Illegal sale of investors’ securities: Direct Cash Settlement rescues

As part of the ongoing initiatives to protect investors and eliminate fraudulent activities in the Nigerian Capital Market, stakeholders in the market under the leadership of Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange commenced with effect from January 4, 2016 the Direct Cash Settlement (DCS) initiative, which is the direct payment of proceed of sale of securities into an investor’s nominated bank account.

This initiative which was contained in a statement released last month by the Steering Committee on Direct Cash Settlement maintained that with the effective take-off of Direct Cash Settlement, investors in the Nigerian Capital Market would be credited directly with the net proceeds of stock market transactions which would address the illegal sale of investors’ securities.

What is Direct Cash Settlement?

Direct cash settlement is a process where cash proceeds from trades executed by brokers on the Exchange settles directly into investors’ bank account. It starts when a client gives his broker the mandate to sell his or her shares. Before now, the proceeds of sale for investors’ transactions go into the bank accounts of the brokers for onward disbursement to their clients.

The practice under the ‘Direct Cash Settlement’ would be to send the net proceeds directly from the clearing and settlement system to investors’ accounts while the existing practice of payment through brokers would only happen where clients opt not to participate in the initiative. Under Direct Cash Settlement, once an investor’s shares are sold, payment is made directly into the client’s account.

This is in contrast to the previous practice where proceed from sale of securities is paid directly into the stockbroker’s account and stockbrokers then deduct transaction fees and remit the balance to the client’s account. Historically, issues have arisen on occasions when the proceeds of sale were not remitted into the clients’ accounts, thereby necessitating the need for this effective initiative.

Regulator’s view

Mounir Gwarzo, DG, SEC said: “With the Direct Cash Settlement initiative, the moment securities are sold, the consideration will be paid into the client’s account. I am happy to report that at the last Capital Market Committee (CMC), our members unanimously agreed that the Direct Cash Settlement initiative will commence on January 4, 2016. So, we believe this will also improve investor confidence in the market”.

Under the proposed framework for Direct Cash Settlement, brokers were mandated to forward their clients’ bank account details to the CSCS, the agent of the Nigerian Stock Exchange (NSE) for the clearing and settlement of securities traded on the Automated Trading System (ATS) of the NSE for clients opting to participate in the Direct Cash Settlement initiative.

Settlement of subsequent trades carried out on the ATS would then be effected by direct payment into the client’s account as provided to the CSCS. Investors are encouraged to contact their stockbrokers for more information on how to opt in to the Direct Cash Settlement initiative. Fraudsters raise game as stockbrokers notify investors about the process

While some stockbrokers are busy notifying their clients on this recent market initiative and what the process requires, many online fraudsters are sending mails in disguise after cloning stockbrokers’ mails.     

For instance, an email which originated from [email protected] seen by INVESTOR –though suspected to be from fraudsters reads: “Dear Esteemed Customer, Happy New Year. In accordance with the new directive from the Nigerian Stock Exchange, a new process has been introduced by the body to all brokerage firms and investors which is called the Direct Cash Settlement (DCS). Direct Cash Settlement (DCS) is the process where proceeds from trades executed by brokers on the Exchange settles directly into investors’ bank account. Therefore clients who wish to opt for this settlement process should please fill out the attached form and scan it back to … (email withheld by INVESTOR).”

“We request that your bank details as well as your personalized BVN (Bankers Verification Number) be provided to us through the attached form on or before the 8th of January 2016. Hard copies of the forms would also be made available at our offices. We would forward all forms to Central Securities Clearing System Plc (CSCS), which is the agent of The Exchange for the clearing and settlement of all securities. For further enquiries kindly contact us through any of the mediums slated above. See link to download the Investor’s Bank Update Form. See link to FAQs”, the email further stated.

Iheanyi Nwachukwu