Market Perspective on the Maximization
Benefits of e-Commerce in Nigeria
Onyewuchi C. Asinobi
Clearing System Limited
Being A Paper Presented
on Electronic Commerce and telecommunications in Nigeria on
September 23, 2002 at 2.00 p.m. at Golden
Gate Restaurant, Ikoyi, Lagos
Perspective on the Maximization
of the Benefits of
e-Commerce in Nigeria
Mr. Chairman, Special
Guests, Distinguished Ladies and Gentlemen. I am delighted to be invited to
speak on Capital Market Perspective on the maximization of the benefits of
e-commerce in Nigeria.
It is generally agreed
that the world has become a global village because of Information
Technology. The era
of a closed economy is over with changes in economic environment occasioned
by technological innovations in telecommunications, integrated world
financial markets with consequent globalization of trade and cross-border
Capital markets play an
increasing important role in many emerging markets in raising the needed
funds necessary for economic development and growth.
Without an effective
clearing and settlement process, the transfer of ownership of securities to
the buyer and the final payment of funds to the seller may be put at risk or
result in unnecessary costs for market participants.
Therefore a critical
component of capital markets is the clearance and settlement process.
When this process
functions effectively it allows market participants to determine accurately
their payment and securities delivery obligations and to discharge those
obligations in a predictable safe and low cost manner- Confidence in the
mechanisms for clearing, settling and holding securities therefore is
essential for well functioning markets.
networks, there is no Internet and there won't be any e- commerce, Telecom
and e-commerce form a virtual cycle - as communications technology improves,
the uses of the Internet and the possibilities for extending and building
e-commerce expand as well.
For e-commerce to
thrive, certain critical characteristics must be in place. These include
stable government, a secure financial environment, a competitive
marketplace, open systems and standards, high-speed competitively offered
communications, and a climate that fosters innovation. The explosion of
e-commerce really began with the World Wide
Web, which suddenly
opened the Internet, until then primarily a government and research tool, to
ordinary Americans. Viewed in this way, from the perspective of e-commerce,
the transformation of the Internet itself has been dramatic.
The United States is the
world's, leading Internet nation. Currently, the Web comprises about 43,000,
000 web hosts and 1 billion Web pages (a milestone reached in January
2000). It is easy to
make the case for the Internet that no technology has evolved so quickly to
touch the lives of so many around the world.
In the United States,
the landmark Telecommunications Act of 1996 helped speed the explosive
growth in telecom investment and e-commerce we're seeing today, by making
competition our national policy in all aspects of communications policy.
Specifically, the incentives put in place by the Telecom Act have been one
of the catalytic factors for deployment of advanced communications networks.
In large part, this was because of increased demand for faster access to the
Internet, which in turn leads to new possibilities for e-commerce's reach
And there's a broader
point: As management theorist Peter Drucker writes, In "the mental geography
of e-commerce, distance has been eliminated. There is only one economy and
only one market. This is the concept that telecomm companies have lived with
for years - what analysts refer to as the death of distance. We're seeing
this in today's competitive long distance market, where prices have come
down dramatically in the last few years. Again, the key is competition. The
internet is a global infrastructure in which barriers to entry are low and
competition is the rule.
Precisely because it is
so difficult to predict the development of the Internet, I believe the best
definition of e-commerce is therefore the broadest definition: any
transaction over the Internet involving the transfer of goods, services, or
information, or any intermediary function, which helps enable those
transactions. This includes:
e-commerce, such as companies seeking supplier bids over the Internet;
e-commerce, such as sites operated by traditional catalogue companies;
enabled e-commerce, popularised by sites such as ebay or
from public sites such as government agencies, libraries or museums or
proprietary 'sites such as those operated by online banking services or
It's also important to
remember that more and more consumers have a choice of devices by which to
access the Internet; televisions and wireless devices such as Palm Pilots or
personal data assistants could easily become as popular as PCs. Wireless
telephone companies are working to bring information over the internet to
wireless phones. All this activity, too, is e-commerce.
