This is the way to go if the market is to be revolutionised into a progressive modern market. Instead of waiting for a whole seven days to process transactions, under the new system trading will be done in real time.
A consortium led by First Transfer Secretaries (FTS), one of the largest transfer secretaries in the country, won the bid to establish a CSD for Zimbabwe’s capital markets that will see FTS building an electronic platform for the clearing and settlement of securities transactions.
The network will also facilitate straight through processing of scrip on a payment versus delivery (PVD) basis under which a register of shares will be kept in electronic form and ownership would change simultaneously as payment is confirmed. Currently ZSE operates on a T+7 settlement cycle which means that payment and securities delivery is due a week after a buy or sale deal.
The introduction of such an electronic settlement system in the country has been long overdue. Already neighbouring countries such as Botswana and Zambia are already on such a platform despite low activity in terms of volumes traded and the average daily turnover.
Introduction of the CSD system will also marshal the introduction of an electronic trading platform, a move that will boost buying and selling of shares. Unlike the old T+7 system, everything will be done in real time. This will in turn improve market efficiency as human intervention which usually leads to the manipulation of market forces is eliminated.
Compared to the single call-over system currently in place that limits market activity, a real time trading system avails continuous trading opportunities for both buyers and sellers.
Judging by actions of market players over the years, the system will undoubtedly enhance diligent monitoring of market transactions and it will become easy to pick out transactions of, for instance, related parties and eliminate price ramping as was the case with Pelhams last year.
A shareholder in Pelhams declared a dividend while still chairing the board of the furniture retailer and pocketed a handsome return before leaving. With the new CSD, information will be available at the snap of a finger.
Consider some observations by securities firm Tetrad in its weekly report: “Developers of the system nonetheless have a lot of challenges to overcome. Currently the scrip that is trading on the market does not balance. For instance there are some disputed deals stretching as far back as 2008 that are yet to be resolved. Furthermore some market players take time to reregister their scrip. As an illustration, Broker X buy shares from Broker Y and the scrip is delivered in negotiable order. If Broker X takes time to re-register the shares bought then these shares will remain under the name Broker Y. Such irregularities will have to be ironed out first for the implementation of the system to be smooth.”
While, shareholder registers were largely kept up to date, the process of ascertaining the identity of a buyer or a seller in the old system is quite cumbersome. One had to get to this and that transfer secretary to get a mere top 10 shareholders list. There are many alleged incidents on the market where company executives buy or sell their shares just before the publication of their financial results.
Cases of illicit trading tendencies such as short selling will be eliminated. Short selling is the disposal of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. The logic of short sellers is simple; they hope and believe they will be able to buy the stock at a lower amount than the price at which they sold.
But in order for the system to work efficiently, FTS and its partners have to ensure that security on its network is fully implemented and not have classified data falling into the wrong hands.
On second thoughts, we would not mind seeing a few “WikiLeaks”-type security breaches ourselves.