A company has been engaged to supervise the transition of the Zimbabwe Stock Exchange to electronic trading. A document on the change has been presented to Cabinet and issues around setting up a Central Securities Depository including the shareholding structure. According to a report in the Government’s Herald newspaper, Finance Minister Tendai Biti told a breakfast meeting organized by the Securities and Exchange Commission of Zimbabwe and the ZSE that the CSD could be in place by year-end.
The aim is to improve stakeholder relations and explore possibility for other capital or financial markets to be set up. Minister Biti said the CSD was a critical part of a modern capital market system as it reduced the payment cycle, enhanced transparency and helped monitor the shareholding thresholds of foreign investors participating on ZSE.
He said that the CSD would help prevent irregularities. Apparently the minister said that currently only about 20 investors accounted for most of the trading in the 79 listed counters. He claimed that the CSD will improve liquidity, promote market integrity and transparency while minimising market manipulation, fraud and financial crime.
According to a report in a South African newspaper called “Sunday Times Zimbabwe”, the Minister would also like to modernize the ZSE Act and the Securities Act and possibly introduce a “super regulator”, similar to the UK’s Financial Services Authority (in June 2010 the UK Government announced plans to abolish the FSA and split its functions). This report claims that 20 of the “shadowy players” were virtually controlled by the same individuals, and Renaissance Financial Holdings Limited was accused of wrongdoing because of insufficient measures to detect insider dealings.
According to the Herald, the Minister said: “The main issue being dealt with is the shareholding structure of this systematically important institution (CSD), which should reflect national ownership by both the public and private sector players.” He said that the National Social Security Authority, the Reserve Bank of Zimbabwe or the ZSE would own at least 51% of the CSD company. Another significant shareholder will be Chengetedzai, a local private firm which is overseeing the establishment of the electronic trading system (the website http://chengetedzai.com/) appears to be just a title page.
The government seeks to demutualise the bourse, which it believes will enhance accountability and speed modernisation. Currently the bourse is still an association of stakeholders while demutualization would mean turning the exchange into a company driven by the profit motive or other goal. Minister Biti said demutualisation was critical to prevent cartels of members from dictating the affairs of the bourse, which created credibility crises and could put off investors. There has long been tension between the ZSE and the SEC over jurisdiction and self-regulation.
ZSE trading is done in daily “call-over” sessions when brokers gather around a table and bid against each other. However, trading is more active than on many more automated neighbouring exchanges.
According to the report, the Minister said: “When you go to the Zimbabwe Stock Exchange and see the way they trade it gives the impression that we are still stuck in 1950. It is as if someone pressed a pause button on the TV and everything stopped. We have to modernise and part of it is coming up with a CSD,” he said.
SECZ chairperson Mrs Willia Bonyongwe said the country wanted to set up more securities and capital markets and challenged innovative Zimbabweans to come forward with proposals. She suggested markets could assist in trading equities, bonds, quasi or hybrid financial instruments, asset securitisation and unitisation, hedging or risk commodity markets and private equity instruments, or even trade in agriculture and mining products. The ZSE is the only active capital market.
In early August the ZSE website (www.zse.co.zw) was hacked twice in early August and used phishing and has currently disappeared.