THE Securities and Exchange Commission of Zimbabwe (SecZim) has set rules that will govern financial contracts that pay the difference in the settlement price between the open and closing trades as it seeks to bolster investor confidence.
Also known as forex trading, contracts for differences (CFDs) have become popular despite the absence of regulation.
Finance minister Mthuli Ncube launched the CFDs at the Victoria Falls Stock Exchange (VFEX) on Friday.
Speaking at the CFDs networking event in Harare yesterday, SecZim chief executive officer Anymore Taruvinga said the capital markets regulator consulted the VEFX, the Finance ministry and other market players to come up with regulations that govern CDF providers.
“As such, we deemed it prudent that CFDs, which are leveraged, probably take a bit of time to understand what the risks are,” he said.
“So supervision of the exchange was quite ideal for us. So we worked with the VFEX, ministry and other market players to come up with rules that will govern CFD providers, so probably that's why VCG [Vision Capital Group] took a bit of time to then operationalise.”
VCG pioneers the CFD product in partnership with VFEX.
Using this form of trading, traders enter a binding agreement with their broker to sell an instrument at a later date and a specified price. While using CFDs, traders do not have physical ownership of an asset but can make money by going long and short.
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The CDFs regulations include capital adequacy, risk management and disclosure obligation with the objective of preventing any misconduct, while trading to foster investor confidence.
“The rules are designed to achieve three primary objectives. Number one being to safeguard the integrity of our markets, preventing market abuse, manipulation and other forms of misconduct,” Taruvinga said.
“And the third one being to promote fair and transparent trading practices that will ultimately foster confidence and trust among our investors.”
He said there was a need to push for financial inclusion through CDFs as the numbers were still low.
“It would be a mischief for me to finish without talking about financial inclusion. Those that may be in the know, know that capital markets have a long way to go in order to ensure financial inclusion, especially when you compare with other aspects of the financial services sector like insurance and banking,” Taruvinga said.
“The inclusion level in capital markets is still very low and I won't mention the percentage. We cannot have sustainable capital markets if participation by the general citizen is too limited.
“So, we want to commend the VFEX for initiatives which they have taken, particularly the introduction of platforms like VFEX Direct as well as the direct investor to come to the board and also help us to reach out to all the citizens in terms of investor education.”
He encouraged Zimbabwean capital markets to take the opportunity being offered by VCG markets.
“We are also looking forward to the capital market plans playing a pivotal role in mobilising domestic resources for infrastructure development and maintenance. I think this is one area where we are lagging as a market.”
