SCD system promises rapid growth of securities market

By Patrick Kagenda

The Uganda Securities Exchange last week launched the Securities Central Depository System (SCD) that will pave the way to electronic trading. The software to run the system that will link the USE to the Dar es Salaam Stock Exchange and the Nairobi Stock Exchange was provided by the MTI of Sri-Lanka mid last year.

The new SCD is mandatory to all investors .The same company provided a similar system in the other two stock exchanges. Like the automation of the banking sector where passbooks have been done away with , the SCD will also phase out paper share certificates and at a click of a button one will access his share certificate electronically from anywhere in the world.

Simon Rutega the Chief Executive at the USE told the media at the launch of the SCD that the equities market is migrating from a manual system to an electronic one.

The launch of the SCD follows last year’s passing of the electronic trading bill by the parliament of Uganda. The SCD is a depository warehouse where paper shares will be deposited. It will start with the immobilisation phase where paper certificates will still be maintained in the country but deposited with the exchange.

Under the immobilasation phase paper certificates will still be considered as evidence of ownership. However after the six months immobilisation phase, the exchange will move to the imaterialisation where paper certificates will be done away with. The exchange will work in partnership with the Securities Central Depository Agents (SCDA) and two custodian banks Stanbic and Barclays bank. The banks will be involved in the first phase of account opening to the public. The public will interact with the SCDA`s to open up accounts. Any investor who plans to participate in the securities exchange will be required to have an account with a SCDA and will be required to immobilise his certificates with the USE.

However trading in the first phase will continue being manual with the open outcry trading methodology but once the USE is through with the SCD system, the exchange intends to complete the formation of the exchange with an automated trading system. The first six months are being used to test the system to ensure that it works effectively.

The new system has an advantage of easing the connectivity with the payment system of the T+5 days as there will be no movement of paper since the certificates will be deposited in the SCD. The account opening of the SCD is free to all provided one is an eligible investor. A fee will be charged on the imaterialisation stage for administrative costs.

The exchange has 30 listed government bonds, 5 corporate bonds and over 40,000 shareholders who are expected to grow. The new SCD is expected to increase performance as it is more efficient. Already at the DSE, NSE and in ZSE where the system is in place, have experienced rapid growth. The exchange is also looking at two coming IPO`s with the biggest anticipated to be the Tullow Oil Plc listing.

On the security of the SCD, Rutega said they had taken learning experience from the mistakes at the NSE and that client’s money will be safe.