Harsh as truth, inflexible as justice


Welcome to Taking Stock, a brand new weekly column where I will look back, analyse and comment on business and economic events that might have taken place a few months or years ago, promising heaven and earth to shareholders in the case of companies and citizens in the case of government and its economic arms. I will highlight and applaud those that would have lived up to their promise and do the opposite to those that would have failed to deliver.

I am talking about new policies being introduced, new shareholders or management taking reigns at companies, new strategies and new models being implemented and all these carrying a-things-will-get better tag.

I am sure you have heard companies looking at unbundling, saying the move will unlock shareholder value; or companies rationalising and retrenching staff giving promises that the move will result in the company returning to profitability.

Sometimes it’s a new manager coming in, promising to turn around the fortunes of the company. To be honest the list is endless.

There is always a reason to change the status quo as we often hear; the rationale for the proposed change in strategy is to unlock shareholder value. The latest circular to give us a good example is that of First Mutual, which says the rationale for acquiring NicozDiamond is to boost revenue and earnings or that in RBZ governor John Mangudya’s 2016 Monetary Policy Statement saying the introduction of bond notes is meant to incentivise foreign inflows through exports.

All this is fair if you ask me, but a few months or years down the line, we will have to Take Stock and ask whether we would have enjoyed the Promised Land.

There is always need to come back to the constituency and give feedback on the outcome. We can’t just nudge ahead as if we never gave promises. Fortunately, from now onwards, this column will act as a watchdog and will “Take Stock” of everything.

To borrow some of William Lloyd Garrison’s 1831 words, this column will be as harsh as truth, and as uncompromising as justice. “On this subject, I do not wish to think, or speak, or write, with moderation.

No! No! Tell a man whose house is on fire, to give a moderate alarm; tell him to moderately rescue his wife from the hand of the ravisher; tell the mother to gradually extricate her babe from the fire into which it has fallen; but urge me not to use moderation in a cause like the present. I am in earnest — I will not equivocate — I will not excuse — I will not retreat a single inch — AND I WILL BE HEARD.”

Every week I will look at a different event, which took place months or years ago, and try to Take Stock of how things have transpired since. Today was meant to be just an introduction of the column but . . . This is now my hustle.

I am sure most of you are now familiar with the last two words above, My Hustle. I mean they have been in the media space for almost two months now. The Securities and Exchange Commission (SEC) is currently running an educative campaign dubbed #MyZimHustle. Whether this catch phrase is fitting or not when it comes to investing in shares is a story for another day. We will take stock when all is done and dusted. Focus today is on what SEC has done since coming into the capital markets’ arena.

Like a “spike happy” policeman, SEC came into the markets with a very clear agenda, to rid the market of a “mafia corporation”, made up of stockbrokers.

The label, mafia, showed lots of mistrust and lack of understanding, on the part of Government, through the then finance minister Tendai Biti, on the role stockbrokers played in the capital markets. Surely if brokers were half of what SEC or Government accused them of being, the ZSE would not have been the thriving stock market that we all know it to be. Investors would not have trusted brokers with billions of shares that were in their (stockbrokers) custody.

Like in any market, there could have been one or two bad apples among stockbrokers, but the fact that we never heard that many negative reports, shows that stockbrokers were self-regulatory and disciplined not to warrant the attack from former finance minister Tendai Biti who also described stockbrokers as a cabal.

“The problem with the stock exchange is that it has been run like an old boys’ club since 1893 when it was set up — you know it. So you cannot touch them. They operate like a cabal,” said Biti at the second reading speech of the Securities Amendment Bill back in May 2013.

Unfortunately, the mistrust continued to the extent that brokers were never listened to, when the industry adopted electronic trading. A custodial model was chosen amid brokers’ protestations which were met with a threatening tone, “I am the regulator, do as I say” from SEC. Indeed, the new custodial model was adopted, but instead of making trading cheaper and easier, it became even more expensive and cumbersome.

Traditional custodians were unwilling to accommodate retail clients, whose size of deals would give them more work than income. Essentially, custodians did not really see value in taking on these smaller portfolios, resulting in the ZSE remaining an “old boys club.” New custodial providers, accepted retail clients, but would go on to charge an arm and a leg, never mind the run around they would give you.

The good thing is that SEC has since realised the mistake and is now working towards making sure that the long given promise to make the stock market accessible to the lower end of the market can now be realised. The introduction of mobile trading might address this. Another promise was that charges would be reduced through electronic trading. Stockbrokers, through the “Broker Administered Model” are now allowed to open accounts for their retail clients without going through custodians, something which improves the turnaround times to the client and gives the broker a more comprehensive view of the client’s portfolio. While we are still to see regulatory charges coming down, at least the predatory custodians are no longer mandatory.

Another plus for SEC and all involved is that they have managed to reduce the settlement period to T+3, and changed the settlement model and will possibly reduce charges in the near future. They recently reduced KYC requirements making it even easier to open a trading account which is also good for the market.

While problematic issues cannot be exhausted at one go, the biggest take away in all this is that comprehensive and honest engagement is important to ensure the market functions efficiently.

If SEC had not taken a militant stance at first, electronic trading, simplified KYC and lower charges would have been with us a long time ago. Taking stock is a process, we will come back for SEC in future, but next week, we could be Taking Stock of your past actions!

Feedback – Twitter @kudzie_sharara


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