‘CAMA lacks power to implement dematerialisation’
By MADUKA NWEKE
Monday, February 8, 2010
Regulators of the Nigerian Capital Market have blamed lack of will to implement certificate dematerialisation within the provisions of Companies and Allied Matters Act (CAMA) as the hitch militating against the take off of the exercise.
According to a source from Securities and Exchange Commission (SEC), the plan to phase out physical share certificates, dividend warrants and implements complete dematerialisation of capital market transactions cannot be feasible until the Act is amended. This he said is the reason why physical documents are still prevalent and exchanging hands among operators and investors barely two years after the regulatory authorities muted the idea.
Dematerialisation is a process by which the physical share certificates of an investor are taken back by the Company and an equivalent number of securities are credited in electronic form to the depository.
An investor will first of all open an account with the CSCS through a Stockbroker and thereafter request for the dematerialisation of his share certificates through the Broker so that the dematerialised holdings can be credited into that account.
He said that CAMA did not provide for the execution of e-share certificate, e-dividend payment, and e-bonus etc, adding that until CAMA is amended to recognise electronic documentation of market transactions, regulators cannot force operators and investors to embrace full dematerialisation. He noted that there should be enabling law in place before regulators can enforce full dematerialisation.
This according to him, implies that the regulatory authorities cannot force shareholders of companies to surrender their physical documents such as share certificates, bonus certificates etc which they are entitled to as provided by CAMA. This is why companies still issue physical share certificates, e-bonus certificates, dividend warrants even when shareholders had filled all documents to embrace e-transactions.
Sam Willie Ndata, a stockbroker said what the regulators could do at the moment is to use moral suasion, while they should sponsor a bill that will incorporate full dematerialisation to the proposed amendment of the CAMA.
It will be recalled that the SEC and the Nigerian Stock Exchange (NSE) made the first move towards dematerialisation in 2004 when it introduced electronic bonus which requires quoted firms to issue bonus shares directly to the shareholders by crediting the volume of bonus allotted to them in their accounts with the Central Securities Clearing System (CSCS).
In 2008 the SEC introduced electronic share certificates with December 31st 20 as deadline for verification of physical share certificates while full dematerialisation was to commence January 1, 2009. Also, in February 2008, the Securities and Exchange Commission (SEC) launched electronic dividend system known as e-dividend regime which required dividends to be paid directly into bank accounts of shareholders. Though these initiatives were commended by stakeholders some however said they prefer the physical documents. For example, those against the e-bonus said, “The physical share certificates and bonus certificates serve as evidence of their shareholding with a particular company. We may not have any proof of ownership if the system collapses.”
Ndata noted that dematerialization if implemented would help reduce the mounting incidence of unclaimed dividend in the market. “Dematerialisation prevents loss of dividend warrants in transit and the stress involved in renewing a stale dividend warrant with a few clicks and the submission of an easily filled e-dividend subscription form. Apart from eliminating cases of unclaimed dividends, that it reduces time spent in awaiting dividend via post while conserving time and effort spent in depositing physical dividend warrants into bank accounts,” he said.
