The general manager, IT and Operations, Central Securities Clearing System (CSCS) Plc, Mr. Joe Mekiliuwa, in this interview with OLUSHOLA BELLO, speaks on strategies adopted by the CSCS in collaboration with Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) to increase market participation among other topical issues.
Can you tell us the importance of CSCS to investors and operators on the Nigerian Stock Exchange?
The CSCS is a financial market infrastructure. It is an entity that ensures securities are centrally deposited for ease of transactions and ensures there is what is called the clearing of transactions for eventual settlement. Clearing by definition is determination of obligations arising from securities transactions. So, the CSCS does the clearing of the transactions and facilitates the settlement of same. In the case of security of the transactions, the CSCS performs settlement as well as ensuring that the seller is debited on the day of settlement and the buyer is credited. But for the cash leg, the CSCS having done the clearing would advise the settlement banks to do the cash leg of the settlement.
How can investors get full benefits of full dematerialization?
The advantages of dematerialization are many. It enables the investor to trade at any time without necessarily passing through the bottlenecks of verifying the share certificates any longer, because the shares are now domiciled with the CSCS. He can give a mandate to his broker at any time and the broker accesses the Exchange that same day and trade for him. So, one of the beauties of dematerialization is that it enhances market dynamism, liquidity and decision making in securities investment, among others.
What are the processes involved in account consolidation or mergers for an investor’s accounts?
In the past, during the primary market exercise either initial public offer or public offer; we had the challenge of investors trying to beat the system to be able to purchase more shares beyond the mark or threshold allowed. For example, the policy then was that one would not get more than 10,000 units to ensure equity distribution of the shares, some investors who had the money to buy large chunk and were limited to buying only 10,000 units used their names in different forms and toggle same to be able to acquire more thereby beating the system. As a result, investors now have multiple names in the system, representing only one natural person in each case. Having discovered this, we have been discussing with the capital market stakeholders and the SEC, while investors have been advised to consolidate the accounts, otherwise, orphan accounts will clog the system because some used fictitious names that are non-existent. So the advice to such investors is to observe the current rule of providing the evidence of purchase of those shares, past dividend stub, photocopy of the earlier form used in the purchase, etc; and a letter through the broker to the CSCS and registrar instructing merger of such accounts. However, in a situation where such investor does not have any of these items, the person may have to go to court to swear an affidavit. Meanwhile, a committee has been set up by the SEC to work out the modalities including the required grace period, thereafter penalty will apply.
With the existence of many inactive or dead stockbroking houses arising from the re-capitalisation exercise, how can investors transfer accounts to active firms?
With the recapitalisation exercise and its deadline, many stock broking firms could not make it and the implication is that many are now inactive. The process to do such transfer is as follows: The investor should approach an active stockbroking firm of his choice that will do a robust Know Your Customer (KYC) on such investor to validate the investor’s claims. After that the investor would come to the CSCS for biometric data capture, he would also provide his bank details. Thereafter, the broker of the active stockbroking firm chosen (target house) would be expected to log on to the CSCS data exchange portal to initiate the transfer. Once this is done, the portal would automatically generate an indemnity form. The MD of the target stockbroking firms would be expected to come physically to the CSCS to sign on the indemnity form as evidence that he has done a robust KYC on the client. The KYC documents would be transmitted to SEC for further directives on the broker and on confirmation, SEC would direct the CSCS to go ahead to process.
What is Direct Cash Settlement (DCS) and how can investors participate in this service?
The Security and Exchange Commission, (SEC) NSE and CSCS working in collaboration with brokers introduced what is called DCS. It is a service that enables an investor to get direct credit of proceeds of sales of his shares when his broker sells his shares after the usual client’s mandate to sell. Therefore, instead of the proceeds passing through his broker to him, he gets such directly into his bank account. The procedure involved in DCS is as follows: DCS form is filled by the investor indicating bank details that includes BVN and submits same to his broker. The broker in turn, logs on to the NIBSS portal to validate the investors BVN, on validation, the broker forwards same to CSCS for second level confirmation through the settlement banks. Thereafter, subsequent proceed of transactions would be credited directly into the investor’s account, instead of the usual practice, where the broker would issue cheques or pay into the investor’s account.
Despite the proactive measures to prevent fraudulent acts of dealing houses, cases are still being recorded of unauthorised sales of clients’ shares. Does CSCS sanction defaulters?
There is a very strict rule now on unauthorised sales of shares that is why we have low incidence of such actions. Also, we have what is called X-alert. This is a mechanism through which an investor is alerted whenever there is any action on his account. When sales, movements or updates happen on the account, such investor will be alerted and the reason for such alert is to create investor’s awareness to such action, so that it will be reversed if not authorised. The only way to get such alert is when one submits his GSM number through his broker to CSCS. This is used to update his account in CSCS, thereafter, whatever happens in his account, such investor will be alerted. If for any reason there arises a situation where a broker sells shares unauthorised, the broker would be heavily penalised. Apart from the fact that the broker would be made to buy back the shares, the broker would be fined both at the Exchange and the CSCS. It is majorly to build investors’ confidence. The incidence of unauthorised sale is becoming a thing of the past.
Why the low turnout on e-dividend registration?
E-dividend is an initiative by SEC, involving the registrars, brokers and other market stakeholders. It provides the opportunity for investors to have their dividend paid directly into their bank accounts. What CSCS is doing is that, we are collaborating with the SEC and the registrars to ensure that low e-dividend registration would be a thing of the past. CSCS assists in the collation of the investors’ bank details from brokers and forwards same to the registrars. Also, e-dividend mandate form can be collected from the banks, registrars and other authorised institutions to be filled by investors and submit to registrars or the banks. A lot of reasons gave rise to unclaimed dividend such as the usage of wrong names to purchase shares during IPO’s, such makes it difficult for those dividends to be paid into bank accounts of natural persons. Other reasons are like change of address, change of names, poor postal services etc. We are doing awareness programme, letting the public know that they need to provide their KYC details , but again in Nigeria, we all know that until we use force people will not live up to expectation as witnessed in the case of the BVN. So, if investors do not submit bank details, within a short period of time, dividends will no longer be paid to them.