‘Zim capital markets evolving, going digital’

Zimbabwe’s capital markets continue to evolve and through the digitalisation of trading, the market keeps transforming and building capacity to offer a wide variety of new products, a senior executive from a key industry player has said.

Chengetedzai Depository Company (CDC) founder and former chief executive Campbell Musiwa said at his farewell ceremony that the coming on board of the CDC’s securities depository revolutionised Zimbabwe’s capital market.

The central securities depository system (CSD), an electronic securities custodia system, was introduced on September 8, 2014.

Mr Musiwa said the Securities and Exchange Commission of Zimbabwe (SecZim), created a market environment that allows for new innovations that are driving capital market growth and resilience.

“One thing to single out is the issue of transactional costs, which are really high. We are living in a global village and investors looking at investing in Zimbabwe will also compare with other SADC countries.

“Therefore, some aspects of the transaction costs should be removed as the market has digitalised and no longer uses paper based share certificates,” he said.

Mr Musiwa noted that if the transaction cost structures were reviewed, the market was on the right track as witnessed by the introduction of new products such as exchange traded funds (ETFs).

“Real Estate Traded Funds (REITS) are also coming on board hence there is a need to look at the legislation slowing down the issue of REITS,” he said.

Mr Musiwa served as the chief executive officer of CDC for nine years until April 2022. He has since been replaced by Prosper Mutorogodo.

Mr Musiwa said the main target for the CSD when it went live was to reduce the settlement cycle on trading on the stock exchange.The settlement cycle is the time from when a trade occurs until when the trade is settled implying that it is on the settlement date that the cash and securities that were traded are exchanged and the buyer becomes the owner of the securities purchased or the seller receives the cash for the securities sold.

“On May 2, 2017, CDC achieved a significant milestone when the company shortened its settlement cycle from a T+5 settlement cycle which was introduced when the company went live in 2014 to a T+3 settlement cycle.

“This allowed the market to significantly reduce the level of counterparty and liquidity risk by reducing the number of unsettled trades that are outstanding at any point in time,” he said.

Mr Musiwa said the CSD also worked on the Delivery versus Payment (DVP) system, which used to cause a lot of problems in the past.

“So the implementation of the DVP ensured that you are paid right there and there. It is almost cash on delivery.

“So most of those issues that were giving us problems in the market that also had to do with forgery, disputes over shares were serious and that has ceased,” he said.

In November 2016, CDC introduced some significant changes to its operations by migrating from settlement using commercial bank money to settlement using central bank money at the Reserve Bank of Zimbabwe (RBZ).

This was accompanied by a change of the DvP model from DvP model 1 to DvP model 2 (net settlement of the cash leg and gross settlement of the securities leg of trades). “Moving settlement to the RBZ also allowed CDC to increase the number of clearing banks from 2 banks to 5 banks. Simultaneously, CDC introduced collateral security in order to manage the default risk that is inherent in the settlement process,” he said.

Mr Musiwa noted that the coming up of the automated trading platform saw companies such as the Escrow Group being able to interface on the system and develop new products.

Meanwhile, according to a CDC CSD trading update for May 2022, a total 494 new accounts were opened in May, resulting in 2992 accounts being opened this year. Local investors accounted for 94,98 percent, and foreign investors accounted for 5,02 percent of all accounts opened in May.

Mr Mutorogodo in the update said securities registered on the CDC CSD accounted for 40,90 percent of total Market Capitalization for dematerialised shares, and their total value was $ 1,18 billion as of May 31, 2022.

“This is expected to increase as new listings on ZSE continue to choose CDC CSD as their CSD of choice,” he said.

During the month under review, a total of 123 deposits were processed. This brought the cumulative number of deposits since going live to 100,235.

Mr Mutorogodo said the CDC CSD was embarking on a dematerialisation campaign to increase the dematerialisation ratio in 2022 for individual and institutional investors that still hold shares in physical form.-The Herald