Investor protection mechanisms in the capital market

Investor protections matter for the ability of companies to raise the capital needed to grow, innovate, diversify and compete. Without investor protections, equity markets fail to develop. Economies that have dynamic capital markets tend to protect investors effectively. In these economies investors receive financial information they can trust, they participate in major decisions of the company, and directors are accountable for their managerial decisions. If the laws do not provide such protections, investors may be reluctant to invest.

Investors are the pillar of the financial and securities market. They not only determine the level of activity in the capital market but also the level of activity in the economy. They put their money in stocks to help grow the market and the economy. It is therefore critical that investors be safeguarded from malpractices for the healthy growth of the economy and to ensure investors’ confidence in the market is maintained. C-TRADE as a market player helps to cultivate investor knowledge in the marketplace by ensuring an understanding of the investing public in the rights and obligations of the investors and the issuers in which they invest. In Zimbabwe there are a number of mechanisms put in place to ensure investors’ interests are protected.

These investor protection mechanisms include procedures, regulations, and enforcement mechanisms put in place to ensure investors are given adequate protection for their investments, with the objective of providing the public with a transparent investment landscape. There are pieces of legislation that also govern the operations of capital market participants. Participants are mandated to make protection of investor rights and interests of paramount importance and a priority.

The regulator of the capital markets, Securities Exchange Commission of Zimbabwe (SECZ), has put in place various investor protection mechanisms which include regulation and licensing of all capital market players. SECZ provides regulatory oversight on the activities of market participants.  The continuous supervision of capital market players ensures that only institutions that uphold high ethical standards are allowed to operate. The Securities and Exchange Act and the Collective Investment Schemes Act are some of the pieces of legislation that govern the operations of capital market participants.

Besides superintending over the legal framework that governs market players, SECZ is also available to every investor who may have a claim or complaint against any of the regulated entities.  Through the Investor Protection Fund (IPF) there is provision of compensation to investors for losses suffered as a direct result of a licensed contributor’s failure to meet their liabilities through insolvency, malpractice or other cause.

Moreso, the listing rules and the on-going obligations on listed companies compel them to make certain types of public disclosures regarding the financial and operational details of the company.  A number of high-level principles sit behind these requirements, including a desire to ensure a level playing field for all investors and equality of information. Information can be in the form of public announcements by the company on upcoming events such as meetings or proposed transactions, release of annual financial reports (some entities can choose to also release half-year financials) or cautionary statements that are meant to give shareholders prior indications about possible significant upcoming transactions. Dissemination of such information which is of paramount importance to investors can be published through the press, printed circulars to shareholders or company website uploads. Social media has also become a very effective way of information dissemination. All these measures are meant to make the marketplace more transparent, efficient and investor-friendly.

While C-TRADE, has its own complaints handling procedures designed to ensure adequate protection of investors, it also falls under the regulated entities which are supervised by SECZ.

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