The Sunday Mail
THE ongoing automation of the Zimbabwe Stock Exchange will likely push out minority investors due to increased costs, scuppering the bourse’s ambitious efforts of “taking investment to the people”, The Sunday Mail Business has established.
The ZSE is transforming from manual to electronic trading to boost efficiency and catch up with global trends.
Eighteen counters have gone electronic since September 8, while the rest will be automated by year-end.
However, with automation, small-time investors are now being asked to do what has never happened before — to pay more for transacting on the ZSE.
By opening the mandatory custodial accounts, which should house the new electronic share certificates, minorities are incurring extra costs that may force them out of the market, analysts have said.
This is in addition to the total 4,2 percent existing charge for buying and selling stocks.
Automation has cut brokerage fees from 1 percent to 0,92 percent, but introduced a central securities depository levy of 0,12 percent since July, which virtually keeps transaction costs constant.
“The process is supposed to be faster, but it seems there is more an investor must do now to trade on the local bourse,” said a Harare stockbroker, who requested anonymity because he was not cleared to speak to the Press.
“Plus you do not open a custody account (sic) for free, that is an additional charge which may not be ideal for retail investors. They want to make profit from their investment on the stock market not to be milked of the little they have.”
Most minorities enter the market on a trial basis, with very little capital.
During the manual era, when trades were only handled by stockbrokers, charges were minimal.
However, the automation of the ZSE as administered by Chengetedza Depository Company Limited (CSD), has created uncertainties on costs.
The CSD requires that all investors — retail or institutional — open a custodial account to be able to transact, but they must still place their orders via stockbrokers just like they used to do in the past.
One of CSD’s weaknesses is that it does not moderate fees charged by custodial service providers, creating a free-for-all situation in which custodians charge whatever they want, experts said.
A survey by The Sunday Mail Business showed that the five registered custodial service providers will charge investors a minimum US$2 per transaction.
It could not be established, however, whether monthly service fees will be levied at a flat rate across the board.
The custodial account operates more or less like the ordinary savings account.
An official with Stanbic Investor Services said individual investors were complaining of high fees and were now only handling stockbroker controlled accounts.
Standard Chartered Custodial Services said the group was transacting for corporate clients only.
“The issue of minority shareholders can certainly not be solved through opening of custodial accounts; it’s basically a soft infrastructure matter which calls for upholding and strengthening of corporate governance framework,” said Mr Takunda Mugaga, head of research at Econometer Global Capital.
“A suitable corporate governance regime protects minority shareholders as the principle of equity applies. One of the major requirements for ZSE to be efficient on an electronic platform involves sweeping legal challenges to the laws which promoted big elephants in boardrooms, opaque shareholder registers and anonymous investment vehicles normally referred to as trusts.”
An analyst with local research firm MMC Capital said: “In the old system, one could keep shares in a nominee account owned by stockbrokers and it was free. Now, with this system, there are fears it could be expansive as it will be like a bank account and your shares will reflect like bank statement.”
The other three custodians are CBZ Custodial Services, Old Mutual Custodial Services and ZB Custodial Services.
Under the new model, investors must deposit their physical share certificates in their account with the custodian as opposed to depositing physical share certificates with the broker.
The custodian will administer the “dematerialisation” process; that is, the process of converting the physical shares to electronic form under the CSD.
FBC Securities back office manager Mr Norman Chirima said of the system: “It is a new phenomenon here, but it’s best practice from across the globe.
“As for the foreign investors and corporate, there isn’t any major changes, but may only affect retail investors.
“But the manual system had so many risks that the electronic system will tackle such as loss of share certificates. One would need to pay for a replacement and would need to produce police clearance.”
Harare brokerage firm IH Securities said the CSD system is a transition from broker-based to custodian-centric system.
“As a result the bulk of securities transactions will be processed in an electronic book entry form, thus expediting the settlement of equity transactions and ensuring compliance with international best practice.
“It is our view that the CSD will bring increased efficiencies to the ZSE and significantly minimize the risks of failed transactions and/or delayed settlements,” said IH Securities.
Retail clients will have the option to open CSD accounts via a broker-controlled account.
This facility allows a broker to open a single bulk account with a selected custodian, under which the broker can administer multiple sub-accounts for smaller retail clients.
All securities are expected to trade on the CSD in December.
The system commenced on September 8 with three counters — CBZ Holdings Limited, Cottco Holdings and FBCH Limited.
In the second phase, 15 more counters traded on the CSD on October 6.
These are African Sun, ART Holdings, Ariston, Astra Industries, Barclays, Bindura, Dairibord, Edgars, Falcon, Hippo, Meikles, Pearl Properties, NMBZ Holdings, ZPI and Zimplow.
It is proposed that 10 more counters be moved to the CSD system on November 3, which will be phase three of the programme.
By December 2014 all securities are expected to held in electronic form that facilitates storage, transfer, clearance and settlement through the CSD process.
