The Managing Director/ Chief Executive Officer Central Securities Clearing System Plc, Jalo-Waziri Haruna in this interview with Kayode Tokede speaks on how Nigeria’s Central Securities Depository’s ISO 27001:2013 certification encapsulates its commitment to global best practice in data security, CSCS role in capital market development, what has changed Post-covid-19, among other topical issues in the capital market.
What has been the role of the Central Securities Clearing System (CSCS) Plc in capital market wealth creation and ensuring settlement of trades done across the capital market?
As Central Securities Depository, we provide depository, clearing and settlement for all asset classes in the Nigerian financial market. Our role provides assurance on safety of securities held by investors as well as settlement of secondary market transactions, irrespective of the counterparty. Beyond this conventional role, we provide ancillary services that create wealth for investors and participants in our network. For instance, our Collateral Management offering provides an opportunity for investors to create liquidity and derive extraneous value from their passive investments across all asset classes.
As regards your second part of the question which relates to our responsibility for ensuring settlement of trades done across the capital market, I am pleased to say that we have 100% settlement success across all asset classes and Exchanges, as you may reckon that we are a multi-asset CSD, including equities, fixed income securities as well as commodities, and we serve different Exchanges, including the Nigerian Exchange Limited (previously known as Nigerian Stock Exchange), NASD-OTC Exchange, Lagos Commodities and Futures Exchange, FMDQ Exchange and Nigerian Commodity Exchange. Interestingly, throughout the pandemic, we had zero settlement failure, and our agility ensured a seamless transition to virtual/remote operation. You may recall that prior to our establishment, settlement was done manually and flawed various issues, including delays beyond the T+5 settlement window approved at the time. It’s exciting that not only have we worked with other stakeholders in the market to narrow the settlement window to T+3, we are also currently seeking opportunities to leverage advancements in the payment system and enhanced operational efficiency of our esteemed participants to further narrow the settlement gap as a way of creating more value for investors.
It’s being an exciting journey, leveraging new technologies, investments in talents and working with different stakeholders in modernising hitherto traditional process in a way that creates sustainable value for all stakeholders and more importantly seeks new growth opportunities for the capital market ecosystem.
The world has changed dramatically on the heels of COVID-19 pandemic, what has changed in CSCS strategy?
The pandemic redefined business processes and prospects, but just as it caused varying disruptions, it also exposed businesses into a new world of endless possibilities. For us, we stepped on those disruptive nodes to drive innovation and excellence and I am pleased that our diligent response eventually became levers for our earnings and broader corporate growth. It would interest you to know that we, at CSCS, were one of the first corporates in Nigeria that activated business continuity protocols and switched to a fully remote digital service. Whilst we never anticipated the pandemic, our robust business continuity plan and crisis management framework afforded us a swift transition, without disruption. It’s quite interesting that the pandemic validated our decade-long advisory to private and public institutions to deploy electronic document management systems (EDMS). It was a veritable tool for many of our clients during pandemic, as it provided a foundation for switching to a remote work-from-home protocol. Today, we are working with new clients across different sectors to digitize their electronic management systems to achieve full digitization of process and electronic archiving of operational and strategic records. We live in fast-paced world and with the experience of the pandemic, every institution, private or public, needs to become agile and ready for service anywhere, anytime!
The capital market authority in the United States, working on the recommendations and advocacy of the clearing and settlement house, is making arrangements to shorten capital market settlement cycle to T+1. What are your perspectives on the T+3 settlement in Nigeria and what are your plans, if any, to enhance settlement of securities in Nigerian capital market?
Globally, markets are evolving and Nigeria would not be an exemption. Having transited from T+5 settlement window to T+3 in 2005, I believe Nigerian market is mature for a shorter settlement cycle and CSCS would be happy to collaborate with other stakeholders in making this transition. Whilst this would require change management across our esteemed participants, I believe new technologies and enhancements in payment systems provide good foundation for shortening the settlement cycle. Albeit execution of such market-wide initiative goes beyond the CSCS, it requires the conviction of all stakeholders and the oversight of our regulator, the Securities and Exchange Commission (SEC). There are costs associated to such transition, especially as regards change management but the benefits outweigh the cost. Beyond the time value of money consideration, it is expected to improve market liquidity and mitigate settlement risks. As the clearing and settlement institution for the capital, we are ready for the switch.
Capital market activities are slowing down, what are the reasons for the waning liquidity in the market and how does CSCS plan to change this narrative and more importantly, as a company whose earnings is tied to capital market activities, how do you intend to mitigate the risk on your company’s earnings performance?
I believe there are some fundamental issues undermining liquidity in the Nigerian capital market; some are reflective of broad macro factors, including monetary and fiscal policies whilst others are structural. For instance, there is need to further liberalise market access, especially to attract the youthful population. The current structure of the market was best fit for the past decades but perhaps not today. It is exigent to further liberalize market access for all categories of investors to stimulate capital flows. We need to remove frictions by leveraging technologies and centralised utilities. This would not only help to unlock new capital flows from the youthful population but may also reduce service cost across the industry. Indeed, it may help to reduce the growing unclaimed dividends, which again is one of the disincentives for investors. These initiatives would help to strengthen investor confidence, especially as enhanced oversight of the Securities and Exchange Commission should help in reinforcing market integrity.