How do buyers at all
levels benefit? Wise use of the internet can reduce inventory costs,
benefiting both large and small businesses. Particularly in
business-to-business e- commerce, margins are small, giving buyers an edge.
Suppliers are forced to pass their efficiency gains on to buyers - or lose
business to those more willing to discount or more flexible in providing
service. No one can promise that the Internet will of itself lead to lower
prices for consumer goods, but certainly the Internet boost the growth of
competition, which in turn encourages reductions in price. Given the
efficiency gains throughout the economy, it's reasonable to suppose that
e-commerce adds business rather than substitutes business.
In short, despite the
tremendous changes that e-commerce will make in the conduct of business and
marketing, the most likely outcome is in the conduct of business and
marketing, the most likely outcome is a hybrid model-e-commerce won't
totally supplant traditional commerce. Many businesses, both large and
small, will operate both in traditional retail stores and online, as
Wal-Mart has recently announced. The Internet does not lead to the death of
Main Street - but it does force Main Street to become more nimble and it
reward those on main street who take advantage of the new opportunities.
Because barriers to
entry on the Internet are so low, even small retailers can use the Internet
to sell goods, bringing new jobs throughout the country.
What is e-Business?
When asked the above
question, most people reply, "e-Business is just selling your products over
the Internet." While partially correct - e-Business usually does use the
Internet to sell goods - this definition over simplifies the basic
principle. More accurately, e-Business is a fundamentally new way of
conducting business electronically using the latest technologies, such as
the Internet. It also involves moving away from conventional business
thinking in order to effectively compete in a new and dynamic environment;
cyberspace. The emphasis shifts towards empowering your customers and
getting them more deeply involved in your business. As well, your internal
processes will become more automated with significantly less paperwork.
transformation of key business processes through the use of Internet
Often this word is
confused with e-commerce. E-business is much more. It is not only the buying
and selling of goods over the Internet (e-commerce) but instead is the use
of Internet technology to impact all areas of your business.
Today, organizations can
use Internet technology to:
Be more accountable
Educate a broader public
Reduce mail and calls
Keep issues in the media
E-business is all about
making it easier for people to do business with you! Once you can accomplish
this you'll find:
How are you leveraging
the Internet in your organization? If you are moving your organization
towards less paper-based business then you are making positive steps to
becoming an e-business.
What is e-commerce?
E-commerce is the buying
and trading of goods and services through the internet. The function of an
e-commerce web site include the presence of an online store, a method of
payment process, shipping /order fulfillment, customer service and
The impact of e-commerce
to businesses can be huge. E-commerce can transform the way products and
services are created, sold and delivered to the customer. It can also change
the way in which a company works with its partners. Some benefits of
• Improved Productivity
Using e-commerce, the
time required to create, transfer and process a business transaction between
trading partners is significantly reduced. Furthermore, human errors and
other problems like duplications of records are largely eliminated with the
reduction of data-entry and re-entry in the process. This improvement in
speed and accuracy, plus the easier access to document and information, will
result in increase in productivity.
• Cost Savings
According to a 1999
report by Giga information Group, conducting business online will save
companies around the world an estimated USD1.25 trillion by 2002. This
compares to total savings of USD 17.6 billion in 1998-The cost savings stem
from efficient communication, quicker turnaround time and closer access to
• Better Customer
With e-commerce, there
is better and more efficient communication with customers. In addition,
customers can also enjoy the convenience of shopping at any hour, anywhere
in the world.
E-commerce sites operate 24 hours a day 7 days a week.
• Reduced Errors: The
automated process tends to produce fewer errors than the traditional process
• Unlimited Shelf Space:
E-commerce companies can display/shelve an unlimited number amount of goods.
