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Shares proceeds to be paid directly to investors -SEC

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Capital market stakeholders have set a five-month timeline for the implementation of a direct cash settlement system under which net proceeds of stock market transactions would be sent directly to bank accounts of investors through the Central Securities and Clearing System (CSCS, the clearing and settlement gateway of the market.

This was part of the highlights of the second quarter meeting of the Capital Market Committee (CMC), the umbrella body for all capital market operators, self regulatory organisations and other stakeholders; under the coordination of Securities and Exchange Commission (SEC).

At a media briefing on the CMC meeting on Wednesday in Lagos, director general, Securities and Exchange Commission (SEC), Mr. Mounir Gwarzo, said the process of the implementation of the direct cash settlement could be completed by December 2015, paving the way for the take-off of the initiative as from January 2016.

As against the current general practice whereby the payments for investors’ transactions go into the accounts of the brokers for onward disbursement to their clients, the general practice under the ‘direct cash settlement’ will be to send the net proceeds direct from the clearing and settlement system straight to the investors’ accounts while the existing practice of payment through brokers will become exceptional cases.

Gwarzo said the introduction of the direct cash settlement would improve investors’ confidence and enhance market integrity.

Initial draft of the framework for the direct cash settlement indicated that brokers would be mandated to provide their clients’ bank account details to the CSCS, being the agent of the Exchange for the clearing and settlement of all securities traded on the Automated Trading System (ATS) of the NSE.

Settlement of each trade carried out on the ATS shall then be done by direct payment into the client’s account as provided to the CSCS.

Under the proposed framework, brokers are mandated within three working days of receiving instructions from a client that settlement should be done by direct payment into such client’s account to notify the CSCS of the client’s instructions and provide the client’s account details to the CSCS.

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However, a client that declines direct cash payment into its account provided to the CSCS shall notify the CSCS by completing a direct cash settlement notification form, specially made for that purpose.

Also, settlement of transactions carried out on behalf of any client whose account details are not provided to the CSCS shall be done by payment into the account of the client’s broker-dealer firm.

As part of the new rules, where a client provides its broker-dealer firm with a written mandate to purchase securities with proceeds from the sale of other securities any payment attributable to the sale shall be made into the account of the broker-dealer firm provided the client gives its consent in that regard.

Every broker-dealer is also expected to take all reasonable steps to ensure that all details of direct settlement originate from the actual client through confirmation of the client’s details in relations to particulars contained in the ‘Know Your Client’ (KYC) provisions.

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