IN 2014, a securities depository company (Chengetedzai Securities Depository) commenced the migration of paper-based titles into new electronic shares and has played an active role in the maintenance of the electronic register of securities on the market since then. This week, Zimbabwe Independent business reporter Melody Chikono (MC) interviewed CSD chief executive Campbell Musiwa (CM). See excerpts below:
MC: For the general populace, may you explain what a CSD is?
CM: A Central Securities Depository (CSD) is an organisation that maintains an electronic register of securities.
It allows ownership of securities to be easily transferred through an electronic book entry; and replaces paper certificates with electronic balances. The CSD system facilitates the clearing, settlement and safekeeping of securities. Securities include equities, money market instruments bonds, and mortgage-backed securities and derivatives.
MC: What has been the achievement of CSD since going live?
CM: The on-boarding of all ZSE (Zimbabwe Stock Exchange) counters by July 6 2015; and the launch of the CSD Fixed Income Securities module launched in September 2016. An average dematerialisation penetration ratio (demat ratio) across all ZSE counters stood at 39% as at 31 December 2017. The top four counters have dematerialised beyond 90 % CDC was rated A- by Thomas Murray Data Services, an international rating agency that specialises in rating CSDs, stock exchanges and other financial market infrastructures (FMIs). This provides an extra layer of comfort for issuers and investors as they can independently verify the quality of the CSD infrastructure, processes and procedures.
There has been a reduction in settlement time from T +5 to T +3 in May 2017, and CDC migrated from settlement of trades using commercial bank money to settlement using central bank money in November 2016.
Migration to settlement using central bank money, which also came with the introduction of collateral security to manage default risk which now stands at US$42,5 million. The migration of the CSD settlement model from delivery versus payment (DvP) model 1 to DvP model 2 which was achieved in November 2017. DvP model entails gross settlement of both securities and cash while DvP model 2 introduces netting on cash settlement. This improves market liquidity.
MC: How many counters have been on-boarded and how long did it take for all to come on board?
CM: There are 62 listed securities that are on-boarded on the CSD: 61 listed equities and 1 listed debt security. CDC on-boarded all ZSE-listed equities between September 2014 and July 2015 (all counters that were listed then). Other counters that were listed subsequent to that date were on-boarded when they were listed.
MC: Cumulatively, how many accounts have been opened and what is the split between local and foreign accounts?
CM: As at December 31 2017, there were 22 387 accounts on the CSD; 94% of the accounts were opened by local investors with the remaining 6% being opened by foreigners.
MC: By market value, how much has been processed on the CSD since going live?
CM: Since going live, the CSD has processed 35 315 ZSE trades with a value of US$2,1 billion.
MC: What challenges you have faced since you began operations?
CM: Low visibility and awareness on the operations of the CSD, which means the market still needs to be educated. Low trading volumes have affected revenues of all capital market players. Foreign currency shortages and challenges in repatriating proceeds for foreign investors. This has led to reduced participation by foreign investors.
MC: Can you explain what dematerialisation is and what is the average demat ratio?
CM: Dematerialisation is the process of converting certificated securities into electronic balances on the CSD. In common language, it is the process of depositing of securities certificates onto the CSD. The dematerialisation penetration ratio (demat ratio) is the proportion of electronic/dematerialised securities to the total issued securities. As at December 31 2017, the average demat ratio was 39%.
MC: How do you see 2018 in terms of securities trading?
CM: The changes on the political front mean that 2018 begins with a lot of promise. There has been renewed interest in the country and in the securities markets. Any further improvements will result in further interest in the country’s securities markets.
MC: What initiatives are you putting in place to increase activity on the market?
CM: Introduction of mobile/online trading, working with other partners such as the ZSE and Securities and Exchange Commission of Zimbabwe. We will hold an awareness campaign to encourage those investors that are yet to dematerialise their securities.
A change from DVP model 2 to DVP model 3 settlement by in 2018. DvP model 3 involves netting on securities settlement. This will enable the market to introduce products such as turnaround (buying and selling before completion of the settlement cycle) and day trading as they do not have to wait for settlement.
We will ensure further on-boarding of bonds and other fixed income securities to increase the type of instruments that are available for market players to invest. On-boarding of self-administered pension funds and other large institutional investors as business partners on the CSD. This allows such players to lower securities custody costs and thus dematerialise their securities.
MC: What can you say about the securities market in Zimbabwe and what do you think needs to be improved to increase participation on the market?
CM: Zimbabwe has a fairly developed securities market, which at one point was one of the best in Africa. Improvements that are required include:
l Further automation and straight through processing (STP) between market participants in order to improve market efficiency;
l Improved market access and financial inclusion especially for retail investors. Products such as mobile and online trading platforms will go a long way in this regard;
l Market awareness campaigns as most of the population is not informed about the operations of the securities markets;
l Increasing the number of securities types that are listed on the country’s exchanges. The market is currently dominated by equities and other products such as bonds, derivatives, securities lending and borrowing are required.
Fact File: Campbell Musiwa
l Appointed Chengetedzai Depository Company chief executive in 2011
l In 2010, First Transfer Secretaries (FTS) as a lead bidder, together with a consortium of Zimbabwean technocrats, won the bid to establish Zimbabwe’s first central securities depository, Chengetedzai Depository Company Limited;
l Became FTS managing director on a full-time basis in 2000;
l In 1999, Musiwa acquired the entire business of First Transfer Secretaries (Private) Limited; and
l Holds a Bachelor of Accountancy Degree from the University of Zimbabwe.