ZSE withdraws 30pc ‘carrot’ to listed companies

THE Zimbabwe Stock Exchange (ZSE) has withdrawn its 30 percent discount offer to companies it wanted to entice to migrate their shares from the Chengetedzai Securities Depository to its newly established depository after the Competition and Tariff Commission (CTC) ruled the price cut unhealthy for fair competition. 

Following the licensing of the ZSE Depository, several companies have indicated their desire to migrate from Chengetedzai Securities Depository after receiving an offer of discounts on listing fees.

Chengetedzai Depository Company’s CSD commenced operations on 8 September 2014, while the ZSE’s similar operation started on 01 October 2021.

The ZSE has since withdrawn the offer after the CTC ruled that the incentive was an uncompetitive business practice. However, the ZSE indicated that it was working on new incentives.

“We thank you for considering our offer to migrate to the Zimbabwe Stock Exchange Limited (ZSE) central securities depository following representations by our officials in the past two months.

“Regrettably, the Competition and Tariff Commission of Zimbabwe (CTCZ) deemed our proposed incentive (discount on listing fees) as a restrictive practice in terms of the Competition Act, on the basis that the discount offered was based on a revenue line outside the depository business.

“We are therefore notifying you of the withdrawal of the proposed discount on listing fees that we had offered you as an incentive to migrate to our depository,” the ZSE said in circulars to various companies that it had convinced to join its depository.

The Herald Finance & Business is in possession of correspondence addressed to listed companies that cannot be disclosed for professional reasons.

ZES added that in its commitment to reduce the costs for issuers and investors, it was working on a new incentive, which entails a rebate on the statutory CSD levy to be collected by ZSE on all trades settled through its depository. 

The CTC is yet to  approve the rebates.

The ZSE derives its revenue from charging listed companies annual fees as well as statutory levy of 0,1 percent of the value of every transaction. 

In 2020, annual listing fees accounted for 47 percent of the ZSE’s revenue whilst statutory levy accounted for 38 percent of the inflows and these two main revenue lines account for 85 percent of ZSE’s revenue.

International best practice recommends that in an environment with multiple depositories, a legal framework must be in place that ensures that competition is free and fair.

Market observers have stated that in order to maintain market integrity, a proper regulatory framework should be in place before licensing additional CSDs.

SECZ in its directive dated 15 October 2021 had taken the position that listed companies should move depositories on a wholesale basis by way of exchanging electronic data between depositories. 

It is not clear how depositors property rights will be protected in this move and who will assume the risk if something goes wrong with the wholesale transfer of securities.

It is interesting to note that there is no contractual arrangement between the investors and the new CSD being signed and there is also absence of an instruction from the investor to move the securities deposit in question.

Firms making the migration list include clothing retailer, which advised stakeholders that settlement of its shares listed on the local bourse would be done through the ZSE Depository with effect from 1 November 2021.

“Stakeholders are advised that they can obtain their new CSD account numbers through their stockbroker or custodian,” reads the notices from listed companies.

The CSDs shall allow for fair, open and non-discriminatory access to its services based on reasonable risk-related access requirements, according to SECZ.

As at September 30, 2021, the cumulative number of accounts opened on the Chengetedzai CSD was 36 127. Local investors accounted for 95 percent of all accounts opened on the CSD. – Herald

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