CBN Unveils Securities Settlement Guidelines

• CBN Unveils Securities Settlement Guidelines

In furtherance of its principal objective of ensuring monetary and price stability as well as to promote a sound financial system, the Central Bank of Nigeria (CBN) has issued guidelines for the operation of the Scripless Securities Settlement System (S4).

The S4 as one of the pillars of global financial markets infrastructure is a system that holds securities in dematerialised form and enables book entry transfer of securities.

In some cases, the system also carries out centralised comparison, and transaction processing such as clearing and settlement of securities.

According to the guidelines posted on the central bank’s website, the physical securities shall be immobilised or dematerialised so that they exist only as electronic records and maintains the definitive record of legal ownership.

The system holds securities accounts and enables securities to be transferred and settled by book entries according to predetermined multilateral rules. Such system allows for the transfer of securities either free of payment-where the transfer of securities does not involve funds, or against payment-where delivery of the securities occurs simultaneously with funds.

The S4 also provides central safekeeping and asset servicing, which may include the administration of corporate actions and redemptions, and plays an important role in ensuring the integrity of securities issues (securities are not accidentally or fraudulently created or destroyed or their details changed). It also holds securities in dematerialised form (electronic records)

“The S4 is set to assume a critical role to guarantee a safe and efficient transfer of securities that exist to a large extent in book entry form only and has become a central point of reference for financial markets.

“Furthermore, it records all the settlement failures occurring during the settlement period. It is therefore a key element in instilling settlement discipline.

“Given the systemic importance of the system and its strategic position at the end of the post trading process, there is a strong need for an appropriate regulatory framework,” it added.

The CBN stated that the functions of the S4 shall also include safekeeping, provides functionality for deposit and transfer of securities, covers the underwriting process or listing of new issues in a market, pledging of securities, among others.

“The S4 carries out the settlement in cycles. Each cycle starts with the transfer of securities from the seller’s account to the buyer’s account. In the case of settlement cycles with funds transfer, movement of funds is effected from the settlement bank of the purchasing participant to the account of the settlement bank of the selling participant,” it added.