Briefly explain the operations of the central depository system (CDS)

in facilitating securities trading.

Its a computerized ledger system that enable the holding or transfer of
securities without the need for physical movement. The ownership of
security or shares is through a book entry instead of physical exchange CDS
is for security what a bank is for cash transfer between banks. Eg A and B
are 2 shareholders of XYZ Ltd. XYZ Ltd. does not need to deliver the share
certificate to A or B but a ledger account for both shareholders would be
maintained at the CDS. Their accounts will be credited with the number of
shares. If A want to sell shares to B the CDS will debit As account and
credit Bs account.
Functions of CDS in facilitating securities trading.
a. Immobilisation of securities ie elimination of physical movement of
securities.
b. Dematerialisation i.e elimination of physical certificates or documents
showing entitlement to a security so that ownership exists only as
computer records.
c. Effective Delivery Vs. payment (DVP) ie simultaneous delivery and
payment between the 2 parties exchanging or transferring securities.
This can be done without delay if CDS is linked to the central payment
clearing system e.g CBK.
d. Provision of detailed listings of investors according to the type of
securities they hold e.g ordinary shares, preference shares.
e. Effective Distribution of Dividends, interests, rights issues and bonus
issues.
f. Provision of book entry account ie electronic exchange of ownership
of securities and payment of cash.