• Increased Global
Presence: E-commerce companies can be accessed by people from all over the
Automated Trading System
The history of capital
market automation in Nigeria goes back to 1987, when on 2nd June of that
year, The Nigerian Stock Exchange hooked up with the Reuters Electronic
Contributor System (ECS) for a global broadcast of our market information,
including stock prices, turnover volume and value, the All-Share Index and
corporate trading results (interim and full year accounts). Our Reuters code
Since 1987, The Exchange
has made resounding progress in its automation programme- In 1991, The
Exchange began implementing a multi-million naira Central Securities
Clearing System project, both in affirmation of the Group of 30 resolution
that emerging markets should aspire to clearing and settling trades on a The
cycle and in response to the needs of the market for a more efficient
clearing and settlement system.
The CSCS, which was
completed and commissioned on 8th April 1997, operates a computerised
clearing, settlement and delivery system for transactions in securities
listed on The Nigerian Stock Exchange. It began with a The settlement cycle,
which on 1st March 2000 was reduced to T+3.
The CSCS is managed by
the Central Securities Clearing System Limited and incorporates a Central
Securities Depository (CSD) for the share certificates of listed securities
and a sub-registry for all listed securities. The facility has a capacity to
9.9 billion investor
accounts, which is more that is required to clear and settle trades for the
whole of the West Africa sub-region.
The CSCS depository was
built to international specification and has been adjudged as such by the
United States of America (USA) Securities and Exchange Commission (SEC).
Consequently, United Bank for Africa Pie - one of the companies quoted on
Exchange - got the
approval of the US SEC to issue an American Depository Receipt (ADR) in
1998, effectively diversifying the funding options for Nigerian companies.
Also, the CSCS has a
module for electronic Initial Public Offering (e-IPO), which The Exchange
has invited the Bureau for Public Enterprises (BPE) to adopt for speedy
implementation of current Privatisation Programme.
The CSCS was installed
by EFA Software Services Limited of Canada, which also developed the Equator
software on which the system runs. The Equator and Horizon on which The
Stock Exchange's Automated Trading System (ATS) runs, are nigged and
tested securities market
management solutions that are currently at 56 installations in 36 countries,
on four continents, deployed by exchanges and clearing houses in developed
and emerging capital markets. EFA was able to deliver the solutions working
Nigerian IT consultants
whose services had been retained by The Exchange for this purpose.
Following the successful
automation of the market's clearing, settlement and custodial system. The
Exchange on 27th April, 1999 transited from the Call-over Trading System to
The ATS, by simple
definition, is trading in securities through computers connected in a
network to a server. There are now 170 computers in the ATS network, and it
is expected that this number will rise dramatically once full remote access
to the Trading Engine is
achieved. At the moment,
remote access to the Trading Engine is from The Exchange's loors in Abuja,
Kano and Port Harcourt, with stockbrokers in those cities trading online and
in real time with their counterparts in Lagos. With the attainment of full
advantage of V-SAT and Internet technologies, it would be possible for
stockbrokers and other market participants to access the market in real time
from any part of the globe, and financial information vendors can take feeds
from the Trading Engine
for real time broadcast
of our market information, among other benefits-
The ATS is a progression
on the CSCS, where the former is for Front Office capital market operations
and the latter is for Back Office concerns of the market. As an integrated
project, the ATS and the CSCS are tightly coupled and thus enable dealers to
execute their orders
without human intervention between the matching of orders and the time the
trades are cleared and settled.
The CSCS and ATS are at
the core of the automation of the Nigerian capital market and have provided
the impetus for the application of IT by a cross-section of industry
operators, especially Registrars whose manual and cumbersome processes
timely conclusion of
transactions on The Exchange.
The market associates
numerous benefits with the ATS and CSCS, including:
for price discovery
and efficiency of marke
Fast dissemination of
information to market participants
Facility for trading
in a variety of securities, including equity and bonds
Obviated the risks
associated with loss of share certificate
inter-broker settlement of transactions
Reduced paper work and
operational costs for stockbroking firms with positive implications for
Reduced the cost of
managing register of shareholders by quoted companies
Apart from ATS and the
CSCS, the Nigerian capital market is served by an Intranet
facility - the Capital
Market Network (CAPNET) - that provides subscribers with daily
and weekly information
on activities at The Stock Exchange. Subscribers to the service
^ Stockbroking firms
^ Discount Houses
^ Quoted companies
^ High net worth
The Stock Exchange has
operated the CAPNET since 1997.
