The Securities and Exchange. Commission, SEC, and the Nigerian Stock Exchange, NSE, have approved the take-off of direct cash settlement of securities system for payment of sale proceeds into an investor’s nominated bank account.
The capital market regulators changed from the 55-year analogue settlement payment system to automated real time payment regime, and said the approved payment system would commence from January 4, 2016.
The innovative investors’ settlement system is part of the on-going initiatives to protect investors and eliminate fraud in the Nigerian capital market.
The direct cash settlement system would enable investors’ bank accounts to be credited directly with the net cash proceeds of stock market transactions by brokers on the Exchange, to address the illegal sale of investors’ securities.
The process starts with the mandate by a client to the broker to sell his or her shares. Once the shares are sold, payment would be made directly into the client’s desired bank account.
The new system contrasts with the current practice where proceeds from the sale of securities were paid directly into the stockbroker’s account before being remitted to the client’s account after deducting transaction fees.
The Director General of SEC, Mounir Gwarzo, explained that the new system would eliminate situations in the past where proceeds of sales were not remitted by the stockbroker into the clients’ accounts.
Mr. Gwarzo, said with the direct cash settlement initiative, the moment securities were sold, the consideration amount would be paid directly into the client’s account.
He said members of the Capital Market Committee unanimously agreed at their last meeting that the new system would boost investor confidence in the market and curb fraud.
Under the ‘direct cash settlement’ net proceeds would be sent directly from the clearing and settlement system to investors’ accounts.
The existing practice of payment through brokers would only happen where clients opt not to participate in the initiative.
The proposed framework for direct cash settlement requires brokers to forward their clients’ bank account details to the Central Securities Clearing System, CSCS, the agent of NSE, for the clearing and settlement of securities traded on the Automated Trading System (ATS) of the NSE for clients opting for the direct cash settlement initiative.