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Direct cash settlement: No more fraudulent stockbroking

By Babajide Komolafe

It has happened to many investors. Your stockbroker helps you to sell your shares. You had instructed him to sell at any price because you need the money urgently. He sells the shares at N20 per share but tells you he sold at N18 per share. Or the broker uses your money for his expenses and tells you he is yet to sell the shares.    These unethical practices have caused many investors  to lose confidence in the stock market and hence discouraged from investing in the market.

These practices were possible because investors have to go through a stock broker to buy or sell shares on the stock market. In addition, when the shares are sold, the money will be paid into the account of the broker, who will thereafter, deducts his commission, and pay the balance to the investor via cheque. This confers on the broker the power to determine what comes to the investor and the time he receives  proceeds of the share sale.    Some unscrupulous brokers however exploit this process to divert the proceeds for personal use. One of the ways they do this is to open a bank account with the name of the investor, issue a cheque in the name of the investor and pay the cheque into the fake account.

Yesterday however marked the beginning of an era where such unethical practices became almost impossible. It is an era where the proceeds of share sales will now be paid directly into the bank account submitted by the investor. This is called Direct Cash Settlement (DCS).    This is built on the Biometric Verification Number (BVN) which makes it possible to verify the identity of the owner of any bank account.

How does it work? When Broker A sells shares on behalf of Investor A to broker B, rather than credit Broker A the proceeds of the share sale, the Central Securities Clearing System (CSCS), which processes and effects the transaction, will credit Broker A his commission on the transaction and then credit the bank account of Investor A. So Broker A only receives his commission while the balance is credited to the bank account of Investor A. Thus the broker cannot fraudulently divert the proceeds of the share sale.

This also makes it impossible for any broker to fraudulently sell the shares of any investor.

However, before an investor enjoys the protection of the DCS he has to register for it through his broker.    This was contained in a circular, issued by the Securities and Exchange Commission to the general public. The circular stated, “This is to inform the general public that effective from  January 4, 2016,  the implementation of Direct Cash Settlement will commence.

“The Direct Cash Settlement (DCS) is a process where cash proceeds from trades executed by Brokers on the Exchange settles directly into investors’ bank account. DCS is aimed at improving transparency, entrenching investor confidence, reducing market infractions and improving trading velocity.

“Based on an agreement reached with the Nigerian Stock Exchange (NSE), Central Securities Clearing System (CSCS) PLC, Association of Stockbroking Houses of Nigeria (ASHON) and Nigeria Inter-Bank Settlement System (NIBSS) Plc, Dealing Firms are hereby directed to send relevant information to NIBSS not later than  Wednesday, December 30, 2015  to enable the Firms log-on to NIBSS portal for validation of Bank Verification Numbers (BVN).

“All investors are expected to complete a Direct Cash Settlement form with their Stockbroking Firms. Forms could also be  downloaded from the website of SEC, NSE, CSCS, ASHON and individual Stockbroking Firms and forwarded to investors’ respective Stockbroking Firms after completion.” TO BE CONTINUED.  (Send comments, complaints and enquiries to vanguardinvestorsforum@gmail.com)

 


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