Govt further liberalises trading on VFEX
LOCAL financial services firm Inter Horizon Securities says foreign firms trading on the Victoria Falls Stock Exchange (VFEX) do not need prior exchange control approval to participate on the bourse.
This comes as investors had previously shown hesitancy to invest in Zimbabwe because of the strict exchange control regulations.
However, with the country badly needing foreign currency, the government has been trying to make it easier for foreign investors to participate in the local market.
According to the treasury, the country requires US$40 billion in investment for its infrastructure.
In its new IH VFEX Trading Handbook 2024, the financial services firm said while the repatriation of income and capital was free, this was subject to proof that payment for any purchases was made through formal banking channels.
“Foreign investors can participate on the bourse provided they bring in their capital through normal banking channels.
“No prior exchange control approval is necessary for a foreign investor to participate on the Victoria Falls Stock Exchange,” IH Securities said.
“Authorised dealers, acting on behalf of non-resident investors and FCDA (foreign currency denominated account) holders, receive funds for onward transmission to stockbrokers for purchase of shares.
“Settlement and clearing of transactions is effected through the CSD (central securities depository) system, authorized by custodians.”
IH Securities said withholding taxes on dividends were deducted at source at the rate of a 5% dividend tax and exemption from capital gains withholding.
“Repatriation of income and capital is free.
“This is subject to proof that payment for any purchases was made with funds received through formal banking channels,” IH Securities said.
“Please note that it is now mandatory to trade through the CSD, therefore all investors transacting on the VFEX must have a CSD account open with a local custodian as all shares will be dematerialised into electronic form prior to them trading/settling under the CSD.”
While a CSD allows for the ownership of securities to be easily transferred through a book entry rather than by a transfer of physical certificates, it also allows for records to be kept.
An electronic book entry system is used by CSDs to record and transfer securities.
According to Chengetedzai Depository Company Limited, investor accounts store securities electronically like bank accounts save electronic credits.
Security ownership changes when securities travel between investor accounts in a CSD system and only registered securities exchange transactions are settled by the system.
IH Securities said investors should ensure that they had both a CSD account number and a custodian account number before trading on the CSD.
“Carefully note that it will only be possible to transact in shares which have been dematerialised through a CSD account that has been opened in the way described above,” the financial services firm added.
IH Securities noted that the dematerialisation process begins with investors submitting their physical share certificates (with signed securities deposit forms) to their custodian, a process that takes up to 72 hours.
“Brokers can assist investors in this process by liaising with the custodian on their behalf, once the investor has formally instructed the custodian to dematerialise their share certificates as per above,” IH Securities said.
“Investors will only be able to send buy instructions to their broker after placing funds in their account with the custodian.
“Investors will only be able to send sell instructions to their broker in counters that have been on-boarded to CSD once their shares have been dematerialised.”
The VFEX was formed in 2020 as a subsidiary of the Zimbabwe Stock Exchange (ZSE) to allow for the trading of securities in foreign currency, specifically, the United States dollar.
As of the end of last year, the VFEX had 20 member firms and 13 listed securities as the bourse aimed to cater for fungibility of dual listed shares and broaden the horizon for capital markets.
The VFEX market capitalisation stood at US$1,14 billion as of last Thursday, translating to a local currency valuation of $10,26 trillion. Comparatively, the ZSE with 21 member firms and 49 active listed securities has a market capitalisation of $25, 57 trillion.