BACKGROUND

Ghana Stock Exchange received support from the Government of Ghana under its Economic Management Capacity Building (EMCB) Project which is being funded by the World Bank and other partners to automate its manual trading system. The objective of the project, among others, is to develop a vibrant and more efficient secondary market in Ghana.

In order to complement the trading system with the automation of the other processes that completes a trade, the Exchange decided to fund from its own resources and establish a Clearing and Settlement System as well as a Depository. This is to allow a seamless flow in the process of buying and selling securities from trading through clearing and settlement to a depository where the securities will be held in book entry format.

With the decision by the Exchange to purchase an automated clearing, settlement and Depository systems in addition to the automated platform, it became necessary to set up a subsidiary of the GSE to handle depository services. This is primarily because the Central Securities Depositories Act requires that any depository set up must be a separate limited liability company which has sought and obtained the requisite license from the Securities and Exchange Commission to operate. The Depository needed to be registered under the Companies Code 1963, Act 179 and be regulated by the Securities and Exchange Commission.

The establishment of the Depository will enable the migration of listed securities into the Securities Depository to begin and provide a mechanism for the admittance and eventual dematerialization and dealings in securities deposited. The admission of listed securities into the Depository will eliminate many of the bottlenecks and risks associated with excessive paper work in post-trade processing and registration.

The depository set up by the Ghana Stock Exchange is known as the GSE Securities Depository Company Limited (GSDC) and has been incorporated as a public limited liability company and as a wholly owned subsidiary of the Exchange.

What is Dematerialization?

Dematerialization (“Demat” in short form) is the conversion of a share certificate from its physical form to electronic form for the same number of holding which is credited to the shareholder’s Depository account which would have been open with a Depository Participant (DP).

Dematerialization is a process by which the physical share certificates of an investor are taken back by the Company and an equivalent number of securities are credited in electronic form at the request of the investor. An investor will have to first open an account with a Depository Participant and then request for the dematerialization of his share certificates through the Depository Participant so that the dematerialized holdings can be credited into that account. This is very similar to opening a Bank Account.

What is a Securities Depository?

A Securities Depository is an organization like a Central Bank where the securities of shareholders are held in the electronic form at the request of the shareholder through the medium of a Depository Participant.

If an investor wants to utilize the services offered by a Securities Depository, the investor has to open an account with the Depository through a Depository Participant.

Is a Securities depository just another form of a custodial service or the securities held in an electronic form?

No, the two are different. The Securities Depository can legally transfer beneficial ownership which a custodian cannot. The main objective of a Securities Depository is to minimize the paper work involved with the ownership, trading and transfer of securities.

Who is a Securities Depository Participant?

Similar to the brokers who trade on your behalf in and outside the Stock Exchange; a Depository Participant (DP) is your representative (agent) in the Securities depository system providing the link between the Company and you through the Depository. Your Depository Participant will maintain your securities account balances and intimate to you the status of your holding from time to time.

How does the Securities Depository System operate?

The Securities Depository System functions very much like the banking system. A bank holds funds in accounts whereas a Securities Depository holds securities in accounts for its clients. A Bank transfers funds between accounts whereas a Securities Depository transfers securities between accounts. In both systems, the transfer of funds or securities happens without the actual handling of funds or securities. Both the Banks and the Securities Depository are accountable for the safe keeping of funds and securities respectively.

What are the benefits of having a Securities Depository account?

a. Trading in the shares of the Company is now under the compulsory Securities Depository segment. With GSE making Securities Depository mandatory on all of the traded scrips, electronic transaction will be the only way everyone will trade.

b. No stamp duty for transfer of securities in the electronic form. In case of transfer of physical shares, stamp duty of 0.5 percent is payable on the market value of shares being transferred.

c. All risks associated with physical certificates such as delays, loss, in transit, theft, mutilation, bad deliveries, etc. eliminated. Your shares can be kept in the “Frozen Mode” by your Depository Participant under your specific instructions.

d. Dematerialized securities are most preferred by banks and other financiers for providing credit facility against securities. Generally, Dematerialized securities attract lower margin and lower rates of interest compared to physical securities.

e. Even in the electronic mode of trading, the payment mechanism (usually through a broker) between the buyer and seller continues to be as before. Also the usual brokerage charges would have to be incurred. However, after the settlement, pay in and pay out are on the same day for scrip less trading which means you get your securities as well as cash immediately.

f. Shares bought or sold are transferred in your name on the settlement day. In case of physical shares, transfer of ownership takes 30 days or sometimes even more.

g. No courier / postal charges for sending share certificates / transfer deeds.

h. Facility for freezing / locking of investor accounts, which enables you to make your account non-operational, for instance if you are abroad.

i. Facility to pledge and hypothecate your securities available.

j. As the Depository System becomes popular, brokers will be increasingly reluctant to deal with physical shares.

k. Investors prefer to buy shares which are already in dematerialized form.

