The Nigerian Stock Exchange (NSE), will from January 4, 2016, commence the Direct Cash Settlement initiative, which is the direct payment of proceed of sale of securities into an investor’s nominated bank account.
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. Once those shares are sold, payment is made directly into the client’s account. This is in contrast to the current 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.
This initiative will help to protect investors and eliminate fraudulent activities in the Nigerian Capital Market, and eliminate situations where the proceeds of the sale are not remitted into the clients’ accounts.
The DG of SEC, Mounir Gwarzo, stated that “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 CMC, our members unanimously agreed that the Direct Cash Settlement initiative will commence on 4th of January 2016. So, we believe this will also improve investor confidence in the market”.
The proposed framework for Direct Cash Settlement requires that the brokers are 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.