Mr.Joe Mekiliuwa, is General Manager, Information/Technology and Operations of the Central Securities Clearing System, CSCS Plc. In this interview he spoke on issues and challenges affecting the Nigerian stock market as well as the importance of CSCS in developing the market, amongst others. Excerpts:

What is dematerialisation and how can investors get full benefits of full dematerialisation?

Dematerialisation is the process of converting physical shares into electronic format. An investor who wants to dematerialise his shares needs to open a demat account with Depository Participant. Investor surrenders his physical shares and in turn gets electronic shares in his demat account.

The advantages of dematerialization 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. Some of the beauties of dematerialisation are that it enhances market dynamism, liquidity and decision making in securities investment, etc.

With the existence of many inactive or dead stock broking firms arising from re-capitalisation, 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 stock broking firm of his choice that will do a robust Know Your Customer, 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 stock broker of the active stock broking 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 Managing Director of the target stock broking firms would be expected to come physically to CSCS to sign on the indemnity form as evidence that he has done robust KYC on the Client.  The KYC documents would be transmitted to SEC for further directives on the stockbroker. On confirmation, SEC would direct CSCS to go ahead to process.

Despite the proactive measures to prevent fraudulent acts of dealing houses, cases are still being recorded of unauthorized 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 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.

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 Managing Director 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 CSDs allover the world.

From the inception of e-dividend initiative, CSCS has been at 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.

Why the low turnout on E-dividend registration?

E-dividend is an initiative by the Securities and Exchange Commission, SEC, involving the Registrars, Brokers andother 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 change of address, change of names, poor postal services etc.

We are doing awareness programme 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.

Can you tell us the importance of CSCS to the investors and operators on the Nigerian Stock Exchange (NSE)?

CSCS is a Financial Market Infrastructure and as the name implies: Central Securities Depository. It is an entity that ensures that securities are centrally deposited, for ease of transactions and ensures that there is what is called 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 that renders critical services to investors have one location?

The  name of an entity like CSCS all over the world is known as CSD which is Central Securities Depository.    As the word “Central” implies, it means it must be a centralized 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. T

hat is why you will find out that brokers who are trading across the various branches of the Nigeria stock exchange for example enter their orders at the Nigerian Stock Exchange 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.

What are the processes involved in account consolidation or mergers for an investor’s accounts and what are the cause?

In the past during the IPOs/POs, we had the challenge of investors trying to beat the system to be able to buy 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 10,000unitsused 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.