Why should investors prefer to buy shares in the depository mode?

When you buy shares already in the depository mode, you will become the owner of those shares in the depository within a day of the settlement being completed. You will not have to apply to the Company for registering the shares in your name. Thus, there will be no possibility of loss or theft when the share certificates are posted to the Company. You will have no fear that any fake or stolen shares may have been delivered to you.

Why should brokers become reluctant to deal with physical shares?

Apart from the risk arising out of having to deal with the paper work and keeping account of the share certificates, the brokers are exposed to the risk of bad deliveries in the present system. It may take up to one year for the broker to discover that such a risk exists. As against this in the depository mode the broker will be free from the worries of bad deliveries. The broker's only risk will be that the investor does not own the shares which the investor has sold. But this will be known within the settlement period (1-3 days). The broker will thus prefer to sell securities that are in the depository mode.

How do you dematerialize your shares?

The process of opening an account with a Depository Participant is similar to the opening of a bank account. First, you will have to open an account with a Depository Participant (DP) of your choice by filling up an Account Opening Form and signing a “Participant-Client Agreement”. You will then be given a unique client ID number, which must be quoted in all correspondence with the DP.

Thereafter, you will have to fill up and submit a Dematerialization Request Form (DRF) provided by the DP duly signed by all the holders and surrender the physical shares intended to be dematerialized to the DP. The DP upon receipt of the shares certificates and the DRF will issue you an acknowledgement and will send an electronic request to the Company/ Registrars and Transfer Agents of the Company through the Depository for confirmation of dematerialization. The DP will simultaneously surrender the DRF and the shares to the Company / Registrars and Transfer Agents of the Company with a covering letter requesting the Company to confirm dematerialization. The Registrars and Transfer Agents of the Company, after necessary verification of the documents received from the DP, will cancel the physical shares and confirm dematerialization to the Depository. This confirmation will be passed on by the Depository to the DP which holds your account. After receiving this confirmation from the Registry, the DP will credit your account with the number of shares dematerialized. The DP will hold the shares in the dematerialized form thereafter on your behalf. And you will become the beneficial owner of these dematerialized shares. DO NOT SEND THE SHARE CERTIFICATES / DOCUMENTS FOR DEMATERIALISATION TO THE COMPANY OR ITS REGISTRARS AND TRANSFER AGENTS.

When you submit the shares for dematerialization, your DP will deface the share certificates with the stamp “SURRENDERED FOR DEMATERIALISATION”. This ensures that your shares are not lost in transit or misused till credit is received by you in your Securities Depository account.

What are the charges to be paid for opening an account and dematerializing one’s physical shares? Will there be any charges for each transaction?

Each DP can levy charges by way of account opening fees, transaction fees, custody fees and so on. The charges differ from Depository Participant to Depository Participant and therefore you will have to contact your DP for the same. Currently there are no charges

I have purchased some shares in paper form. Can I directly give the share certificates to my Depository Participant for dematerialization in my favour?

Prior to dematerializing your shares, they have to be registered in your favour. Hence, you have to necessarily lodge the share certificates with a duly executed transfer deed with DP who in turn lodges them with the Registrars and Transfer Agents of the Company.

How do I get my dividends on dematerialized shares? Will I get the Annual Report after I dematerialized my shares and would I be able to attend the AGM?

The Securities Depositories Company will give the list of dematerialized account holders and the number of shares (known as BENPOS) held by them, in electronic form on the Record date to the Registrars and Transfer Agents of the Company. On the basis of Benpos, the Company will issue dividend warrants in favour of the dematerialized account holders.

The rights of the shareholders holding shares in dematerialized form are at par with the holders in physical form. Hence you will be eligible to get the Annual Report and will have the right to attend the AGM as a shareholder.

What are the chances of any fraud/disputes in using a Securities depository account? Whom should I approach in such cases?

Common risk factors applicable to trading in physical shares like mismatch in signatures, loss in postal transit, etc., are absent since the dematerialized shares are traded scrip less.

Can I pledge my shares in dematerialized form for the purpose of availing any funding/loan arrangement with my bankers?

Yes. You will have to contact your DP for this.

Can your dematerialized shares be converted back into physical shares?