On the other hand, the
CSCS Limited in 2001 established a Desk for Automated
Telephone Enquiry that
enables an investor to 'phone-in and obtain his/her stock position
at any time Monday to
Friday and between 7.30 am and 3 p.m. on Saturday. This confers
additional confidence in
the CSCS by enhancing market transparency. You need to know
your account number, the
codes for all securities and your Personal Identification
Number (PIN). Initially,
your account number is the same as your PIN number. You can
change you PIN Number.
computerization of The Nigerian Stock Exchange readily passes as one of the
most successful in the
global securities market. And the experience comes with a lot of
Our experience is that
capital market automation in Nigeria, as led by The Exchange, was
justified within the
framework of cost of implementation and the need that gave rise to
the project. As
envisaged, automation has engendered recourse to the Nigerian capital
market, particularly the
secondary market (stock exchange), with positive implications
for savings and capital
formation in the economy.
Central Securities Clearing System (CSCS) Limited
The CSCS Limited was
licensed by the Securities & Exchange Commission as Central
Depository, Clearing and
• It was commissioned on
April 8, 1997 and commenced operations on April 14, 1997.
• It operates a
computerised depository, clearing, settlement and delivery system for
transactions in shares
listed on The Nigerian Stock Exchange.
• Central depository for
share certificates of companies quoted on The Nigerian Stock
» Sub-registry for all
quoted securities (in conjunction with registrars of quoted
• Issuer of central
securities identification numbers to stockbrokers and investors.
• Clearing and
settlement of transactions
• Safe Keeping/Custodian
(in conjunction with custodian member(s) for local and
Stock Market Delivery
And Settlement Process Prior To CSCS
• In most cases, it took
between 3 months - 12 months to receive Share Certificates
• Cancellation and
frequent issuance and re-issuance of Certificates when sales occur
• Constant signature
• Capital Gains not
• Some Dealing Members
sold what they did not have
• Numerous complaints on
• Loss of Certificates
• Risk was very high -
undue delay, manually operated, manipulations due to long
minimal transparency, therefore generally lack of trust in the
These problems were
worldwide and needed solution. Thus, CSCS was established to
speed up the delivery
and settlement systems of the stock market among other
Before the commencement
of Central Securities Clearing System (CSCS) Limited, The
Nigerian Stock Exchange,
conscious of the provisions of sections 146, 147, 151 and
152 of the Companies and
Allied Matters Act, 1990 wrote to the Corporate Affairs
Commission (CAC) and the
Securities and Exchange Commission (SEC) for the
former to initiate
amendments to the said provisions such that certificates will not be the
only evidence of share
ownership in Companies and the latter for administrative waiver
under its Administrative
powers under the Securities & Exchange Commission
(SEC) Act 29 of 1989 and
Securities and Exchange Commission Regulations, 1989.
Section 146 of CAMA
makes it obligatory for a shareholder who has invested in a
company to be entitled
to a certificate. The shareholder could enforce his rights so
granted. However, in
order to take advantage of the T+5 settlement cycle at inception of
CSCS Ltd and later T+3
settlement cycle, it was necessary for the shareholder to waive
his right to a
certificate and elect to accept a statement of stockholding issued by CSCS
Ltd. Thus SEC has
recognised CSCS statement of stockholdings as evidence of
stockholdings in CSCS
System with a proviso for those who want certificates to be so
entitled. The CSCS
procedure, which emphasises dematerialisation of Certificates is
recognised by SEC, the
apex regulatory authority. The Investment and Securities Act
45, 1999 has also
recognised Depository functions ofCSCS and Electronic transfer of
through the secondary market.
CSCS FLOW OF ACTIVITIES
TRADING, CLEARING AND
• The investor initiates
any transaction on his investment by approaching a
stockbroking firm that
is a member of The Nigerian Stock Exchange.
