Joe Mekiliuwa is the General Manager of Central Securities Clearing System Plc (CSCS). In this interview with Kehinde Akinseinde-Jayeoba, he speaks on the activities of CSCS as relative to Nigerian capital market.
What is the importance of CSCS to the investors and operators of the Nigerian Stock Exchange (NSE)?
The CSCS is a financial market infrastructure and as the name implies, Central Securities Depository (CSD) is an entity that ensures that securities are centrally deposited for ease of transactions and that there is the clearing of transactions for eventual settlement.
Clearing by definition is determination of obligations arising from securities transactions. So, CSCS does the clearing of the transactions and facilitates the settlement of same.
In the case of security leg of the transactions, the CSCS performs settlement as well as ensuring that the seller is debited on the day of settlement and the buyer is credited. But for the cash leg, the CSCS having done the clearing would advise the settlement banks to do the cash leg of the settlement.
Why should a company like CSCS which performs critical service to investors have one location?
The name of an entity like CSCS all over the world is known as the Central Securities Depository. As the word ‘Central’ implies, it means it must be a centralised entity for securities and with the use of IT infrastructure, it doesn’t require opening of branches across the country. Rather it opens its resources to enable people access same within the country and from all over the world.
That is why you will find out that brokers who are trading across the various branches of the NSE for example, enter their orders at the NSE branches or even from their various offices and same orders are routed to the trading engine of the stock exchange which is on real time with our system.
So, it means that anywhere you are through the IT infrastructure, you can access the exchanges from all over the world or within the country. You can also access our system through the exchange for the broker to be able to trade.
Also, for an investor, he can access our portal through the web to know his balances or stock holdings.
How can investors get full benefits of full dematerialisation?
The advantages of dematerialisation are many; it enables the investor to trade at any time without necessarily passing through the bottlenecks of verifying the share certificates any longer, because the shares are now domiciled with CSCS, he can give a mandate to his broker at any time and the broker accesses the Exchange that same day and trade for him. So the beauty of dematerialisation is that it enhances market dynamism, liquidity and decision making in securities investment, etc.
What are the processes involved in account consolidation or mergers for an investor’s accounts and what are the causes?
In the past during the IPOs/POs, we had the challenge of investors trying to beat the system to be able to purchase more shares beyond the mark or threshold allowed. For example the policy then was that one would not get more than 10,000 units to ensure equity distribution of the shares, some investors who had the money to buy large chunk and were limited to buying only 10,000 units used their names in different forms and toggle same to be able to acquire more thereby beating the system.
As a result, investors now have multiple names in the system representing only one natural person in each case. Having discovered this, we have been discussing with the capital market stakeholders and SEC , investors have been advised to consolidate the accounts, otherwise, orphan accounts will clog the system because some used fictitious names that are non-existent.
So the advice to such investors is to observe the current rule of providing the evidence of purchase of those shares, past dividend stub, photocopy of the earlier form used in the purchase, etc and a letter through the broker to CSCS and registrar, instructing merger of such accounts. However, in a situation where such investor does not have any of these items, the person may have to go to court to swear an affidavit.
Meanwhile, a committee has been set up by SEC to work out the modalities including the required grace period, thereafter penalty will apply.
With the existence of many inactive or dead Houses arising from re-capitalisation of stockbroking firms, how can investors transfer accounts to active firms?
With the recapitalisation exercise and its deadline, many stock broking firms could not make it and the implication is that many are now inactive. The process to do such transfer is as follows: the investor should approach an active stockbroking firm of his choice that will do a robust KYC on such investor to validate the investor’s claims. After that the investor would come to the CSCS for biometric data capture , he would also provide his bank details. Thereafter, the broker of the active stockbroking firm chosen (Target House) would be expected to log on to the CSCS data exchange portal to initiate the transfer. Once this is done, the portal would automatically generate an indemnity form. The MD of the target stockbroking firms would be expected to come physically to CSCS to sign on the indemnity form as an evidence that he has done robust KYC on the client. The KYC documents would be transmitted to SEC for further directives on the broker, on confirmation, SEC would direct CSCS to go ahead to process.
What does the CSCS special account entail?
