The need for capital adequacy requirements
THE broad framework for the Zimbabwe securities market capital adequacy requirements is outlined in Statutory Instrument 100 of 2010.
A market participant’s capital adequacy is premised on the intermediary’s operational costs, required capital expenditure as well as the underlying risks.
While the framework remains broadly the same, it is subject to review by the Commission from time to time in line with the changing operating environment.
It is the Commissions’ duty to ensure that all licensed market participants are adequately capitalised in order to:
◆ Ensure financially stable businesses operations by securities market intermediaries at all times;
◆ Curb potential abuse of client (investor) assets through clear segregation of client assets. Segregation of assets also minimises conflicts of financial interests or claims for maximum protection of client assets and;
◆ Absorb losses, and in the worst case scenario, wind down business without loss to stakeholders and disrupting the orderly functioning of the market system at large.
Associated benefits Capital adequacy requirements have a wide range of benefits to the intermediary, investor, market, broader financial services sector and the economy at large. Some of the benefits include:
◆ Promotion of responsible and reliable business operations by all licensed market intermediaries.
◆ Maintenance of intermediaries’ confidence in one another’s ability to conduct business.
◆ Promotion of investor confidence
◆ Contribution towards general market efficiency, stability and integrity. The capital adequacy requirements are therefore a vital tool for reducing systemic risk. Hence no failure of a market player, if any, should end up negatively affecting the whole capital market system. It is always advisable for investors to deal ONLY with licensed players. Dealing with licensed intermediaries allows recourse to regulatory action. Investors are encouraged to check for the licence status of a capital market intermediary of their choice on the Securities and Exchange Commission of Zimbabwe (SECZ) website.
A list of various licensed securities market intermediaries is available on the SECZ website link: http://www.seczim.co.zw/investor-information/press-releases/27208.