The Securities Exchange Commission of Zimbabwe (SECZ), which regulates the local stock exchange, is leading a campaign to promote the participation of Zimbabweans in the capital markets. This week, Zimbabwe Independent business reporter Taurai Mangudhla (TM) interviewed SECZ chief executive Tafadzwa Chinamo (TC) on the campaign, prevailing market conditions as well as the scourge of insider trading. Below are excerpts:
TM: Can you give details about your campaign and how it is going to work?
TC: The campaign is aimed at promoting the participation of the general public in the local capital market in the interests of financial inclusion, as well as growing the securities market. We want to share the benefits of the trading in shares on the Zimbabwe Stock Exchange (ZSE) while at the same time removing the obstacles to the ease of trading there.
TM: What is motivating the awareness campaign?
TC: We are motivated by the fact that there is little awareness in the general public about the investment opportunities offered by Zimbabwe’s vibrant capital market. There is also the added fact that there are an estimated US$16 million worth of unclaimed dividends since dollarisation. In addition to this, US$15 million worth of share certificates belonging to Zimbabweans are yet to be dematerialised. Only dematerialised shares can be traded on the ZSE.
TM: Who are your partners in the campaign and what is the budget (giving a breakdown of allocation of funds)?
TC: The campaign is not a SECZ campaign. Rather it’s a securities market campaign. As the regulator, we have the means to coordinate all the players hence the appearance that it’s a SECZ campaign. So, we have intermediaries such as securities dealers or stockbrokers, Chengetedzai Depository Company, the ZSE, the Financial Securities Exchange (Finsec).
In the campaign, we are also working closely with the Reserve Bank of Zimbabwe and the Bank Use Promotion and Suppression of Money Laundering Unit, also known as the Financial Intelligence Unit. That is not leaving out the media who are key in the dissemination of the key messages we intend sharing with our various stakeholders.
TM: What do you aim to achieve in terms of deliverables?
TC: Ultimately, we want to see a noticeable increase in trading and thus participation on the capital markets. The education and awareness campaign is key in that the public will not only have at their disposal more options of where to invest their money, but be empowered to make informed decisions as to how they can grow their investments.
TM: How many active accounts do you have in place and how does it compare to the peak period?
TC: Those that have dematerialised stand at just over 7 000 compared to over 200 000 prior to dollarisation.
TM: In terms of the campaign, how many active accounts are you seeking to achieve?
TC: Through the campaign, we intend to first re-engage with those investors who have dropped out along the way, and then also picking up those investors who are interested in what is going on in the markets. We have approximately 7 000 active investors in the markets. We intend to grow that number to 50 000 investors.
TM: You spoke about unclaimed shares. What in your view is the reason for the accumulation of these shares, what is the number and value?
TC: Like we indicated, the issue about unclaimed shares was exacerbated with dollarisation, in that many investors had invested in shares to beat hyperinflation and when prices were converted to US dollar portfolio values for most investors were deemed too small to keep track of stock market performance.
Some also felt that the market would not provide the high percentage gains investors had become accustomed to during hyperinflation. Also, the small amounts earned as dividends and a general lack of knowledge among the generality of the investing public contributed to this state of disinterest. We aim to correct that and other misperceptions about the local capital market.
TM: You also spoke about unclaimed dividends, again what is the reason for this and what is the amount?
TC: As mentioned above, the amounts for most investors are simply too little to bother going to them at the bank.
TM: What steps are you taking to simplify the processes for an investor who wants to buy shares?
TC: To achieve this we, as regulators, have undertaken to simplify the process of investors intending on participating in the capital market by relaxing know-your-customer (KYC) requirements. We will also be launching an application that will take advantage of the growth in numbers of people who have access to mobile technology.
In addition, an online platform will be launched that will increase the ease with which investors can trade on the capital market. This will be in October 2017, bringing Zimbabwe’s capital market to your fingertips.
TM: There is concern on disclosure. As regulator of the capital markets, how is this going to be addressed?
TC: You should be aware that the capital market sector is subject to immense regulation by ourselves. This is to ensure that all parties involved comply to set rules and regulations. The main objective is to protect investors as they trade in listed shares. Any obligations on the part of listed companies must be met and it is our function to ensure that.
That said, there is still a long way to go as far as disclosure is concerned and the commission will soon propose amendments to its Act that will bring issuers under its direct purview. Investors play a big part in demanding information from issuers of securities and for that reason the campaign will go a long way in informing investors of their right to information.
TM: The world over, there is concern around insider trading. What is the situation in Zimbabwe?
TC: What we can say is that in as far as the commission is concerned, investor protection is a combination of diverse but closely integrated measures that include: market regulation and enforcement; registration and licensing of key market players; information disclosure and accessibility; compensation schemes and consumer education among others. Any instances of impropriety on the part of the various players in the capital markets is unlikely to escape our scrutiny and censure as empowered by regulations.
TM: What mechanisms are in place to discourage insider trading and what measures are being taken to punish offenders?
TC: We believe it is every investor’s right to be protected against misleading, manipulative or fraudulent practices by market players. Investor protection is therefore mandatory and automatic once a listed company, investor or intermediary participates in the capital markets. Our amendments will make it easy for us to act on anyone caught on the wrong side of the law. We have also established a unit within our supervision and surveillance department to monitor more closely the activity on the stock market.
TM: What other projects are you working on to improve regulation of the capital markets?
TC: Right now, our biggest task is to bring internet and mobile trading to the market. Add to that the amendments we are trying to introduce, I can safely say we are very busy.
TM: Is there scope to create a platform to trade in government-issued bonds?
TC: Definitely. Investors must understand them first, hence our awareness and education campaign.
TM: What role do capital markets play in the development of an economy?
TC: Simply put, economic growth in a country hinges on an efficient and effective financial sector that pools domestic savings and mobilises capital for productive projects.
The absence of an effective capital market could leave most productive projects which carry a developmental agenda unexploited. The capital market connects the monetary sector with the real sector and therefore facilitates growth in the real sector and ultimately the economic development of a country.