• He is required to
deposit his money with the stockbroking firm where he is buying or
Equity/Debenture certificates for verification where he is selling.
• He completes the
necessary documentation - including Transfer Form.
• For a part-seller, he
gives instruction to his stockbroking firm to sell from the
• Where certificates
have been immobilised, he gives instruction to his stockbroking
firm to sell from the
shareholding in the CSCS system.
• Institutional or high
net-worth investors are encouraged to open detached accounts
from stockbroking firms
The Stockbroking Firm
• The stockbroking firm
apart from listing with The Nigerian Stock Exchange,
registered by Securities
and Exchange Commission (SEC) is expected to be eligible
• Nominates two (2)
accredited stockbrokers/officials to CSCS.
• Maintains only one
Trading Account at any point in time with one of the designated
• Instructs the bank to
obey CSCS instruction as it relates to the Trading Account.
orders/instructions from investors and fills out certificate deposit forms
clients/investors signatures with the registrars.
• Gives contract Notes
to investors as evidence of contract.
Registrars In Matters
Relating To CSCS
• In matters relating to
stock market securities trading, the registrars are to deal only
with the stockbroking
firms acting on behalf of investors/shareholders.
investors claims (i.e. certificates and transfer forms) as
presented through the
• Sends verified
certificate(s) and the signed Transfer Form(s) with two (2) copies of
form(s) to the depository of CSCS within 48 hours.
• The particulars in the
Transfer Form form the database for opening account and
update to the registrars.
• System generated
account number is taken by the CSCS system But the book-entry
will in addition reflect
the account number on the lodged certificates;
• CSCS issues Approved
Certificate Deposit Form, which certifies stockbrokers to
trade. That the shares
are now in the CSCS system.
• In effect, all shares
to be traded on the floors of The Nigerian Stock Exchange must
have their certificates
verified by the relevant registrars and recorded in electronic
book-entry in the
Depository of CSCS for the account of the Selling Dealing Member
prior to being eligible
to be traded. That is dematerialisation.
The Nigerian Stock
• Provides the venue for
trading on capital market securities through licensed
• Checks and validates
deals done on daily basis.
• Transmits to CSCS
on-line real time basis through Automated Trading System (ATS)
on transactions that
occur on the floor of The Exchange.
• Transactions obtained
from The Exchange are processed
• Stockbrokers daily
financial commitment to each other are communicated to the
stockbrokers' banks via
diskettes supported by hard copies.
The four banks are well
capitalised and have met CBN requirements
• Settlement banks can
only allow Trading Accounts to be operated on the basis of
written instructions by
either the Dealing Member who maintains the Trading
Account or those
contained in CSCS schedule.
• Settlement banks can
only permit Trading Accounts to be used for purposes of
effecting settlement of
• The primary mode of
settlement of CSCS transactions by settlement banks is by
means of Inter-Bank
Settlement System (NIBSS).
certificates are re-cycled to the relevant registrars within 48 hours.
• CSCS sends data
information of the changes that have taken place through buying
and selling of shares to
the registrars in diskettes and hard copies.
• The registrars update
registers with the stock movement details sent to the registrars
• The registrars which
perform corporate actions, pay dividend warrants to
shareholders whose names
appear on the register on closure date.
• Guarantee Fund has
been established by stockbroking firms. The CSCS has opened
Nominee Account in each
of the eight (8) settlement banks - Diamond Bank of
Nigeria Ltd, Citi Bank
Nigeria Ltd, Citizens International Bank Ltd and FSB
International Bank Pie,
Intercontinental Bank Ltd, Guaranty Trust Bank Pie, Zenith
Bank Pie and Hallmark
• The stockbroking firms
contributed ^N=50,000 each to the pool at their respective
• Any over-trading will
be settled from the Guarantee Fund Account. In general, there
will be no cancellation
• Depositories are
always searching for ways to strengthen the financial guarantee of
settlement and custodial processes to reduce the level of counterparty
• Counter party risk is
a serious problem not only in Nigeria but also in the developed
and emerging markets.
