Cross-border share trading upgrades to electronic system

 

Trading of cross-listed shares will take four days, down from two months. TEA Graphic  Nation Media Group

By DAVID MUGWE The EastAfrican

In Summary

• The new system will allow central depositories to electronically move cross-listed shares, resulting in an increase in the volume of cross-listed shares traded.
• Investors who still hold paper certificates will not be able to participate in corporate actions such as bonus and rights issues until their shares are converted to electronic form. This means that investors must also have virtual accounts.

An inter-depository transfer system that allows for the electronic transfer of cross-listed securities is expected to go live on Monday, in a move that will cut down the time it takes to move assets from one country to another.

Trading of shares cross-listed on the East African stockmarkets is now expected to take four days, down from the current period of up to two months, once the electronic settlement of transactions is implemented. 

READ: Cross-border share trading shortened to four days

The new system will allow central depositories to electronically move cross-listed shares, resulting in an increase in the volume of cross-listed shares traded.

Members of the East African Securities Exchange Association (Easea), who include the region’s stock exchanges and Kenya’s Central Depository and Settlements Corporation (CDSC), at a meeting in Zanzibar last week, signed a memorandum of understanding for the establishment of the inter-depository transfer system.

“A memorandum of understanding has been signed and the consultative meeting concluded that this project will go live by Monday, July 29,” said Easea in a press communique.

Easea said the move will not only enhance the liquidity of cross-listed securities, but also substantially reduce the exchange-rate risk.

In the past, the lengthy clearance process slowed trading of cross-listed shares in other markets other than where they are primarily listed.

Some of these stocks have never traded on their secondary listing bourses, and the project is expected to allow investors to take advantage of price differences across the regional markets.

The bourses have been pushing for dematerialisation of all listed shares.

Two weeks ago, Kenya’s Central Depository and Settlements Corporation (CDSC) set November 1 as the effective date for dematerialisation of shares — the conversion of paper certificates to electronic records.

Rose Mambo, the chief executive officer of CDSC, said Kenya joins other countries in the world such as Denmark, France, Canada, Brazil and Mexico whose equity markets are fully dematerialised. 

“Closer to home, we have South Africa, Rwanda and Uganda, though in the latter two the problem of how to deal with cross-listed securities from Kenya, which are certificated, still persists,” said Ms Mambo, adding that the problem will cease once all the countries adopt the electronic transfer model.

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Investors who still hold paper certificates will not be able to participate in corporate actions such as bonus and rights issues until their shares are converted to electronic form. This means that investors must also have virtual accounts.