Whether you are investing in shares of quoted companies, or shares traded at the OTC platform or you are investing in government bonds, you are required to have a CSCS Account. Why?
- It is a requirement for investment in securities traded in Nigerian capital market
- The Securities and Exchange Commission has given a deadline to eliminate the issuance of physical share certificate. Thus, all investment in shares shall be electronically held,
- It is easy to monitor your investment portfolio with a CSCS account
- It guarantees the safety of your investment
What is CSCS
CSCS is an acronym for Central Securities Clearing System. The Central Securities Clearing System Plc is a subsidiary of the Nigeria Stock Exchange (NSE) which started operations in 1997 as the major financial infrastructure for the Nigerian capital market. Thus, the CSCS is the Central Depository for the Nigerian capital market with the responsibility for storing, clearing and settlement of securities transactions.
Specifically, we can identify the functions of the Central Security Clearing System in the Nigerian capital market as follows:
- It serves as a Central depository for share certificates of companies quoted on The Nigerian Stock Exchange.
- It serves as a Sub-registry for all quoted securities
- It issues central securities identification numbers to shareholders; and
- It serves as a Custodian for local and foreign instruments.
In order to effectively play this role the CSCS operates a computerized depository system.
To understand this role properly, consider the relationship you have with your bank. When you earn some money, you will likely have to make the decision of either holding the cash (in your pocket, bedroom or shelve) or you deposit it in your account with your bank. To know how much you have in your account, you will ask your bank to print your account statement. If you have any need for your money you simply withdraw. Why would you keep your money in your bank account rather than holding unto it? For safety and probably growth, I suppose.
In the same vein, when you buy the shares of a company and you are issued with a share certificate as evidence of your investment, you have a choice to eithet keep the share certificate in your bedroom or deposit it with the CSCS for safe keeping.
The CSCS keeps it secured electronically. Any other investment you may make through the secondary market will also go into your account with the CSCS. If you wish to know how much shares you have, you ask the CSCS for your account statement which will show the companies you have invested in, what volume of shares you hold in each company and what the shares are worth as at the date of the statement.
When you give your shares to the CSCS to keep for you, CSCS opens an account for you and assigns you an account number. With this number you can buy more shares, sell what you have, or even transfer ownership to your dependent as you wish.
The CSCS was established to help strengthen the capital market and give investors better investing experience. Prior to when CSCS was established there were inefficiencies in the system which discouraged people from investing in the market. For example, delivery of share certificates could take between 3 months to 12 months and settlement of transactions could take weeks. Verification of signatures was a herculean task and was major reason why transactions were not facilitated easily.
There was also the problem associated with the loss of certificates, misplacement or theft. Above all it was easier for fraudulent stock brokers to sell investor’s shares in unauthorized manner. Over all market risk was very high – undue delay, manipulations due to long transaction cycle, minimal transparency, and general lack of trust in the system.
How do I Open A CSCS Account Now?
To open a cscs account, you will have to approach a registered stock broker. You can get the list of approved stock brokers from the website of the Securities and Exchange Commission or the Nigerian Stock Exchange. The stock broker will first open an account for you with his firm to track your transactions or dealing with the firm, then process your CSCS account which is used to warehouse your shares and other securities that you may wish to buy.
Opening an account is simple and involves the completion of a KYC documents. For many Stock Broking houses, the requirements will include the following:
- Account Opening Forms
- A CSCS Account Opening Form
- A means of Identification (either of National ID, Drivers License, International Passport)
- Passport Photo
- Utility Bill
For a corporate account, the incorporation documents of the company shall be required and a board resolution authorizing the opening of the investment account.
On satisfactory perusal of the documents, your stockbroker will prepare the account opening documents and forward to CSCS who will now open a CSCS account for you’re assigning you a trading account number and a CHN number. The Clearing House Number (CHN) identifies your account through the stock broking house.
How Much Does it Cost to Open A CSCS Account?
Opening a CSCS account is free though your stock broker may charge you a small amount to defray administrative cost. Some stock broking houses may also require that you deposit a certain minimum amount for trading as a condition for opening accounts for you.
You can request to open a Special Account. The advantage of having a special account is that you have direct control of your portfolio as the account is not tied to any stock broking house and as a result your stock broker cannot manipulate your account or trade on it without your authorization.
The problem associated with a regular cscs account is the fact that your stock broker has direct access to it because it is tied to the stock broking house. There has been cases where unscrupulous stock broking houses sell stocks out of the portfolio of their customers without due authorization.
One way of ensuring that you are in the know of what goes on in your account is to subscribe to the CSCS Trade Alert window. With this you are alerted anytime there is a transaction on your account and that way you will know if your broker is fondling your account dubiously.
Opening a CSCS account is an important requirement you must meet if you are desirous of investing in the Nigerian capital market. Your first step is to identify a stockbroking company to do business with and the rest of the steps are easy. If you are desirous of opening a CSCS account and need help, feel free to contact us or drop your comments in the comment box here.
To your investing success.