Central Securities Clearing System, CSCS, Nigeria

The Central Securities Clearing System, CSCS, has become a major operator in the Nigerian stock market, as stock transactions cannot be completed without interfacing with the CSCS. The Central Securities Clearing System's depository, clearing, settlement and delivery functions ensure the speedy and transparent conduct of share transactions on the Nigerian Stock Exchange. For a shareholder, a CSCS account has become a pre-requisite for share transfers, whether buying or selling shares.

The Central Securities Clearing System is a subsidiary of the Nigerian Stock Exchange and is licensed by the Securities and Exchange Commission, Nigeria, as a capital market agent to handle central depository, clearing and settlement services for transactions in the Nigerian stock market. It began operations in April 1997 and is housed in the Stock Exchange Building, Tinubu Square, Lagos.

By its depository function, the Central Securities Clearing System has created a central depository for the shares of the quoted companies on the Nigerian Stock Exchange. What that means is that shareholding certificates of individual shareholders are captured into the depository, which maintains a record of them. By dematerializing the shareholdings into electronic records, share transactions are expedited. Now, a shareholder can have all his shareholdings in electronic information, domiciled in his CSCS account, a statement of which can easily be obtained. In several respects, that eases the processing of transactions, giving the shareholder better opportunity to respond quickly to market action and take advantage of market trends.

The Central Securities Clearing System controls the clearing process of the share transactions on the Nigerian stock Exchange. Information on the day's transactions is forwarded to the CSCS by the Stock Exchange, enabling the latter to process them for settlement. Settlement is the process whereby the stockbrokers' accounts are charged or given value for the shares they've bought and sold respectively. The Central Securities Clearing System has appointed Clearing Banks, which work with it to complete the clearing process.

A stockbroker is required to have a settlement account with at least a clearing bank. Such account is expected to be funded for any share purchase the stockbroker would undertake on a given day. The stockbroker's account is debited for such trades through the settlement process, while the selling stockbroker's account is credited. Through its settlement procedures and rules, the Central Securities Clearing System ensures the smooth conduct of those transactions and that parties meet their obligations. In effect, it is not expected that a shareholder, whose shares have been sold by his stockbroker, will fail to receive the proceeds and in good time. The clearing and settlement process is designed to ensure that value is transferred within the stipulated timeframe.

Part of that process is the delivery of stocks to a buyer. The CSCS, as an integral part of the clearing and settlement process, ensures delivery of stocks to the party that bought. That is guaranteed by the requirement that shares be deposited in the CSCS depository, prior to the trade. In effect, a stockbroker is not permitted to sell without the availability of the stocks meant for the sale. This protects the buyer as the shares are in the CSCS depository and are transferred to his account as payment settlement is done. By that, there is convergence of payment and delivery. That process is required to be concluded on the fourth day, that is "T + 3" (transaction day plus 3).

The Central Securities Clearing System necessarily works closely with the company registrars. The whole process of ensuring that proper records of share transactions and shareholders holdings are kept is obviously a tedious one and those two parties are closely involved. Stocks meant for sale are sent by the stockbroker to the registrar of the company, for verification. Duly verified stocks are passed on to the CSCS, by the registrar, for the account of the selling stockbroker. The CSCS, will, in turn, forward to the registrars, records of share transactions and of certificates dematerialized. The Central Securities Clearing System is aiming to eventually achieve complete dematerialisation, whereby all share certificates would have been demobilised by it. In effect, shareholders will only have electronic records of their shareholdings, while the certificates are put to rest by the CSCS.

Beyond its core function, the CSCS has continued to expand the scope of its contributions. It has also sought to ride on technology to improve operations. Here are some of the results:

Issuance of Clearing House Numbers to users, facilitating identification.

Providing statements and transaction reports to stockholders who want to track their account movements

Gradual migration to e-bonus and e-dividend payments

Online links to key parties - registrars, NIBSS, stockbrokers for real time access to information

Considerable improvement in transaction cycles, now shorted to just a few days, elimination of gray areas to promoted sharp practices and the quest for a leaner procedure.

Custodial services to meet the needs of parties that require safe-custody of items.

Obviously, the Central Securities Clearing System has become pivotal to the processing of share transaction on the Nigerian Stock Exchange. More importantly, it would seem to be living up to its billing and showing innovativeness. The Prime value is in enshrining more transparency by streamlining and controlling the process. Great value has also come by way of the shortening of transaction span and bringing more flexibility that helps stock investors respond to market opportunities more quickly.

The Central Securities Clearing System, CSCS

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