The Central Bank of Nigeria (CBN) will collaborate with the Central Securities Clearing System (CSCS) to resolve issues arising from the CBN’s assumption of the role of a securities depository and to prevent further disruptions arising from its problematic S-4 (Scripless Securities Settlement System).
This was the outcome of the meeting held yesterday between the CBN and all major players in Nigeria’s entire money market, including the debt management office (DMO), all major banks, as well as finance and discount houses.
“The meeting was called to more or less find a solution to all the problems that have arisen from the CBN’s takeover of the role of a settlement depository for securities it issues,” said a market source, present at the meeting which was held at the Headquarters of the Financial Markets Dealers Association (FMDA), in Lagos.
“We were able to identify that the non-co-operation between the CSCS and CBN was a major problem.”
The CSCS had hitherto handled the clearing, settlement and delivery systems for all FGN fixed income transactions, before the CBN take-over of the function.
The CBN has been struggling in its efforts to run its new depository the (S-4) which has caused serious settlement problems for market operators and investors since its inception in early December 2013.
Sources present at the meeting tell BusinessDay that the CBN and the CSCS agreed to meet all day today to iron out all outstanding issues, so that the CSCS can provide technical support to the CBN on settlements, which is not core to the CBN’s main business of central banking.
The CSCS will also continue to issue ISIN (International Special Identification Numbers) codes for FGN bonds issued by the DMO, while the CBN would have a parallel manually run settlement system, alongside the S-4, which will enable it switch to manual settlement of trades if the S-4 system breaks down, as it is currently prone to doing.
The CSCS is the only body recognised to issue ISIN’s in Nigeria by the global Association of National Numbering Agents (ANNA) which issues the ISINs for all securities in the world, of which the CBN is not a recognised member.
“The CBN and CSCS will iron out all that, at the meeting today,” said a second market source.
“If the CSCS co-operates with them (CBN), it will be progress for the markets.”
The co-operation between the CBN and CSCS removes the cloud hanging over the DMO’s bond issuance planned for today.
The DMO plans to issue a total of N90 billion, made of the N45 billion, 3 year, 13.05 percent notes due August 2016 and N45 billion, 20 year, 10.00 percent notes, due July 2030.
The CBN’s S-4 system failed between Monday 16th and Tuesday 24th Dec. 2013, prompting a halt of settlements for Treasury -bill transactions in that time period.
Stakeholders say the CBN is going against global best practices, and ignoring the conflict of interest that arises from its assumption of the role of a securities depository for fixed income securities it issues.
By: PATRICK ATUANYA