• In order to reduce to
the barest minimum, counterparty risk, CSCS-CSD has put in
place the following
• Provision of a vault
constructed to international standard with bullet proof and fire- proof
cabinets. In deed, officials of Citibank of New York and their Nigerian
counterparts were satisfied with the construction.
• On site, and off site
back-up systems to ensure security of records
• Insurance policies in
• Four (4) lines of
power/energy to ensure continuity of operation - there has been no
failure since inception
on April 14, 1997.
" Shortened transaction
cycle (T+3) has reduced risk level.
• Use of Settlement
Banks who do the settlement of transactions
• Stockbrokers maintain
Trading Accounts in any one of the settlement banks. There is
a form of financial
accommodation for stockbroking firms.
• The CSCS has
established a DESK for Phone-In-Service where an investor can
phone-in and obtain on
the spot, his/her stock balances or stock position. This will
not only instil
confidence in the system, but will also provide further transparency on
the part of all players.
• The creation of
custodian service elicited interest in the stock market on the part of
local and foreign
institutional and high-net-worth individual investors. The CSCS is
daily inundated by
foreign investors for information on CSCS custodial service and
• Standard Bank Nominee
Transvaal (PTY) of South Africa through Stanbic Bank
Nigeria Ltd. as
custodian member of CSCS has taken advantage of the growing
investors interest in
the Nigerian economy. Thus, many foreign and local investors
are buying shares on the
• The flow of funds into
the country will lead to the reflation of the economy. Thus
companies will be able
to improve on their installed capacity.
• As a consequence,
people will be employed and those employed will be empowered
Cross-Border Listing '
• The cross-border
listing of MNET and SUPER-SPORTS, two companies in South
Africa on The Nigerian
Stock Exchange is a positive testimony of the impact of
CSCS on the economy. It
is also proof of the intemationalisation of the stock trade.
Use of Shares in CSCS
Depository as Collateral for loan facility
Notes For Guidance
1. The lender should
demand from borrower, a statement of stock position issued to
him/her by CSCS Ltd.
2. The lender can
confirm from CSCS, the statement of stockholding issued to a
borrower by CSCS (status report). For a fee of
confirmation of the statement of stockholding (status report)
will be done and
communicated by CSCS to the lender.
3. (a) A
memorandum jointly signed by the parties requesting CSCS to
place a lien on specific
quantity of the stock(s) should be forwarded to
CSCS Limited. Also, an
undated letter signed by the borrower,
authorizing the lender
to sell in the event of default at the expiration of the
loan due date, must be
given to the lender.
(b) It is essential
that the memorandum should be registered with the
Commissioner for Stamp
Duties or at a High Court.
4. Upon the receipt
of the memorandum referred to in three (3) above, the
shareholding would be
moved into a CSCS Reserved Lien Account with the
interest of the lender
Noted. This will be communicated to the parties.
5. The Lender should
advise CSCS to remove the lien when the borrower has
obligation under the contract.
6. Where the
borrower defaults and or fails to discharge his obligation under the
contract, the lender at
the expiration of the loan due-date shall:
(a) Inform the
borrower of his default and this will put the borrower on notice
that the lender can
exercise his option to sell the stocks to realize the
benefit of the contract
(b) The lender will
write CSCS of the default by the borrower, advise CSCS
to remove the lien to
enable sale to be effected and attach evidence of (a)
© It is in the
interest of the lender not to disburse funds until a letter of lien
placement has been
received from CSCS Ltd.
(d) The lender after
(a-b) above can then give a copy of the undated letter
written by the borrower
to a stockbroking firm listed with The Nigerian
Stock Exchange for the
purpose of sale of the specific quantity of the
holdings and inform CSCS
(f) CSCS if satisfied
that the procedure has been complied with, will be
obliged to remove the
lien on the stock(s) upon such information from the
lender after the
expiration of the loan due-date.
Benefits of CSCS Ltd.
• Investors statements
of stock position are issued every quarter free of charge or on
demand for =N-100.00.
