In an effort to give the Nigerian Stock Exchange (NSE) a world class outlook as well as make it more efficient and investor friendly, Central Securities Clearing System (CSCS) Limited was established in April 1997 and started operations on 14 April 1997 as the clearing house of the Nigerian Stock Exchange.
Her vision is to be the globally respected and leading central securities depository in Africa. Her mission statement is to create value by providing securities depository, clearing, settlement and other services driven by innovative technology and highly skilled workforce.
Its functions are clearing and settlement of securities as well as central depository and custody services among others. Since its inception CSCS Nigeria had been able to centralize operations, computerize the clearing and settlement process.
The current Managing Director and Chief Executive Officer of the CSCS Nigeria is Mr. Kyari Abba Bukar who serves as the board chairman. It has thus reduced the settlement time from 6 months to 3 working days. It had also eliminated the exchange of physical securities as a means of settlement and replaced it with a book entry transfer mechanism which reduced brokers’ sharp practices.
Benefits Of CSCS Nigeria
The benefits of the CSCS includes:
- Reduces the incidence of loss or stolen certificates/late delivery of certificates
- Reduces investment risk and creates opportunity for speculation.
- Reduces cost of maintaining register of shareholders.
- Increase liquidity of stock
- Increases transparency of market
- Raises investors’ confidence in the market
- Increase market turnover
- Encourages foreign investment
- Increases liquidity and vibrancy of the market Stockbroking firms
- Prompt inter-broker money and stock settlement
- Increase efficiency and profitability of stockbroking
- Reduces operating costs.
CSCS Operational Guidelines
Deposits of Share Certificates
Hitherto, stockbrokers now deposit verified securities with CSCS at least 24 hours before transactions on them at the trading floor. This ensures that shares to be traded on the floors were in the custody of the CSCS. By implication, a buyer of stocks will be assured of the availability of the shares he has paid for. Stockbrokers were required to deposit share certificates with CSCS between 9.00am to 2.00pm every working day.The procedure has been modified to eliminate incidence of forged certificates and verification of registrar’s signatures. Stockbrokers now submit documents to the registrars for verification after which the registrars send the documents directly to CSCS. This procedure has wiped out the black market.
The CSCS operation requires stock broking firms to fund their Trading Accounts in anyone of the designated banks before going to the trading floor. This also ensures that a seller of shares is assured that money for payment has been kept in the Trading Account. This is a departure from the pre-CSCS era where some brokers sold stocks they could not deliver or bought stocks without the funds to pay for them.
Clearing of Trades
The CSCS is the agent of The Nigerian Stock Exchange for clearing and settlement of Trades. After transaction on the floor, the Back Office of The Exchange sends the data information of trades done to CSCS before 4 p.m. This is processed ready for settlement by the settlement banks.
Settlement of Trades
The CSCS sends data of Cleared Trades in diskettes to the settlement banks on or before 5 p.m. every working day. The settlement banks are required to process the data information from CSCS by debiting and crediting the accounts of the stockbrokers and effect settlement through the Nigerian Inter-Bank Settlement System (NIBSS).
- Dematerialized Certificates:
- Certificates deposited with CSCS are entered in electronic-book form and dematerialized and re-cycled to the relevant registrars within 48 hours. It is required that they scrutinize the securities against their records to ensure that they are genuine and that the verification was done by the registrar. Any forgery or fraudulent act should be reported to CSCS within 48 hours to enable CSCS stop settlement of the transaction on the shares.
- Update of Register: the buying and selling of shares on the floor of The Exchange affect the registers of the listed securities. The CSCS sends data information of these changes to registrars in electronic and hard copies every two weeks (every week for very active securities) and after the closure of register of securities for payment of dividends and the issuance of bonuses.
Trading In Rights
Rights – When a company wants to raise more funds by issuing additional securities, it may give its shareholders the opportunity, ahead of others, to buy the new securities in proportion to the number of shares each owns. The piece of paper evidencing this privilege is called a right. Because the additional stock is usually offered to stockholders below the current market price, rights ordinarily have a market value of their own and are actively traded. In most cases, they must be exercised within a relatively short period. Failure to exercise or sell rights may result in actual loss to the holder. Trading In Rights was introduced to The Nigerian Stock Exchange to increase tradable securities and to enable shareholders who are unable to take up the rights to sell and avoid total loss.
Other innovations made by CSCS Nigeria which have penchant for consistently providing value added services to capital market growth in Nigeria include but not limited to the following:
(c) Internet Trading
(d) Registrars on-line and real time with CSCS Nigeria
(e) NIBSS on-line and real tine with CSCS Nigeria
CSCS Nigeria Address & Contact Details
Address: Central Securities and Cleaning System Plc, First Floor, Stock Exchange house, 2/4 Customs Street, Lagos, Nigeria and her
Email: [email protected]