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Are you one of those people that keep your share certificates in a cupboard at home or have them framed and hung on the wall, feeling a comforting sense of wealth as you admire them?

The Nigerian Stock Exchange (NSE) has been steadily phasing out the issuance of share certificates and for a few years investors, in the Nigerian capital market have been urged to comply with its directive to “dematerialise” their share certificates. Even though the original deadline was extended, reluctant shareholders will eventually have to transfer their existing share certificates to an electronic share settlement system, which will ultimately render paper certificates virtually obsolete.

Paper certificates have hung on, particularly amongst smaller private shareholders and those who maintain inactive portfolios. There continues to be a preference for the traditional “proof” of ownership of a paper share certificate, especially among older shareholders. When they finally come round to the idea of dematerializing stacks of certificates, there is often confusion from out-of-date or invalid share certificates purchased nearly 40 years ago, following corporate takeovers and stock splits.

Central Securities Clearing System (CSCS)

One of the greatest developments in the Nigerian capital market was the establishment of the Central Securities Clearing System (CSCS), which commenced operations in 1997. When an investor opens a CSCS account, the shareholder’s data is captured or transferred into an electronic register and an equivalent number of securities are credited in electronic form to the CSCS depository. The paper share certificates are replaced by electronic statements reflecting the investors’ shareholding and its’ current value. Dematerialization facilitates paperless trading whereby transactions are executed electronically.

Have your shares lodged securely

By having your shares securely lodged in a CSCS account you can safeguard your investments, as the burden of storage and handling of your share certificates is taken off you. Apart from keeping accurate records of your shareholding and updating the records as new transactions are effected, it eliminates the risk of the loss of documents due to theft, fraudulent transactions, or extreme risks such as fire or flooding, which are very real hazards when certificates are stored at home in material form.

A periodic statement helps you keep track of your CSCS account and should you feel that you need additional protection, a CSCS Special account will provide this. A trade alert system is also in place, which will alert you by text should any transaction be made on your account.

No more delays

Registrars have a huge client base to serve; this makes the printing, sorting, and dispatching of certificates a challenge. In spite of the fact that registrars supposedly use their best effort to post certificates to the addresses on their records, shareholder complaints regularly flood registrars’ offices as they attempt to sort literally hundreds of thousands of certificates. As no transaction can be carried out until a shareholder receives his or her share certificates, this naturally causes much anxiety for shareholders.

Having a CSCS account makes subscription for new shares through a public offer or a rights issue much easier; you simply indicate your CSCS account number and the number of shares you applied for on the form, and the number allotted to you will be credited directly to your CSCS account. This means that the issuance of physical certificates and the attendant delays in receiving them is avoided, as the issue of certificates being lost in transit will have become a thing of the past.

Selling your shares

If you still hold paper certificates and wish to trade your shares, you could be subjected to delays in the verification process, which can sometimes be long and tedious. You could thus lose out should share prices move against you, as you will not be able to sell the shares until they have been dematerialized.

A CSCS account gives you greater flexibility, as the verification process has already been concluded. The registrar would already have certified that you own the shares by verifying your signature before it gets into your personal account. You are thus able to sell quickly and efficiently where there is the market for the shares and take advantage of any market movements. This is a critical issue, particularly in a volatile market.

Borrowing against your shares

If you wish to borrow using your shares as collateral, your banker or other lender will want the certificates lodged and verified into a CSCS account. Without this in place, your transaction could be delayed.

On-line monitoring

Through the online facility at the CSCS website, www.cscsnigerialtd.com, registered investors can monitor their investments at anytime and from anywhere in the world. They can view CSCS stock account statements, obtain their stock positions regularly, and review and evaluate their portfolios. Investors can also monitor stock prices and new stock deposits into the CSCS.

The NSE continues to educate the investing public on the importance of the dematerialization of share certificates. Nigerian shareholders are encouraged to embrace dematerialization, as the initiative will further increase the efficiency and liquidity of the market and should raise investor confidence, leading to a more vibrant and transparent capital market.