Understanding

Overview of the Capital Market

The capital market is a market that links investors and companies seeking to raise long term capital. The company receives money from investors in exchange for shares i.e. part-ownership of the company. All the other players (stock exchange, brokers, custodians etc.) facilitate this process and Securities Exchange Commission of Zimbabwe regulates the whole process.

Players in the Capital Market

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Securities Exchange Commission of Zimbabwe

The Securities and Exchange Commission of Zimbabwe is the regulatory body for the securities and capital markets in Zimbabwe.

Their key functions are

  • To regulate trading and dealing in securities; and
  • To register, supervise and regulate securities exchanges
  • To license, supervise and regulate licensed persons
  • To encourage the development of free, fair and orderly capital and securities markets in Zimbabwe
  • To advise the Government of Zimbabwe on all matter relating to securities and capital markets
  • To promote investor education

More information on SecZim can be found here: http://www.seczim.co.zw

Investor Protection Fund (IPF)

Apart from licensing capital market players as well as setting rules and regulations to protect investors, the Commission also facilitated the establishment of the Investor Protection Fund. The Fund is:

  • Meant to provide an additional layer of protection for investors and offer some reimbursement for financial losses suffered as a direct result of a participant firm becoming insolvent;
  • An Investors’ Fund since investors themselves contributes to the Fund through a levy on trades; and
  • Administered by an Independent Board of Trustees.

Zimbabwe Stock Exchange

The Zimbabwe Stock Exchange (ZSE) is a stock exchange licensed in terms of the Securities and Exchange Act (24:25) to assist companies to raise long term capital through  listing of securities as well as offer an investing platform through  trading of listed securities. Securities are defined in the Securities and Exchange Act (24:25) to mean shares, debt securities, depository receipts, futures and or contracts for differences.

The ZSE currently facilitates the listing and trading of the following security types:

  • ordinary shares;
  • preference shares; and
  • fixed income instruments such as debentures, notes and bonds.

More information on the Zimbabwe Stock Exchange can be found here: www.zse.co.zw

Financial Securities Exchange: Alternative Trading Platform

The (Financial Securities Exchange) FINSEC is the second securities exchange in Zimbabwe and operates the country’s first Alternative Trading Platform (ATP) which provides a fully resourced securities market for financial instruments that are not listed on the Zimbabwe Stock Exchange or are inadmissible on that exchange or do not wish to be listed on that bourse.

FINSEC intends to revolutionise the Zimbabwe capital market through innovative automation of the trading and settlement of various classes of securities by integrating technologies such as SMS, USSD and mobile money services. More information on Finsec can be found here | www.finsec.co.zw.

Chengetedzai Depository Company

Chengetedzai  Depository Company is a public limited company formed in 2010 to undertake the setting up and operation of a Central Securities Depository (CSD).

Reasons why the CDC was established:

To reduce market wide operational risks in the capital markets of Zimbabwe by replacing a  manual clearing and settlement system which involved the physical exchange of certificates and cheques whilst also improving operational efficiencies on the settlement of capital markets transactions, culminating in the reduction in overall settlement time from T+7 to T+3.

The CDC also aims to attract global capital markets investors, who would have shunned our market for lack of automated infrastructure and to improve accountability and compliance in the Zimbabwean capital markets. Another key reason is for transparency for building confidence, with a deliberate focus on distant global investors who may not be available to physically monitor the custody of their securities.

During the manual settlement system, funds settlement processes were not in sync with the securities transfer and registration procedure whilst transfer and registration procedures were tedious and protracted. In a nutshell, the system was inefficient and risky.

Market Players

A.    Securities dealers/ stockbrokers

They act as trading agents of the investors. To purchase and/or sell shares;

  1. Investors approach a stockbroker/securities dealer.
  2. Who the opens the Investor’s Trading Account (An investor can also choose to have his account opened by a Custodian. After account opening, the investor then engages the services of the securities dealer)
  • After successful account opening, the investor deposits money through normal banking channels and gives instructions to the Stockbroker to buy shares. In the case of a sell, the investor deposits his shares to the CSD.
  1. The Securities Dealer will trade the shares on the Stock Exchange’s Automated Trading System (ATS) and advise the investor once the shares are purchased through issuing the brokers’ note which contains the details of the transaction such as Name and number of securities bought, Date on which the order was executed, Price at which the shares were bought, the Consideration (Value of securities purchased) and Total transaction costs
  2. The investors’ account will be credited with the shares that have been bought. In the case of a sell, the account is credited with the amount raised.

Besides trading through the Securities dealers, investors can also invest in shares through Investment Managers.

B.    Investment management companies / asset managers

Investors can also make use of investment managers to invest in the capital market.

  • An Investment Manager manages investors’ funds by investing in a wide range of securities in line with the investor’s mandate.
  • Investment Managers also manage Collective Investment Schemes – Unit Trusts – whereby they pool funds from numerous investors and invest per the scheme’s investment style.
  • Investors receive investment returns after deduction of the investment manager’s fees.
  • Aim to maximise the return on all assets contained in their portfolios while keeping investment risk within the limits determined by the client.
C.     Investment advisors

These are responsible for giving advice to both individuals and institutions on securities investments and on how to raise capital in the capital markets.

D.    Securities custodians

In addition to facilitating the opening of CSD investor accounts, Custodians:

  • Manage and safe-keep customer’s securities e.g. shares, bonds etc.
  • Keep track and ensure the safety of investments under a custodial arrangement, preparing required disclosures, as well as regulatory filings, when applicable;
  • Provide information on the securities and their issuers such as annual general meetings and related proxies; and
  • Provide securities settlement of trades done on behalf of the investor.
E.     Securities transfer secretaries
  • Manage and maintain updated share registers for Listed Companies; and
  • Performs the allocation of dividends, rights issues, bonus issues etc. to shareholders i.e. manage secretarial aspects of corporate actions.