The Securities Exchange Commission Is A Major U.S Stock Exchange Central Securities Clearing System (CSCS)

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Central Securities Clearing System (CSCS)

The Central Securities Clearing System (CSCS) is based on a concept that provides an integrated central depository, clearing (transfer of shares from seller to buyer in electronic/accounting form) and settlement (payment for purchased securities) for all stock market transactions.

The 1989 Conference of the Federation of International Stock Exchanges, of which the Nigerian Stock Exchange is a member, endorsed the recommendations of Group 30, a private sector body that studied the global financial market, leading to the establishment of the CSCS. .

The capital market is the most important tool for the economic development of any country. As a market that exists to mobilize and mediate long-term funds between various productive sectors of the economy, it is the catalytic oil that lubricates the wheels of a nation. The market, however, can hardly perform this role effectively if the stock exchange, being its center, is not efficient, active and convenient for investors.

A number of systemic distortions and bottlenecks have hitherto characterized the Nigerian financial market, dating back to the pre-SAP era of regulations that hindered the effective mobilization and distribution of financial resources through the market. For example, there were obvious difficulties with the transfer of shares and the production of new certificates for tradable securities, which took months and in some cases years. Also, transaction processing at the Nigerian Stock Exchange (NSE) was virtually manual, creating delays in delivery. In particular, the Securities and Exchange Commission (SEC) Decree of 1988 and the Companies and Related Matters Decree of 1990 provide that the pricing of new issues is the exclusive competence of the SEC. The result was that potential capital market users were confused by the mere fact that a government agency, rather than market forces, dictated the prices of government and/or public company securities.

Perhaps it was awareness of these anomalies that drove the government’s reform measures in 1991 to achieve further deregulation and realistic share pricing, as well as to eliminate barriers to private sector and foreign market participation. Below are some of the concrete steps taken to reform the market.

1. The government’s divestment of the SEC’s pricing function in the primary market in January 1993.

2. Repeal of the Foreign Exchange Control Act 1962 and the Nigerian Enterprise Promotion Decree 1989 in 1995. These two pieces of legislation were replaced by the Nigerian Investment Promotion Commission Decree and the Foreign Exchange (Monitoring and Other Provisions) Decree 1995. They opened the market to foreign participation.

The most innovative development in the capital market is the Central Securities Clearing System. It was incorporated as a subsidiary of the Nigerian Stock Exchange to avoid bottlenecks that had occurred earlier and commenced operations in 1997. To this end, the CSCS should implement a computerized stock exchange management system (SEMS), which emphasizes the immobilization of share certificates in the Central Depository and the elimination of bottlenecks between registrars and company management when issuing new certificates to investors.

All securities listed on the Nigerian Stock Exchange and the register of members are under the custody of CSCS Limited. This arrangement enables all securities transactions on the NSE to be processed and concluded within five (5) business days (ie T + 5) in the form of an electronic book entry. In fulfillment of this importance, CSCS Limited continuously updates the register of members of all listed companies and issues reports on their holdings. Such updated registers are made available to company registrars from time to time.

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