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Capital Market Perspective on the Maximization

of the Benefits of e-Commerce in Nigeria




Onyewuchi C. Asinobi

Managing Director/CEO


Central Securities Clearing System Limited


Being A Paper Presented At The


International Conference on Electronic Commerce and telecommunications in Nigeria on

September 23, 2002 at 2.00 p.m. at Golden Gate Restaurant, Ikoyi, Lagos

Capital Market 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 investments.


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.


Without communications 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 capabilities.


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:


Business-to-business e-commerce, such as companies seeking supplier bids over the Internet;


Business-to-consumer e-commerce, such as sites operated by traditional catalogue companies;


Consumer-to-consumer enabled e-commerce, popularised by sites such as ebay or

priceline.com; and


information retrieval, from public sites such as government agencies, libraries or museums or proprietary 'sites such as those operated by online banking services or brokerages.


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.


e-business: the transformation of key business processes through the use of Internet technologies.


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


Streamline intra-office collaboration


E-business is all about making it easier for people to do business with you! Once you can accomplish this you'll find:


Increased customer loyalty

Increased revenue

Lower costs


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 promotion.


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 e-commerce.


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 markets.


Better Customer Service


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.


Convenience: 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 world.


Automated Trading System (ATS)


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 is NXSA.


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 manage

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 The

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 with

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.


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 remote

trading, taking 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 constrained the

timely conclusion of transactions on The Exchange.


The market associates numerous benefits with the ATS and CSCS, including:

  • Increased opportunity for price discovery

  • Greater transparency 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

  • Facilitates inter-broker settlement of transactions

  • Reduced paper work and operational costs for stockbroking firms with positive implications for operating profit

  • 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


^ Banks


^ Discount Houses


^ Institutional investors


^ Quoted companies


^ High net worth individuals


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.


The phased 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.


Understanding the Central Securities Clearing System (CSCS) Limited


The CSCS Limited was licensed by the Securities & Exchange Commission as Central

Depository, Clearing and Settlement Agency.


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

foreign instruments).


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 verification


Capital Gains not exploited


Some Dealing Members sold what they did not have


Numerous complaints on failed transactions


Loss of Certificates


Risk was very high - undue delay, manually operated, manipulations due to long

transaction cycle, 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



Legal Provisions


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

stocks/securities through the secondary market.









The Investor


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

deposit his 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 with CSCS.


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

with CSCS.


Nominates two (2) accredited stockbrokers/officials to CSCS.


Maintains only one Trading Account at any point in time with one of the designated

stockbrokers' banks.


Instructs the bank to obey CSCS instruction as it relates to the Trading Account.


Receives orders/instructions from investors and fills out certificate deposit forms in

quadruplicate etc.


Verifies 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.


Verifies/authenticates investors claims (i.e. certificates and transfer forms) as

presented through the stockbroking firm.


Sends verified certificate(s) and the signed Transfer Form(s) with two (2) copies of

certificate deposit form(s) to the depository of CSCS within 48 hours.




The particulars in the Transfer Form form the database for opening account and

subsequent transaction 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 Exchange


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.


Settlement Banks


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 CSCS transactions.


The primary mode of settlement of CSCS transactions by settlement banks is by

means of Inter-Bank Settlement System (NIBSS).


Registrar Information:


Dematerialised 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

in diskettes.


The registrars which perform corporate actions, pay dividend warrants to

shareholders whose names appear on the register on closure date.


Guarantee Fund


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 Bank Pie.


The stockbroking firms contributed ^N=50,000 each to the pool at their respective

settlement banks.


Any over-trading will be settled from the Guarantee Fund Account. In general, there

will be no cancellation of trades.


Risk Management


Depositories are always searching for ways to strengthen the financial guarantee of

the clearance, 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 structures.


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 place


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.


Custodian Service


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

settlement cycle.


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 stock market.


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

shareholder/prospective borrower by CSCS (status report). For a fee of

^N=100.00, the 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

discharged his 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 accordingly.


(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 of certificates.


Quoted Companies


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

shareholders have requested for certificates to date.


Amalgamation of several accounts for a shareholder on the register leading to

reduction of cost to the company.


Stockbroking Firms


Prompt Inter-member money and stock-settlement are assured. l


The problems associated with delivery of shares are minimised


Increased efficiency and profit


Reduction in operational cost.


Benefits of Depository System


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 paper, like:


     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

registrars, thus exposing the investor to the cost of obtaining duplicate

certificate and advertisements, etc. This problem does not arise in the

depository environment.


     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

normally accepted 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 corporate entitlements.


      Faster settlement cycle - It is a rolling settlement cycle. This will enable

faster turnover of stock and more liquidity with the investor.


     Faster disbursement of non cash corporate benefits like rights, bonus, etc.

It provides for direct credit of non cash corporate entitlements to an investors

account, thereby 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

demateriahzed securities 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 controls.


     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 minor.


     Ease in portfolio monitoring since statement of account gives a consolidated

position of investments in all instruments.


Closing Remarks


Mr. Chairman, 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 attention.


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