As a financial market infrastructure, our earnings performance is vulnerable to the volatilities of the capital market and more importantly the liquidity of the market. Hence, we are at the forefront of executing new initiatives that can potentially stimulate market liquidity. We are collaborating and investing in ideas that are requisite for sustainably growing the capital market by deepening penetration and introducing new offerings that meet changing investor preferences. In addition, we are increasing our offerings to cover more value adding services for different stakeholders. It’s about value creation for the ecosystem and it’s more towards mining latent opportunities in the capital market and unlocking value from idle capital and assets. That being said, we are also diversifying the business, as we expand the scope of our ancillary services. This would further serve as an immunity against the impact of market volatilities on our earnings profile.
The CSCS has had 25years of meritorious service to the market, what do you think the future holds for CSCS?
It has been an exciting and rewarding journey, working with different stakeholders to make transformational changes in the market. However, we still have a long way to go, especially as investors’ preferences and technology disruptions are shifting the boundaries of markets and redefining asset classes. Like other CSDs globally, we see increasing responsibility for us in strengthening and sustaining market integrity and investor confidence. Whilst Nigerian market may be unduly fragmented, we expect steady consolidation, especially in leveraging centralized processes, which have proven to be cost effective in peer markets. So, we are investing in technology, people and infrastructure to take on more responsibilities and fulfill our strategic objective of being the lever for market penetration and growth. So, the future looks brighter than the past, as we invest resources in process optimization, strategic partnership and product innovation, all geared towards creating value and enhancing investor experience.
CSCS performs the functions of depository, clearing and settlement of all transactions in the Nigerian Capital Market. How well are you leveraging new technologies and how do you manage the global rise in cyber-attacks.
We are partly seen as a technology company because our operations are mainly digital, which reinforces the big investments we make in technology. More importantly, we reckon our central role in upholding the integrity of the market, especially as regards the safe depository of assets and the security of investor information. Thus, information security is at the heart of our strategy and operations. From design of technology architecture to application and system controls, we make notable investments in cybersecurity and broader information security technologies. More importantly, we invest in people and process controls, which are crucial to the different lines of defense. We are ISO 27001:2013 certified, a reflection of our commitment and compliance to global best practice in data security and indeed we also play active role in sensitizing our ecosystem and the broader financial market on cyberattacks through our annual conference dedicated to cybersecurity. This year’s edition of our annual cybersecurity conference, themed “Future of Cybersecurity: Emerging Issues and Solutions”, would be held at the Transcorp Hilton Hotels in Abuja on 27 October 2022, with the collaboration of renowned private and public sector institutions. This is one of the ways we have been creating awareness and facilitating knowledge exchange as well as global best practices and innovation in cybersecurity, especially in the past five years.
Broadly, how accessible is our capital market to both local and foreign investors; how easy is it to buy, and sell stocks within a short period of time, given the improving technologies?
In recent times, different stakeholders have made tremendous efforts and leveraged technology in enhancing market access but I must say there is still a lot to be done to liberalise the market and this is perhaps the stage at which it may be useful to centralise the initiative for better efficiency, both in terms of impact on the market and cost. We need to improve investor accessibility to both the primary and secondary markets. Whilst enhancing secondary market structures and driving liquidity helps to deepen and enhance valuation prospect in the primary market, there is also the need to revisit the structure of the primary market, with the ultimate objective of liberalising market access for greater efficiency. Technology can play a greater role and the MTN electronic IPO is a good start and validation of the potential of technology in breaking barriers to market access. So, it’s important to reform the structure of the market, with focus on both equity and fixed income offerings.
Another important aspect is the time to market. In today’s world, both the issuer and investors are keen on time value of money and not only are they keen at raising capital or investing their funds timely – both sides of the table want to get value asap, so intermediaries in the form of market participants and regulation should not be hinderance to achieving this objective. Depending on intermediaries and also sometimes the capacity of Issuers, primary market equity transactions can take six months or more, that’s too long for a company that is trying to explore an opportunity set, which would never wait. Sadly, some companies may lose the opportunity before the capital is raised or inflation and/or exchange rate volatility may have distorted the dynamics of the target investment, so delay in the process of capital raising may render the money useless or at least less useful.
So, there is a need to engage different stakeholders to streamline processes and ensure a more efficient end-to-end standard is adopted. The quicker it is for investors to tap the market, the better for everyone. Likewise, it is essential for investors to be able to receive value in their depository account in due time, not when many have even forgotten they made an investment. So, the process re-engineering should be end-to-end, with all stakeholders playing an active and objective role, without sentiment or bias.
