THE Zimbabwe Stock Exchange (ZSE) said it has observed acts of insider trading on the local bourse which was causing some counters to inflate, depress or cause fluctuation of shares.
In a statement to the Reserve Bank and Ministry of Finance signed by ZSE chief executive Emmanuel Munyukwi and chairman Seti Shumba yesterday, the local bourse said it would investigate all reported cases as it was a serious offence.
â€œThe ZSE committee has also observed, with concern that there are some relatively large institutions which have capacity and strategic macroeconomic information which is used to inflate, depress or cause fluctuations in the prices of securities in breach of the Securities ActÂ (Chapter 24:25) Section 96 (2),â€ said ZSE.
â€œThis is considered a very serious offence and will be subjected to investigation in order to determine complicity under the securities Act,â€ the stock exchange said.
The ZSE committee said it had not yet ruled on the issue of defaulting members that were revealed by the Reserve Bank last Thursday.
â€œIt (activities on the stock market) was simultaneously escalated to the public domain as the report was being brought to the attention of the committee,â€ the ZSE said.
The ZSE said the procedures as prescribed in Rule 11.01 for bringing this issue, as well as other complaints about members, has not been varied or waived.
â€œThe ZSE committee has a primary duty to appraise the discovered evidence and then set out to prove the breach. The committee must then follow procedures as laid down in rules 11.01-11.12,â€ said the ZSE.
The stock exchange committee said it would consider the question of final re-admission of any defaulter in two different classes according to rule 11.12 namely (i) Cases of failure arising from default of clients or from other circumstances where no bad faith or breach of the rules and usage of the exchange has been practiced. (ii) Cases marked by indiscretion and by failure to exercise reasonable caution on the part of the defaulter.
â€œThe ZSE Committee will examine any such evidence provided in investigating the matter through normal channels,â€ the ZSE said.
The stock exchange committee also said it will call for all participants to be subjected to interviews regarding the circumstances of the alleged breach and weigh the evidence to establish the underlying motives for suspicious conduct and behaviour by the members as innocent, negligent or fraudulent.
â€œThe quality of the evidence must be such that it is admissible in open court so as to provide a successful prosecution and ultimate conviction if the need arises,â€ the ZSE said.
The committee said it shall ensure that the rules of Natural Justice are applied and observed by taking all reasonable steps to ensure that every person whose interests are likely to be affected by the exercise of the functions is given adequate opportunity to make representations in pursuit of fairness and any probabilistic outcomes in terms of the rules. Commenting on purchasing and settlement risk, the ZSE said a precedent was observed in the current difficulties in which bank cheques were dishonoured.
â€œThis put the entire marekt at risk as there was no longer any guarantee, even by the designated authorities in the bank that their own paper and what they have signed for can be rendered disabled. Therefore no other paper will be acceptable to stockbrokers for the purchase of shares,â€ said ZSE.
ZSE said the recently introduced measured of further securing liability on the proceeds of the cheque by getting the bank chief executive to undertake the endorsement has disabled the whole system.
â€œThe banking system itself appeared to be struggling with deposits and end of day balances and the zeroes. They cannot establish cleared effects and the whole industry has been rendered as defaulters,â€ ZSE said.
According to ZSE the main operating bank Stanbic has admitted that they have a back log of unprocessed deposits for stockbrokers going back to October this year. This will continue to feature as â€œuncleared effectâ€.
â€œThis has the effect of disabling the account which can no longer be used for settlement purposes. Most accounts are also therefore in default,â€ the stock market said.
The RTGS system has not been fully restored and will be currently limited to five transfers per day.
The stock market said the banking system also appears to be struggling to handle the range of figures.
â€œRemoving a fixed set of zeroes on the top end will result in the loss of data as the lower cash end of the range,â€ said ZSE.
The local bourse said there was a significant level of settlement risk in trading. It said it therefore was prudent for the participating brokers to reduce this level of risk by managing the volume of activity being processed.
â€œAny exposure under current conditions would worsen overall market risk,â€ ZSE said.
By Paul Nyakazeya