD may impose charges associated with the migration of securities. The charges, to be paid by the participating issuer, shall be 0.0005% of the market capitalisation of the participating issuer at the transfer date. The amount paid by the issuer shall be shared equally between the terminating CSD and the transfer secretary concerned and shall not exceed ZWL$500,000 per issuer, it said.

Observers said the directive takes away the rights of securities depositors to choose a depository of their choice.

“In the directive, the regulator  is insinuating that investors are not capable of making that important decision as to where to bank their securities which in a way infringes on their basic right to choose,” a market analyst said.

An investment analyst said the regulator has put itself in an invidious position.

“Whose interests is the regulator promoting? Certainly not the investing public as the directive asserts that it’s the issuers who will make a choice of the depository to use. Ironically the issuers choose the depository to keep shares that do not belong to them but to the investing public,” the analyst said.

Critics say the directive leans more to ZSE which regulates the issuers it is courting to move their depository business to its unit.

“From an aerial view, the whole development does not appear to be inclined towards serving the best interests of the market. There is a likelihood of some investors questioning the legality or challenging of the directive vis a vis their investor property rights. We remain to watch the developments in the coming days,” an investor told Business Times.

A market analyst said shares do not belong to the issuer but investors.

“They are forcing the investing public to deposit share certificates in a preferred depository. Depository is like a bank. The only difference is that in a bank you hold and deposit cash but in a depository you deposit share certificates,” a market analyst said.

The directive by SECZ comes after the Competition and Tariff Commission of Zimbabwe  recently ordered ZSE to scrap the discounts it had rolled out to issuers to use its depository as the move did not promote fair competition.

The Commission deemed ZSE’s proposed incentive (discount on listing fees) as a restrictive practice in terms of the Competition Act on the basis that the discount offered was based on a revenue line outside the depository business.

“Given our commitment to reduce the costs for the issuers and investors we are working on a new  incentive which entails a rebate on the statutory CSD levy to be collected by ZSE on all trades settled through our depository,” ZSE chief executive Justin Bgoni wrote in a letter to an issuer.

He said the rebate will be extended to all issuers whose securities are settled through the ZSE Depository. The incentive, Bgoni said, had been discussed with the Commission who have “indicated no objections to the concept”.

He said ZSE would advise issuers once the finer details of the new incentive have been agreed upon with the Commission.


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