Stockbrokers face deregistration

Bernard Mpofu

SEVEN out of 19 registered stockbrokers could face deregistration after the Securities Commission of Zimbabwe (SEC) proposed a US$150 000 minimum capital requirement amid concerns  on the much-delayed demutualisation of the Zimbabwe Stock Exchange (ZSE), businessdigest can reveal.

According to ZSE minutes of an extraordinary general meeting held on December 14 2010, several brokerage firms operating in the liquidity constrained market may go under, should the capital markets regulator implement the statutory requirement.

“A letter was received from Securities Commission proposing a minimum capital requirement of US$150 000 or 13 weeks operating expenses, whichever is higher,” read the minutes.

“A survey undertaken by ZSE however revealed that seven companies accounts showed that they had less than US$150 000 in total shareholders’ funds and in some instances the companies had negative capital and shareholders loans have been used to shore up the businesses.”

Stockbrokers, whose source of capital is brokerage fees and structuring deals, according to the minutes, agreed on the new fee saying capital-short firms should “negotiate separately” with SEC.

The minutes also revealed that the ZSE would soon introduce sweeping reforms to regularise private commission sharing arrangements between foreign players and local stockbrokers, thriving to survive or remain profitable.

The ZSE members, according to the meeting, warned that “an element of disorderliness had crept into the system”.

“After deliberations it was agreed that in view of the fact that much of the ZSE turnover was generated by foreign players, it made sense to formalise the commission sharing through amendments to members rules,” further reads the minutes.

The ZSE said the scheme would be subjected to registration by the Reserve Bank saying earnings from such an arrangement would be deemed export proceeds.

On demutualisation, the ZSE agreed to form a technical team comprising ZSE CEO Emmanuel Munyukwi, ZSE lawyer and MMC Capital director Edward Mapokotera and Imara Capital MD Sean Gammon. Demutualisation, a matter that has been on the cards for several years in Zimbabwe, refers to the legal structure of an exchange whereby the ownership, the management and the trading rights at the exchange are separated from one another.

But Mapokotera, according to the minutes, said a Statutory Instrument relating to the demutulisation of the ZSE was “seriously defective,” arguing that the new law would disadvantage members.

“At the same time, the committee was no longer sitting and the proposed board has not been endorsed by the Securities Commission. This situation has created a gap in the management of the ZSE’s affairs and it is from this point of view that it was suggested that demutualisation be pursued as a means to put a proper private institution in place together with its own legally constituted board,” the minutes read.

Market players, according to the minutes, also differed on a new law proposing brokerage firms to have two licenced stockbrokers.

“In order to ensure compliance, it would be necessary for the ZSE to consider being flexible on usual requirements for licensing purposes. Some members felt that any leniency extended in this regard may have the adverse effect of diluting the quality of the stockbroker and member of the Stock Exchange. All agreed that there was need to protect the status of the profession of stockbrokers but also agreed to compromise on some of the requirements in order to give member firms a fair survival chance,” read the minutes.

Efforts to reach Munyukwi proved fruitless at the time of going to press as he was said to be out of office until Tuesday, while ZSE chairman Ndodana Mguquka was said to be tied up in meetings.

In a related matter, Imara Asset Management CEO John Legat has advised government to reduce brokerage fees saying Zimbabwe is still charging hyperinflationary era levies.

“It still costs you just under 4% to sell or buy (shares) which I think is very high for the region and I think we should reduce that very quickly and overnight by getting rid of withholding tax,” said Legat during last week’s  economic outlook symposium in the capital.

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