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The Securities & Exchange Commission, in terms of the Securities and Exchange Act [Chapter 24:25], Sections 68-86 granted a provisional licence to Chengetedzai Depository Company, to operate a Central Securities Depository in May 2014. A CSD is simply a computerised system that maintains an electronic register of securities such as shares, instead of paper-share certificates.
The system immobilises and dematerialises physical certificates so that they exist only as electronic records thereby eliminating the risks associated with handling physical scrip. Investors move from holding paper certificates as part of proof of owning shares in a company to keeping them through electronic records.
In this case, proof of ownership/shareholding will therefore be in the form of share account statements and ownership can now easily be transferred from one investor to the other through a book entry rather than the transfer of physical certificates.
Currently, the securities market operates on a manual system and shares are held in paper form. Investors buy shares through a securities dealer (stockbroker) and the proof of the transaction is a paper-based share certificate.
However, there are a lot of risks in this system because the certificates could get misplaced, stolen or forged, not mentioning delays in transaction processing due to verification of the share certificates.
Therefore, a CSD effectively enhances efficiency and assumes a critical role in guaranteeing a safe and efficient transfer of securities that exist only in book entry form.
SECZ is empowered through the Securities and Exchange Act Cap. 24:25 and the Statutory Instrument 63 of 2013, Securities (Central Securities Depositories) Rules, 2013 to regulate CSDs.
SECZ also licenses Depository Participants that are entitled to use the services and facilities of a CSD. A DP acts as an intermediary between an investor and the CSD and provides the link between the two parties.
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