The TREASURY has enacted new regulations to operationalize the government’s directive on the tightening of equity trading conditions on the Zimbabwe Stock Exchange (ZSE).
This follows some regulations announced by President Mnangagwa earlier this month. The government has identified flaws in the subsystems of the ZSE custodial functions that are supposed to be part of the business fueling parallel market activities.
Gaps in the systems allowed clients to sell stocks and transfer the proceeds to third parties for speculative forex trading.
The Minister of Finance and Economic Development, Prof. Mthuli Ncube last week issued Statutory Instrument 103A to operationalize policy measures aimed at thwarting speculative trading in the market, particularly in equity and currency markets.
“When a holder of a securities dealer’s license receives funds in his trust account from a person (“non-client”) who is not registered with him as a client, the holder must (that the identity of the non-client is known to him) immediately report this fact to the Financial Intelligence Unit (FIU) and to the relevant stock exchange,” the SI said.
The brokers’ malfeasance on the ZSE was part of illegal and speculative activities that fueled the depreciation of the Zimbabwean dollar through the transfer of funds between brokers’ sub-accounts, now prohibited by the authorities.
“As directed by the FIU – retain the funds pending forfeiture proceedings if the FIU advises the holder that there is a reasonable suspicion that the funds represent the proceeds of a serious crime as defined in the Money Laundering Act money and the proceeds of crime [Chapter 9:24]; »
“Or return the funds to the non-client if the FIU informs the holder that there is no suspicion as mentioned in sub-paragraph (ii).”
The move clipped the wings of rogue brokers who had been involved in third-party account funding, as every withdrawal from a sub-account will now have to be made to the account holder’s respective bank account.
“The holder of a securities dealer’s license shall not transfer funds from one trading account to another (whether or not such funds are channeled through the holder’s trust account and the holder receives whether or not instructed by any of its Registered Clients to do so), unless the transfer is to a trading account belonging to the same Registered Client,” states the SI
The new regulations also require that whenever money deposited in an investment dealer licensee’s trust account becomes payable to a registered client, the licensee must pay the money within trading and payment prescribed by the competent authority to the registered customer entitled to him and no one else. To promote long-term investments in the stock market, the Treasury has revised the capital gains tax on shares held for a period not exceeding 270 days to 4% in accordance with the maximum marginal tax rate individual for Pay as You Earn (PAYE).
Capital gains tax on the sale of shares was previously set at 2% and was not deterrent enough to discourage speculative trading in shares.
The perpetrators used price bubbles on the stock exchange to make huge profits and trigger attacks on the local currency in the parallel market.
Capital gains tax will remain at 2% for long-term investors beyond 270 days. Research firm Morgan and Co warned last month that the new government measures would negatively impact trading volumes on the local stock market and increase trading costs via increased tax on the most -values.
“The new measures only serve as a circuit breaker, and we envision a gradual resumption of business activity over the medium term given the limited Zimbabwean dollar investment options for retail and institutional investors.” The research firm said. Takudzwa Mapfumo, a retail trader, said measures targeting speculative traders were counterproductive as they made it difficult for smaller market participants to navigate the market and take a position when opportunities to do so arose.
“The market has become elitist again because it has closed the door on us to retail investors, this 40% capital gains tax is not a deterrent but a prohibitive one. As small traders, we jump and jump around stocks looking for positions that make us better in the short term,” Mapfumo said.
President Mnangagwa said earlier this month: “Government security officers and the financial intelligence unit must, with immediate effect, strengthen their roles to effectively monitor financial transactions in order to combat delinquent arbitrage behavior. in the economy”.
In order to deter people from trying to break the rules, the civil penalties have also been increased by making appropriate legal changes to elevate some of the financial crimes to criminal offenses which automatically carry penalties of jail.