SEC surprise: fees and a raft of changes

AT A Securities Commission of Zimbabwe (SEC) workshop in the capital a week ago, CEO Alban Chirume had a few surprises for the market –– new fees and a hell  of a lot of new changes.

That was expected for a new regulator. The logic is simple; a new organisation, particularly of SEC’s significance, has to be seen doing something.
No one had anticipated a series of surprises the commission boss had for everyone.

Asset management companies must be regulated by SEC and they cannot wait for this transition, he said. Surprise number one. Financial journalists are investment advisors and should pay two grand and become financial advisors, he announced. SEC should train that nosy bunch, he added.
But judging by SEC’s swift arrival that saw the commission revoking ISB Securities licence and fighting the administration of investor protection levy from the ZSE, the market should have anticipated a coterie of measures from the regulator in retrospect.

Even ZSE Committee chairman Ndodana Mguquka is a little worried. He says (see businessdigest 7) SEC is coming up with a lot of rules folks do not get. Instead, Mguquka says the rules relating to financial journalists should apply to CEOs.

Mguquka said: “We have a feeling that they (SEC) are coming up with a lot of rules that people do not understand. For example, them (SEC) trying to licence financial journalists is something that is unheard of. Those kinds of things should apply to CEOs of listed companies.”

A week after that surprise, SEC placed an advertisement in a local daily inviting financial writers, editors and analysts to another workshop. But the invite was not accepted with financial journalists shunning the event.

Like, Mguquka, analysts feel that SEC’s mandate and job description should be well spelt out.
This is a departure from its key mandate. Elsewhere, the US Securities and Exchange Commission (also abbreviated SEC) is a federal agency whose primary responsibility is enforcing the federal securities laws and regulating the securities industry, the nation’s stock and options exchanges, and other electronic securities markets.

In addition to the 1934 Act that created it, the US SEC enforces the Securities Act of 1933, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Sarbanes-Oxley Act of 2002 and other statutes. The SEC was created by Section 4 of the Securities Exchange Act of 1934 (now codified as 15 USC § 78d and commonly referred to as the 1934 Act).

Unlike its US counterparts, our SEC has not contributed to meaningful pieces of legislation. Even its authority has been questioned more than once.
TNFH went ahead with an Extraordinary General Meeting to allow directors who had committed funds to meet statutory capital requirements. TNFH shareholders provided about US$6 million and got preference shares in TN Bank that shareholders wanted to convert to ordinary shares through a rights issue.

SEC was unhappy with rights issue price, which they felt was at a premium to the market price.
After shutting down ISB Securities last year, the firm’s owners dragged SEC to court.

Following an urgent High Court application by ISB Securities challenging allegations by SEC of non-compliance to the commission’s requirements on submission of returns and for allegedly refusing the commission to carry out investigations, the company got its licence back.

Unlike its US counterparts, SEC claims ownership of a statutory instrument that restricts chairing of multiple boards.
Apart from this instrument, SEC has not contributed anything meaningful to the regulation of financial markets in the country.
Like its US counterpart, SEC is supposed to be an independent, quasi-judicial regulatory body driven by the need to regulate the stock market and prevent corporate abuses relating to the offering and sale of securities and corporate reporting.

In the states, SEC also works with criminal law enforcement agencies to prosecute individuals and companies alike for offences which include a criminal violation.

To achieve its mandate, SEC enforces the statutory requirements that public companies submit quarterly and annual reports, as well as other periodic reports.

Back home, SEC and the ZSE have not compelled companies to produce quarterly financials and trade updates, a requirement listed companies do not follow.

Companies come to the market with financials only twice — interim and full year financials. Some companies don’t have analysts briefings, a culture inculcated in the US and other developed markets.

The US SEC maintains an online database called Edgar (the Electronic Data Gathering, Analysis and Retrieval system) from which investors can access information filed with the agency. This is something SEC does not have.

Developed markets also have rules of disclosure. The local market is as secretive as North Korea. For instance, there is no mandatory disclosure of executive remuneration. Who gets what in share options is a closely guarded secret.

Against such a background, investors and the market have no idea of what happens in companies or whether there is abuse.
The US SEC makes reports available to the public via the Edgar system. SEC also offers publications on investment-related topics for public education. The same online system also takes tips and complaints from investors to help the SEC track down violators of the securities laws.

Chris Muronzi