For one to be a member of special account family in CSCS, an investor is expected to apply for the service, the forms are available on the CSCS portal for download or at CSCS Customer Care Centre. Thereafter, at submission and payment of N5,000 per annum (for individual), family members of the same surname (N10,000 per annum) and the corporate account for N10,000 the account would be setup. The special account enables an investor to have full control of his stock accounts. He can consolidate all his account from the various stockbroking firms into this special account and has the latitude to move the only quantity he chooses to the broker’s position.
What is Direct Cash Settlement (DCS) and how can investors participate of this service?
SEC, NSE and CSCS working in collaboration with brokers introduced what is called DCS. It is a service that enables an investor to get direct credit of proceeds of sales of his shares when his broker sells his shares after the usual client’s mandate to sell. Therefore, instead of the proceeds passing through his broker to him, he gets such directly into his bank account.
The procedure involved in DCS is as follows: DCS form is filled by the investor indicating bank details that includes BVN and submits same to his broker. The broker in turn, logs on to the NIBSS portal to validate the investors BVN, on validation, the broker forwards same to CSCS for second level confirmation through the settlement banks. Thereafter, subsequent proceed of transactions would be credited directly into the investor’s account, instead of the usual practice where the broker would issue cheques or pay into the investor’s account.
Despite the proactive measures to prevent fraudulent acts of dealing houses, cases are still being recorded of unauthorised sales of clients shares. Does CSCS sanction defaulters?
There is a very strict rule now on unauthorised sales of shares that is why we have low incidence of such actions. Also, we have what is called X-alert. This is a mechanism through which an investor is alerted whenever there is any action on his account. When sales, movements or updates happen on the account, such investor will be alerted and the reason for such alert is to create investor’s awareness to such action, so that it will be reversed if not authorised.
The only way to get such alert is when one submits his GSM number through his broker to CSCS. This is used to update his account in CSCS, thereafter, whatever happens in his account, such investor will be alerted.
If for any reason there arises a situation where a broker sells shares unauthorised, the broker would be heavily penalised. Apart from the fact that the broker would be made to buy back the shares, the broker would be fined both at the Exchange and the CSCS, it is majorly to build investors’ confidence. The incidence of unauthorised sale is becoming a thing of the past.
Why the low turnout on E-dividend registration?
E-dividend is an initiative by SEC, involving the Registrars , Brokers and other market Stakeholders. It provides the opportunity for investors to have their dividend paid directly into their bank accounts.
What CSCS is doing is that, we are collaborating with the SEC and the Registrars to ensure that low e-dividend registration would be a thing of the past. CSCS assists in the collation of the investors’ bank details from Brokers and forwards same to the Registrars. Also, e-dividend mandate form can be collected from the banks, Registrars, etc to be filled by investors and submit to Registrars or the Banks.
A lot of reasons gave rise to unclaimed dividend such as the usage of wrong names to purchase shares during IPO’s, such makes it difficult for those dividends to be paid into bank accounts of natural persons. Other reasons are like change of address, change of names , poor postal services etc.
We are doing awareness program, letting the public know that they need to provided their KYC details , but again in Nigeria, we all know that until we use force people will not live up to expectation as witnessed in the case of the BVN. So if investors do not submit bank details, within a short period of time, dividends will no longer be paid to them.
How would you describe the operational profile of CSCS since SEC commences E-dividend portal?
CSCS has the capacity to support any market initiative, we have seasoned professionals from the MD to the least worker. What is happening in the market is not new to us, we know the right steps to take. The management is sound both in IT and in the capital market dynamics and we are using this knowledge to make our input in market initiatives.
When you talk of profile, historically CSCS has made its mark, we have been in existence since 1997, we have fantastic historical evidence to prove our competence, and based on our capacity and efficiency we are currently rated A+ by Thomas Murray Data Services, an entity that rates CSD’s all over the world.
From the inception of e-dividend initiative, CSCS has been the forefront in the exercise, we are active member of the committee involved in all robust deliberations on e-dividend, we are strategically providing support in the second level of verification for bank details submitted through the Brokers for onward transmission to Registrars for e-dividend payment.