TREASURY has promulgated new regulations to operationalise the Government’s directive on tighter conditions on trading of stocks on the Zimbabwe stock Exchange (ZSE).
This follows some regulations announced by President Mnangagwa earlier this month. Government identified loopholes in sub-systems of the ZSE’s custodial functions believed to be part of activities fuelling parallel market activities.
Deficiencies in the systems allowed clients to sell shares and transfer the proceeds to third parties for speculative trading in forex.
Finance and Economic Development Minister, Professor Mthuli Ncube, issued Statutory Instrument 103A last week to operationalise policy measures to stymie speculative trading in the market, especially in the equities and currency markets.
“Where a holder of a securities dealer’s licence receives funds in his or her trust account from a person (“non-client”) who is not registered with him or her as a client, the holder shall (whether or not the identity of the non-client is known to him or her) immediately report that fact to—the Financial Intelligence Unit (FIU) and the relevant exchange,” the SI read.
Malpractices by brokers on the ZSE formed part of illegal and speculative activities that fuelled depreciation of the Zimbabwean dollar through the transfer of funds between brokers’ sub-accounts, which has now been outlawed by authorities.
“In accordance with the instructions of the FIU— retain the funds pending forfeiture proceedings if the FIU informs the holder that there is a reasonable suspicion that the funds represent the proceeds of a serious offence as defined in the Money Laundering & Proceeds of Crime [Chapter 9:24];”
“Or return the funds to the non-client if the FIU informs the holder that there is no such suspicion as is mentioned in sub-paragraph (ii).”
The move clips the wings of rogue brokers that had been involved in third party funding of accounts given every withdrawal from a sub-account will now need to be made into the account holder’s respective bank account.
“A holder of a securities dealer’s licence shall not transfer funds from one trading account to another (whether or not such funds are routed through the holder’s trust account, and whether or not the holder is instructed by any of his or her registered clients to do so), unless the transfer is to a trading account belonging to the same registered client,” states the S.I.
The new regulations also require that whenever money deposited in the trust account of a holder of a securities dealer’s licence becomes payable to any registered client, the holder shall pay the money within the trading and payment times prescribed by the relevant authority to the registered client entitled to it and to not any other person. To promote long-term investments on the stock market, the Treasury has reviewed capital gains tax on shares held for a period not exceeding 270 days to 4 percent in line with individual maximum marginal tax rate for Pay as You Earn (PAYE).
Capital gains tax on selling equities was previously pegged at 2 percent and was seen as not deterrent enough to discourage speculative trading in shares.
Perpetrators used price bubbles on the stock exchange to make huge profits and unleash attacks on the local currency in the parallel market.
The capital gains tax will remain at 2 percent for long term investors beyond 270 days. Research firm Morgan and Co last month warned the new measures by the Government would have a negative impact on trading volumes on the local stock market and an increase in trading costs via the capital gains tax increment.
“The new measures only serve as a circuit breaker, and we envisage trading activity to gradually recover in the medium term given the limited Zimbabwe dollar investment options for retail and institutional investors.” The research firm said. Takudzwa Mapfumo, a retail trader, said the measures targeting speculative traders were counterproductive as they made it hard for small market players to navigate the market and take positions when opportunities to do so arise.
“The market has turned elitist again as it has shut the door for us retail investors, that 40 percent capital gains tax is not a deterrent but a prohibitive measure. As small traders we hop and jump around stocks searching for positions that make us better in the short term,” Mapfumo said.
President Mnangagwa early this month said, “The security agents of Government and the Financial Intelligence Unit shall, with immediate effect, enhance their roles to effectively monitor financial transactions in order to address the delinquent arbitrage behavior in the economy.”
In order to deter people from trying to break the rules, civil penalties were also reviewed upwards by making appropriate legal changes in order to elevate some of the financial crimes to become criminal offences which automatically attract jail sentences.”