CBN releases guidelines for S4 to ensure price stability

As part of effort in ensuring monetary and price stability, as well as promoting a sound financial system, the Central Bank of Nigeria (CBN) has released guidelines for the operation of Scripless Securities Settlement System (S4.)

The apex bank in a document obtained from its website on Thursday, explained that 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.

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

“The physical securities shall be immobilized or dematerialised so that they exist only as electronic records and maintains the definitive record of legal ownership”, it stated.

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 dematerialized 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.
The modalities for the operations of the System shall be regulated by these Business Rules and Guidelines.

Highlighting the function of S4, the central bank notes that the functions of the Scripless Securities Settlement System shall include: “Safekeeping: Securities would be warehoused in dematerialised or electronic form; Deposit and Transfers: It provides functionality for deposit and transfer of securities. It also covers the underwriting process or listing of new issues in a market; Interest and principal processing; pledging of securities.”

Issuance of the Government and CBN Securities in electronic form; Auction processing; Maintenance of all records for authorised transactions; Settlement of various transactions based on DvP or FoP principles; Automatic payment of interest and maturity proceeds on due dates.

Maintain a central register of securities on the accounts of all Participants in the system; Assign and cancel identification for investment instruments according to laid down rules and regulations; Notify the issuers and holders of securities about the position of their accounts; Keep separate records for each Participant; Manage records of Participants account, including personal data in case of third party; Settle the liabilities arising from the transactions with securities; Provide data to comply with the disclosure duty in line with the CBN Reporting Standard; Perform other services that may arise from the ownership and transactions with securities and its operations.

Other services include: “The system supports additional services aside from those considered as core services. These services include Securities Lending and Borrowing, Repo Settlement and information dissemination.”