Whether you are investing in the shares of quoted companies, or in unquoted shares traded at the OTC platform or you are investing in government bonds; you should have a CSCS Account.
- It is a requirement for investing in securities traded in Nigerian capital market
- CSCS is the primary depository service provider for the Nigerian capital market
- The Securities and Exchange Commission has given a deadline to eliminate the issuance of physical share certificate and to hold all investment in shares electronically,
- 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.
- Serves as a Sub-registry for all quoted securities
- It issues central securities identification numbers to shareholders; and
- It is the 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 either keep the share certificate in your bedroom or deposit it with the CSCS for safe keeping.
How CSCS Operate
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 a better investing experience. Prior to when CSCS was established there were inefficiencies in the system which discouraged people from investing.
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 many cases of misplacement and loss of certificates and theft. Above all it was easier for fraudulent stockbrokers to sell investor’s shares in an unauthorized manner.
The overall market risk was very high due to undue delay in processing trades. Long transaction cycle led to manipulations by operators. Above all, there was general lack of transparency and trust in the market.
How do I Open A CSCS Account Now?
Your first step to open a CSCS account is to approach a registered stockbroker. You can get the list of approved stockbrokers from the website of the Securities and Exchange Commission or the Nigerian Stock Exchange. The stockbroker will first open an account for you with his firm to track your internal transactions or dealing.
Thereafter, he processes your CSCS account. The CSCS account warehouses your shares and other securities that you may wish to buy.
Opening an account is simple and involves the completion of KYC documents. For many Stockbroking houses, the requirements will include the following:
For an individual account
- Brokerage 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, provide the above documents in addition to the incorporation documents of the company. Also required is a board resolution authorizing the opening of the investment account.
On satisfactory perusal of the documents, your stockbroker will prepare the account opening documents. He vets and forwards the documents to CSCS which will now open the investor's account.
You get a trading account number and a Clearing House number (CHN). The Clearing House Number (CHN) ties your account to the stockbroking 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 stockbroking 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 stockbroking 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 stockbroker has direct access to it because it is tied to the stockbroking firm. There has been cases where unscrupulous stockbroking houses sell stocks out of the portfolio of their customers without due authorization.
Subscribing to the CSCS Trade Alert is one sure way of knowing what goes on in your account. 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 for investing in the Nigerian Stock Exchange. Your first step is to identify a reliable 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.