Finsec to launch new depository receipts
FINANCIAL Securities Exchange Limited (Finsec), will soon launch new financial instruments — depository receipts — on its exchange that will allow local investors to buy financial instruments with ease in companies that are listed outside Zimbabwe.
Depositary receipts are negotiable certificates issued by a bank representing shares in a foreign company traded on a local stock exchange giving investors an opportunity to hold shares in the equity of foreign countries and give them an alternative to trading on an international market.
This means, local investors can now participate using local currency on Finsec’s C Trade platform to buy shareholding in companies listed outside the country.
In line with this, Finsec has already engaged the capital markets regulator — The Securities and Exchange Commission of Zimbabwe — the issuing banks and other stakeholders on the modalities and rules that will guide the process. Finsec general manager Garikayi Manema told The Herald Finance and Business that the exchange is targeting mainly companies that are operating in Zimbabwe but listed elsewhere, for instance Zimplats.
Thus, the mining sector becomes one of the key targets for this initiative, which is also expected to broaden capital markets in Zimbabwe as well as enhance the participation of local retail investors, who for long have shied away regarding capital markets as elitist.
“This will allow Zimbabweans to participate in trading of shares that are listed outside the country, even when the companies are operating locally.
“Most local investors are currently limited to shares listed on the local exchanges and we are making it easier for them to also participate in those companies on foreign exchanges but finding it difficult to do so,” said Mr Munema.
He added, this will help local investors participate in bigger markets with better returns. With this instrument, there will be no need for cross border movements of funds, hence the process will be easier and cheaper for local investors.
Said Mr Munema: “There are a lot of challenges to invest in a foreign market including costs, regulations that they are not used to, so we are taking instruments listed elsewhere and make them available locally.
“This also means you are able to participate in the trading of shares listed on a foreign market yet doing it under local conditions. So if the economies in countries with those exchanges improve you also benefit from a bigger market and better returns.
“There is no need for cross border movement of funds because you are buying them in local currency and trade in local currency so there is no need for foreign currency for that.”
Implementation of this new instrument will be done in phased approaches. While the mining sector is one of the key targets, Finsec is also looking at companies like Old Mutual.
Following the group’s managed separation, this resulted in four companies and of these, only one is listed locally on the Zimbabwe Stock Exchange.
As such, Finsec will allow the existing shareholders and new ones willing to participate in trading of shares of the other three companies but do not have the mechanism to do so.