adminChengetedzai Depository Company has said dematerialisation of shares on the central securities depository is taking long because shares would have been registered in a name different to how an investor is recorded in CSD.
This follows complaints raised by market players that dematerialisation is taking too long while account opening is slow.
Chengetedzai CEO Mr Campbell Musiwa said dematerialisation is taking too long mainly due to legacy issues around the shares.
“Shares are registered in a name different to how an investor is recorded on the CSD. These are legacy issues where investors would register shares in pseudo names, nominees and unregistered trust names which can’t be created on the CSD because they do not have KYC records.”
He said dematerialisation should take a maximum of 72 hours. To date 799 accounts had been opened. Of these accounts, 27 percent are Pension funds, individuals (8 percent), corporates (4 percent), insurance companies (3 percent), Unit Trust Funds (2 percent) and 57 percent are unclassified, but predominantly foreign funds. A total of 1 441 dematerialisations have occurred so far.
Stockbrokers have said that since launch, no trade has been settled on the 7th day.
“Clients are getting money on the 8th, 9th or 10th day. Imagine clients bring paper certificates, we send them to custodians, who in turn send them to transfer secretaries for dematerialisation. Trades then happen. This is a slow system,” said one of the stockbrokers.
On slow account opening, which is reported to take up to five days, Mr Musiwa said investigations by Chengetedzai have shown that accounts creation is slow because some investors (especially those coming through brokers) do not provide sufficient KYC to enable account creation.
“The CSD has also brought about sanity in KYC records in the securities industry, hence the slower pace. Once people get used to new requirements the process should become faster. Where all documents are in place, it should take about 5 minutes to open an account.”
Stockbrokers have also expressed concern over how they are exposed by the system in that brokerage and taxes are held by the CSD and paid on settled deals while they are required to pay taxes, especially on transaction dates.
Delays in settling deals or remitting funds from the CSD to brokers could result in Zimra penalties on the stockbrokers. However, Musiwa said Chengetedzai remits all brokerage and taxes in good time but only for settled deals. Where deals are yet to settle, the CSD cannot be asked to pay for brokerage which would not have been received from the investors. This is because brokerage and taxes are collected on settlement; seven days after the trades are done on the ZSE.
“With the envisaged reduction in settlement cycles (T+3 mid of next year) the situation will improve.”
On interfacing with broker back office systems, Musiwa said Chengetedzai advises brokers against incurring unnecessary costs in integrating with the CSD since the automation of the ZSE (work currently in progress) would effectively eliminate the need for brokers to integrate with the CSD system.
“Thus brokers could save they financial resources and utilise the funds to integrate with the ATS. The CSD can interface with brokers back office systems should they request for the services, and at their own cost.”
There have also been queries on additional charges of $2 or 0,05 percent of transaction value which most market players believe will discourage local investors. A proposal of a $2 charge per transactions for all local clients on the broker-controlled account as a compromise was made but Musiwa said the charges are meant to meet direct costs of processing settlement transactions, and not to contribute to profits of the CSD. -Wires.
Online Reporter