• Use of stock position
as collateral for loan facility after T + 3 settlement cycle i.e. 4
working days. In effect,
a statement of stock position is obtainable from CSCS 4
days after transaction.
• Investors can
speculate more and take advantage of capital appreciation in their
investment because of
the T+3 settlement cycle.
• Reduced risk of loss
• Huge cost associated
with the production of share certificates for transaction through
the secondary market has
been significantly reduced.
• Before CSCS, a single
transaction on a certificate led to the cancellation of the
certificate and the
issuance of as many as ten (10) certificates depending on
allotments made. This is
no longer so since few shareholders request for certificates.
• Indeed, of the 650,000
shareholders who use CSCS system now, only 3,500
requested for certificates to date.
• Amalgamation of
several accounts for a shareholder on the register leading to
reduction of cost to the
• Prompt Inter-member
money and stock-settlement are assured. l
• The problems
associated with delivery of shares are minimised
• Increased efficiency
• Reduction in
Benefits of Depository
In the depository
system, the ownership and transfer of securities takes place By means
of electronic book
entries. At the outset, this system rids the capital market of the dangers
related to handling of
• elimination of bad
deliveries - In the depository environment, once holdings
of an investor are
dematerialized, the question of bad delivery does not arise
i.e. they cannot be held
"under objection". In the physical environment, buyer
was required to take the
risk of transfer and face uncertainty of the quality of
assets purchased. In a
depository environment good money certainly begets
good quality of assets.
• Elimination of all
risks associated with physical certificates - Dealing in
physical securities have
associated security risks of theft of stocks, mutilation
of certificates, loss of
certificates during movements through and from the
exposing the investor to the cost of obtaining duplicate
advertisements, etc. This problem does not arise in the
• no stamp duty for
transfer of any kind of securities in the depository. This
waiver extends to equity
shares, debt instruments and units of mutual funds.
• immediate transfer
and registration of securities - In the depository
environment, once the
securities are created to the investors account on pay
out, he becomes the
legal owner of the securities. There is no further need to
send it to the company's
registrar for registration. Having purchased securities
in the physical
environment, the investor has to send it to the company's
registrar so that the
change of ownership can be registered. This process
usually takes around
three to four months and is rarely completed within the
statutory framework of
two months thus exposing the investor to opportunity
cost of delay in
transfer and risk of loss in transit. To overcome this, the
practice is to hold the securities in street names i.e. not to
register the change of
ownership. However, if the investors miss a book
closure the securities
are not good for delivery and the investor would also
stand and to loose his
• Faster settlement
cycle - It is a rolling settlement cycle. This will enable
faster turnover of stock
and more liquidity with the investor.
disbursement of non cash corporate benefits like rights, bonus, etc.
It provides for direct
credit of non cash corporate entitlements to an investors
ensuring faster disbursement and avoiding risk of loss of
certificate in transit.
• Reduction in
brokerage by many brokers for trading in dematerialized
securities - Brokers
provide this benefit to investors as dealing in
reduces their back office cost of handling paper and
also eliminates the risk
of being the introducing broker.
• Reduction in
handling of huge volumes of paper
• Periodic status
reports to investors on their holdings and transactions,
leading to better
• Elimination of
problems related to change of address of investor,
transmission, etc. ~ In
case of change of address or transmission of demat
shares, investors are
saved from undergoing the entire change procedure with
each company or
registrar. Investors have to only inform their DP with all
relevant documents and
the required changes are effected in the database of all
the companies, where the
investor is a registered holder of securities.
• Elimination of
problems related to selling securities on behalf of a minor
~ A natural guardian is
not required to take court approval for selling demat
securites on behalf of a
• Ease in portfolio
monitoring since statement of account gives a consolidated
position of investments
in all instruments.
Distinguished Ladies and Gentlemen, from the foregoing, you will agree
with me that CSCS has
made visible strides in meeting international standards in the
capital market and will
continue to respond to the needs of the stock market to further
enhance transparency and
speedy settlement of transactions.
Thank you for your