Stockbrokers lose $1 million to fraud

Published: 13 November 2013

BROKERAGE firms have lost nearly $1 million since dollarisation due to fraud resulting from weak manual systems and lack of sound internal controls on the Zimbabwe Stock Exchange (ZSE), the country's capital markets regulator has said.

Securities and Exchange Commission of Zimbabwe (SECZ) research and capital markets development manager Grace Berejena said the trading platform currently being used on the local bourse was fraught with inherent risks, adding that automation would reduce the risks.

A Mauritian firm has since been engaged to roll out the automated trading system (ATS) on the ZSE which is expected to be in place by next year.

Berejena said manual-based capital markets were prone to high incidences of insider trading and abuse of trust accounts by those vested with authority to supervise and monitor third party assets.

"It is sad to note that since dollarisation, licenced securities dealing firms lost about $1 million through internally generated frauds as a result of weak manual systems and lack of sound internal controls," Berejena said.

"Presently, the tedious backoffice processes are a major source of inefficiencies which staff can exploit to penetrate frauds.

"Streamlined processes and procedures as those common with automated trading platforms will not only speed up transaction processing, but will minimise the risk of frauds."

She said investors' participation and confidence was critical for capital markets development.

"The overplayed question: 'When will the ZSE automate?' is, therefore, important and should keep on playing until automation has been achieved," Berejena added.

"While it is generally accepted that current low market liquid and turnover is partly attributed to the country's perceived status as an investment destination, a more worrying reason is the lack of automation and use of archaic manual processes.

"Low liquidity and turnover means less revenue for all intermediaries hence the plight of many in the industry."

Experts say despite the liquidity constraints besetting the economy, automation of the exchange is expected to increase daily turnover five times more.

Meanwhile, the ZSE has shortlisted four companies for the supply and installation of the ATS as the bourse pushes to automate the trading of shares.

Earlier this month, ZSE chief executive officer Alban Chirume said the four companies which had expressed interest in the supply and installation of the ATS were Chartered Systems Integration, National Stock Exchange of India, New York Stock Exchange Euronext and Infotech Middle East.

The automation of the bourse has been on the ZSE agenda since 2000, with earlier plans having been stalled due to funding constraints.

In September, ZSE appointed Central and Settlement Co (CDSM) of Mauritius as the consultant for the automated trading system.
- newsday