The recent launch of 'an electronic shares bank' at the Uganda Securities Exchange (USE) has been heralded as a turning point in the history of stocks trading in the country and the region.

The Securities Central Depository (SCD), an electronic system that acts as a bank for all stocks or share holdings in listed companies and government securities was launched last Thursday at Sheraton hotel amidst enthusiasm by industry players that the system will cut delays in share trading and hence boost turn over besides enhancing integration of East Africa's stocks trading.

Investment Minister Aston Kajara (R) is shown by USE officials how the SCD works

Seen by many as long over-due the introduction of the SCD will see the replacement of a manual system through which share ownership certificates had to be deposited with the USE within a period of 30 days. This meant that a single transaction could take as long as a month to be concluded.

But with the new system, such transactions or transfers of stocks will be made electronically in a book entry form and will be completed in a maximum of 5 days.

USE's Chief Executive Simon Rutega said: "By depositing share certificates into a central depository, the delivery of shares in settlement of a transfer of shares executed between a seller and a buyer can easily be achieved with change of records in the central depository instead of physical exchange of certificates."

Joel Lutamaguzi, the Manager Securities Central Depository (SCD) at USE added that the automated system will enhance efficiency by reducing the time taken to see through a transaction from the current minimum of 30 days under the manual securities system to a maximum of 5 working days under the electronic system.

"Effective 31st March 2010 when trading will be purely electronic, heavy work at our back house which used to cause the delays will no longer appear in our business equation" Lutamaguzi said.

From the time of its launch on February 18, USE will be undertaking to open accounts with the SCD for all owners of stocks on the Ugandan bourse. In addition, all prospective stock traders will be have to open up SCD accounts.

Lutamaguzi noted that until the launch of the SCD, Uganda has been trailing its East African neighbors Kenyan and Tanzanian which installed the electronic platform and are already trading with it for all their transactions.

The automated and therefore fast system means that the Ugandan bourse is at par with its competitors in Kenya and Tanzania and therefore can compete in attracting investors.

The new system will also harmonize securities trading in the region and further enhance liquidity, according to Lutamaguzi. This would be essential for integration of the region's economies especially in view of the fact that there are more companies that are cross listing on the three different bourses in Kenya Tanzania and Uganda.

Rutega added further that enhanced efficiency will boost investor confidence, improve regulation and reduce the possibility of wrong deliveries, clearing and settlement among other developments.

"I am happy to report that USE has adopted international standards of regulations, listed local equity products, listed corporate bond products, cross-listed regional equity products among others" Rutega noted some of the achievements the USE has attained under his leadership.

Samwiri Njuki, the Chairman of USE, noted that the absence of the SCD was a particularly challenging aspect for those who wanted to trade using borrowed money because it took a long time to repay the money hence the interest rates.

"Interest rates have a great bearing on investor decision making. This development therefore will solve the challenge of high interest rates on borrowed funds," said Njuki.
Njuki urged more private companies and family-owned businesses to list on the bourse as a way of enabling the Uganda bourse to grow and become more profitable.

The stock exchange experts also heralded the initiative as a step towards greater harmonization of the region's trading platforms since cross border trading will be faster and easier.

Japheth Katto the Chief Executive Officer of the Capital Markets Authority (CMA), the industry regulator, emphasized that if USE is to compete favorably with her counterparts in Kenya, Tanzania, Rwanda and Burundi, it has to aggressively continue pursuing the regional integration agenda.

Katto, whose CMA will oversee the operations of the SCD added that the system should boost investor confidence because of its modern and impeccable design based robust architecture to ensure high reliability while addressing backup and recovery issues adequately.

By Haruna Lumu