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Central Securities Depository - the growth-enabler in Ghana's capital market

Author: Maxwell Adombila Akalaare
Mr Stephen K. Tetteh, CEO, Central Securities Depository Ghana Limited
Mr Stephen K. Tetteh, CEO, Central Securities Depository Ghana Limited

For every risk savvy investor, a market is only appetising when it has a safe, secured and seamless way of moving securities – shares, treasury bills and bonds from one owner to another. 

This is critical to the high-end investors for two main reasons: with a secured platform for trading, risk of losses is duly mitigated and challenges with loss of data or damage to certificates eliminated. 

A seamless platform on the other hand also eliminates to the barest minimum, challenges associated with the physical handling of securities and delays therein. A seamless platform also aids market transparency and fairness.

Once this is available in a market, the net result normally is that cost of transaction is reduced substantially, investor experience improved and the investor becomes the ultimate beneficiary, as every penny earned is retained in returns.

Suffice to say, therefore, that the availability of a central depository, which provides and manages this kind of infrastructure, is critical to the general development and growth of capital markets worldwide. 

The situation is not different in Ghana where growth in the capital market has been slow relative to expectations.

Ghana's CSD 

Central Securities Depositories (CSDs), as they are generally called globally, are specialist financial institutions that hold securities on behalf of their owners. 

By that role, they provide a linkage between sellers and buyers and thus allow for easy transfer of the securities from one owner to another, using book entry rather than the physical transfer of certificates. 

Here in Ghana, that role is played by the Central Securities Depository (Ghana) Limited (CSD). 

To help drive up investments and endear Ghana's securities market to investors, the government in the early 2000s, mooted the idea to establish a depository service that will promote investment activities in the country's financial market. 

It was expected that a depository will help to eliminate risks such as forfeiture, theft and mutilation that were associated with the issuance of paper-based securities.

The idea, which was part of the Financial Sector Strategic Plan (FINSSP), gave birth to two depositories – the Ghana Stock Exchange (GSE) depository and the Bank of Ghana (BoG) CSD – which were dealing in equities and debts respectively.

The two were, however, merged in 2013 into today's CSD to provide investors with a single depository that will serve as a one-stop-shop for dealings involving debt and equity instruments in the country.

The move eliminated the inconvenience that investors went through in settling their trades. 

It also removed the duplication of costs in the running of two depositories in a relatively small market.

New investor experience

Since the merger took effect in January 2014, the CSD stepped up efforts aimed at positioning the capital market as a safe and value-base place to invest in.

It achieved this by automating its operations, interfacing the platforms that handled equities with debts and ensuring that challenges associated with transfer and custody of securities are eliminated to the barest minimum.

The interfacing of GSE's automated trading system (ATS) with the Real Time Gross Settlement System (RTGS) of the BoG in March, this year, paved the way for settlement to be done on trades through bank accounts held at the central bank.

Also, the depository's push for share dematerialisation – the conversion of physical share certificates into electronic forms – has also gained traction, with 87.6 per cent of total shares being dematerialised as of December last year.

Of the 10.5 billion shares issued in the equity market in 2015, almost nine billion were in electronic form, making it easier for the respective shareholders to easily use their holdings as collateral for loans from the banks.

Unlike before, where new listings on the GSE took days to begin trading, the enhanced nature of the CSD platform ensured that new shares are ready for trading once the depository credits the accounts of shareholders.

 This drastic reduction in time, among others goes a long way to improve liquidity in the market, the Director-General of Securities and Exchange Commission (SEC), Dr Adu Anane Antwi, said.

"The efficient transfer of securities when they are purchased or sold helps a lot, especially with the liquidity of the market."

"Since we went into electronic, people have been able to put their shares into electronic forms unlike previously when you had to go through a registrar to ensure hard transfer," he explained.

Impact on market growth

As Ghana's financial market continue to open up to more investments, infrastructures such as the CSD would be needed to help compliment the stability that is needed on the macroeconomic side.

Dr Antwi, who has been pushing for the deepening of the market, agreed but explained that increased financial literacy was now needed to ensure that Ghanaians were properly informed to benefit from fruitful initiatives such as the CSD.

He, therefore, commended the depository for prioritising financial literacy, saying it was necessary for the long-term and sustainable development of the capital market.