The Central Securities Clearing System (CSCS) rests on the concept which provides an integrated central depository, clearing (electronic/book entry transfer of shares from seller to buyer) and settlement (payment for bought 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, which endorsed the recommendations of the group of 30, a private-sector organization which studied the global financial market, gave birth to the establishment of CSCS.
The capital market is an all-important instrument of economic development of any nation. As the market which exists for the mobilization and intermediation of long-term funds among the various productive sectors of the economy, it is the catalytic oil that lubricates the wheel of the nation. The market, however, can hardly serve this role effectively unless the Stock Exchange, being its hub, is efficient, vibrant and investor-friendly.
A number of systemic distortions and bottlenecks had hitherto characterized the Nigerian financial market, originating from the pre-SAP era of regulations, which had hindered efficient mobilization and allocation of financial resources through the market. For example, there was apparent difficulty associated with the transfer of shares and production of new certificates for traded securities which took months, and, in some cases, years to conclude. Also, the processing of transactions done on the floors of the Nigerian Stock Exchange (NSE) had been virtually manual thus creating delays in delivery. In particular, the Securities and Exchange Commission (SEC) Decree 1988 and the Companies and Allied Matters Decree 1990 provided that the pricing of new issues was the exclusive preserve of SEC. The implication of this was that prospective users of the capital market got discouraged by the mere fact that a government agency, not market forces, was dictating the prices for securities of government and/or public companies.
Perhaps, it was the realization of these anomalies that informed government’s reform measures taken in 1991 towards achieving further deregulation and realistic pricing of equities as well as eliminating difficulties to private-sector and foreign participation in the market. The following are some of the specific steps taken to reform the market.
1. Government’s stripping of SEC of its price-making function in the primary market in January 1993.
2. Repeal of the Exchange Control Act 1962 and the Nigerian Enterprises Promotion Decree 1989, in 1995. These two legislations were replaced by the Nigerian Investment Promotion Commission Decree and the Foreign Exchange (Monitoring and Miscellaneous Provisions) Decree, 1995. These have 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 obviate the inherent bottlenecks earlier mentioned and commenced operations in 1997. To this end, the CSCS is to implement a computerized Stock Exchange Management System (SEMS) which emphasizes immobilization of Share Certificates in a Central Depository and the elimination of the bottlenecks between registrars and company Executives in issuing new certificates to investors.
All securities listed on the Nigerian Stock Exchange and their 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) working days (I.e. T + 5) in electronic book entry form. In carrying out this important, the CSCS Limited constantly updates the register of members of all listed companies and issues statements on their holdings. Such up-dated registers are made available to the registrars of companies from time to time.