Yes, definitely. If you wish to get your securities in the physical form all you have to do is to submit a Re-materialization Request Form (RRF) through your DP in the same manner as Dematerialization. Your Depository Participant will forward your request to the Depository after verifying that you have the necessary securities in balance. The Depository in turn will intimate the Registrar and Transfer Agents of the Company who will print and dispatch to you the share certificates for the number of shares so re-materialized and your account will be debited by the Depository and credited with the Company.

Will you get back the same certificates after re-materialization?

It does not really matter at all. The Registrars and Transfer Agents will print new certificates with a new range of certificate numbers. You will be allotted a new folio number; however if you already have an existing folio number you may be allotted the same.

How will I know that my Depository Participant has updated my account after each transaction?

Here again just like a Bank, the Depository Participant will give you a Pass Book or a Statement of Holdings. The Statement of Holdings will be dispatched to you periodically by the Depository Participant; however the Statement of Holdings can be sent to you as and when requested for a fee.

What if there are any discrepancies in the share holding statement or the pass book entries?

In case of any discrepancy in the Statement of Holdings, you can contact your Depository Participant. If the discrepancy cannot be solved at the Depository Participants level, you should approach the Security Depository Co. concerned for clarification.

What happens if you lose your share holding statement or depository pass book?

Inform your Depository Participant and obtain a duplicate share holding statement or depository pass-book. Your holding statement or pass-book cannot be used by anybody else for trading in your account.

Are you restricted to having accounts with only one depository participant?

There are absolutely no restrictions on the number of DPs you can open accounts with. Opening an account with a DP is very similar to opening a bank account. Just as you can have savings or current accounts with more than one bank, you can open accounts with more than one Depository Participant.

However, you would need to open accounts in the same sequence of names in which the shares are held by you. For example, if you hold some shares jointly in the names A, B, C and some shares also in the names A, C, B, you would need to open 2 DP accounts.

Do you have to keep any minimum balance of securities in your account?

No, the Depository has not prescribed any minimum balance. In fact, you can have zero balance in your account. However, the DPs may fix some minimum limits.

What security do you have if the only proof of your holdings in your depository is merely a piece of paper indicating your account balance?

When you open an account with a DP, you sign an agreement with the Depository Participant, in which the DP indemnifies you for any misuse of your holdings. The Depository will also ensure that the interests of the investors are protected, so that your grievances, if any, against your DP will be resolved by the Depository.

Are there any additional security features which depository participants will offer you to protect your account?

Yes, every transaction in your account will be authorized by you. Your Depository Participant will advertise its facilities and you should go through them carefully.

There is a facility by which you can lock your account so that the Depository Participant will not be able to carry out any transactions in your absence without your authorization.

Is it possible for you to get the securities allotted to you in public offerings credited to your account directly in electronic form?

Definitely, In fact, in the public issue application form itself there will be a provision for you to indicate the manner in which you want the securities allotted to you. All you have to do is to mention your client account number and the name of the DP and any allotment due to you will be credited into that account.

Who will give you the benefits arising out of your holdings, say bonus rights or dividend?

When any corporate event such as rights or bonus or dividend is announced for a particular security, the Depositories will give all the details of the clients having electronic holdings of that security as of record date / book closure to the Registrars and Transfer Agents of the Company who will then calculate the corporate benefits due to all the share holders. The disbursement of cash benefits such as dividend / interest will be done by the Company whereas the distribution of securities / entitlements will be done by the Depositories based on the information provided by the Registrars and Transfer Agents of the Company. Thus, bonus / rights shares, if any, will be credited to your account electronically.

Do you have an option as to the manner in which you wish to receive your corporate benefits?

Well, in case of those corporate events where you can exercise your option such as rights issue or optional conversion of debentures to shares, you do have a choice of either physical or electronic mode of holdings. However, corporate entitlements such as bonus will be made in the same form as of your original holdings.

In case of discrepancies in corporate benefits, whom do you contact?

You can approach your DP who in turn will contact the Registrars and Transfer Agents of the Company for clarifications regarding allotment of securities. In case of discrepancies in cash benefits you will have to contact the Registrars and Transfer Agents of the Company.

Who can I approach for further information or clarifications in the matter?

Gold Coast Securities Limited can be of assistance to you and will also be happy to provide any clarifications. Talk to the experts who understand the intricacies and the niceties of this system by calling 021- 211411 or 028 – 9539373 or 024 – 2953037 or 0244 - 215999 or 0244- 389091 and 0244 – 634511. OR visit any of our branches in Accra, Kumasi, Takoradi, Ho, Hohoe, Tarkwa, Oboasi and Tamale for enquires.

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