Do You Need a CSCS Special Account or Trade Alert?

An Acceler8now.com Investing Education Resource July, 2007

To the basics, first. When you buy stock from the secondary market, that is, on the floor of the stock exchange (through your stockbroker), a CSCS account has to be opened for you. If it isn't your first time, you must have one already. If you are using a different stockbroker, then they will open a new one attached to the current broker. How is the account opened? The stockbroker gives you a simple form to complete the first time you are transacting with him and with that, he gets a CSCS account opened for you to hold your purchases. Of course, sales are made from that account too. Periodically, you get a statement showing your account balance, in units of stock(s), not Naira. At any other time you desire (for instance to reconcile your holding), you can request a statement from CSCS, either through your broker or directly if you wish, just for a token fee. That statement is very key to tracking your holdings. If you use more than one stockbroker, you have a CSCS statement for your transactions through each. That sets the picture, I hope.

This article is however about the special account and trade alert. Well, both arise because, things go wrong at times with investors' stock holdings, because not all stockbrokers are honest. Surprised? Check the records: disciplinary actions against stockbrokers for abuses of customers' accounts are almost frequest and you can check with Nigerian stock exchange and the Securities and Exchange Commission. So, is your investment safe? Generally so, because the investor is heavily protected by the regulators and the law. That, however, does not vitiate the serious need for preventive controls. Don't wiat for things to go wrong before pursuing restoration which will take time, work and even some risk of failure toprove your case.

Your first protection is to monitor your regular account(s). Request that statement because most stockbrokers won't send it on their own. Take some time to reconcile your holding. Get off-cycle statements at occassional intervals, directly from CSCS, to re-check your holdings. Don't make the mistake of assuming that nothing will go wrong: stockbrokers sell investors' stocks, all the time! Sometimes, they claim it's in error (I've had personal experiences), at others, geniune fraud is established (check with the regulators). If you identify a problem, remedy can be sought, especially if you can't resolve amicably with the broker. See a further resource on how to seek redress against abuses by market operators.

Now, what about being proactive, to guard against any abuse, instead of pursuing redress? That's where either the CSCS special or the trade alert system will come in handy.

CSCS Special Account
This is a bit like the account the broker gets opened for you when you want to buy stocks through him. There is a big difference, though. This special account is not attached to any stockbroker, neither is any involved in opening it. You open it personally at the CSCS, just like you open an account at the bank. When it is opened, you will transfer stocks you have in the regular account with the stockbroker(s) to the special account. That account is fully under your control, like your bank account. Nothing can be sold from it by any stockbroker, because they don't control it. Your regular account is attached to a broker and he can always sell from it; not so with the special account. So how do you sell, you ask? You detatch what you want to sell (by completing a detachment form, duly signed according to your mandate in the CSCS account, and submitting to CSCS). In the detachment request, you specify a stockbroker that you are detaching to, who will sell for you. That gets transferred to your regular account with the broker, but just only what you have instructed to be transferred to him. The rest of your stock is still 'under lock and key' in your special account. The special account has a charge, but in our view, an affordable cost, given the benefit. Currently, it's N5,000 per annum for individual (non-institutional) investors.

Trade Alert
Not as proactive as the special account, but the trade alert, an NSE/CSCS initiative, still seeks to forestall an abuse than pursue remedy. It however works with your regular account (or special account), but mounts its road-block at the point of sale. A sale is initiated by the broker normally, but you get a trigger on your GSM phone to alert you of the transaction. No doubt, if it's a fraudulent transaction, you're going to abandon anything on hand to rush to your broker, the stock exchange or wherever. Anyway, trade alert expects you to make a phone-call to stop the transaction. A bit reactive, if you ask us, but still a protection. Banks are widely implementing such transaction triggers currently. Trade alert is a subscription service, but currently free for small investors with low-value transactions.

Which Do You Need?
Perhaps, the first question is whether you need any at all. Irrespective of the value of your stock-holding (which, in any case could be all your nest-egg, notwithstandiing the naira value), we believe it is part of the building blocks for your future of prosperity. In effect, its value is beyond the current market value of your stocks - it represents that quality life of success which you dream of. What all this says is simply that those investments mean more than money, they represent a key part of your future. If preserved and nurtured, they could make tomorrow positively different. You can't therefore spare any reasonable effort, not only to grow but also to protect them. If you see it that way, you might consider additional protection for your stock portfolio. You have the facts here to decide if you need a special account, trade alert or none.