Thirty-two-year-old Martha Aboagye (not her real name) is an ardent patron of short-dated investment instruments issued by the government.

After being exposed to treasury bills and bonds in her university days, Martha, an investment banker, has now increased her appetite for the risk-free instruments.

Oftentimes, she is either redeeming matured securities or asking her bankers to rollover maturing ones, depending on the prevailing interest rates and/or her projections for the coming months.

 Despite her deep knowledge in the rules governing the sale and redemption of the risk-free instruments, Martha is deficient on the processes that her purchases or matured securities pass through before the required amount of money is credited at or paid to her by the Bank of Ghana (BoG) on behalf of the government. However, she is not alone.

Like Martha, many people with rising appetite for T-bills, public or corporate bonds barely know what goes on behind the scenes after their purchases go through.

  All they know is that their commercial banks take the money to the government through BoG, which keeps or uses it and refunds the said amount together with the interest or principal amount upon maturity or termination of the purchase. What transpires in-between is virtually none of their business.

This is not surprising. In a country where financial literacy is still a luxury (less than 30 per cent of adults have access to bank accounts), not many will care to know about the nitty-gritties of investments.

The same applies to the equity market, where shares of listed companies are traded on and/or bought from the Ghana Stock Exchange.

So what happens after an investor successfully pays for a particular type of investment instrument such as T-bills and bonds?

Middleman's job

For every purchase made of any of the short-term securities, an account comprising the details of the investor is often opened at the Central Securities Depository (Gh) Limited (CSD). Thus, in-between the purchaser and the issuer BoG, which acts on behalf of the government in matters of this nature, is the CSD, which holds the data of all patrons.

At the last day of trading in September 2016, the CSD had opened 828,048 of such accounts, which it managed on behalf of the investors, their partner banks and the BoG.

These accounts comprised individual and institutional, as well as local and foreign investors, who had invested in one or more of the debt securities -- T-bills, GoG bonds, Ghana Cocoa Board or BoG or any of the corporate bonds on sale and equity instruments in the market. As a safe haven for investor information in the country, the CSD keeps track of such purchases, their respective dates of maturities and the amounts involved.

It then uses that data to advise the BoG, in the case of GoG securities, of maturing debts that require settlement.

The advice is done through a technique called Corporate Action Payment or Settlement.

Benefits

Although barely known, corporate action settlements ensure that investors in government securities are paid their respective due principal and the interest amounts on the designated maturity and interest payment dates   for their investments.

Given that securities keep changing hands, an efficient corporate action settlement process, as currently exists, helps the BoG to determine the real owners of the securities after they have been moved in-between owners on the secondary market.

"This helps the issuer or the paying agent to ensure that the right investor is paid when the time comes," the CEO of CSD, Mr Stephen K. Tetteh, stated.

"When the security matures, we generate the entitlement file. It is that file that will tell you the investor that qualifies to receive payment and the bank through which the investor will receive payment.”

“The file is then sent to BoG and they will pay the bank involved and the bank also pays the clients," he added.

At the moment, the depository undertakes two forms of corporate actions — the interest payments and maturity payments.

Interest payment is limited to bonds and notes, which are interest or coupon bearing, because payments to bond/fixed note investors are done after every six months. The CSD normally ensures that the interest on any interest bearing security purchased is divided into two – semi-annual periods – in the case of a one-year bond, and paid to the investor in two tranches.

This it does by generating, in tranches, the payment schedule on the note and forwarding same to the BoG or the issuer for payment.

However, in the case of maturity payment, which applies to T-bills and other securities that are not interest-bearing, the CSD normally advises the issuer to pay the nominal value or the principal amount to qualifying investors.

Instilling investor confidence

Money is a coward and so are investors. As a result, market infrastructure such as the CSD and its array of services are needed to assuage the fears of investors from some difficulty that may arise from tracing records of their investments.

This is where corporate action payments come in handy.

At optimal level, the process ensures that the investor gets what he/she is entitled to.

As the CSD pointed out, "It will be catastrophic if you buy something and in the future it cannot be traced to you.”

“It will derail confidence and that is basically what we (CSD) guard against."

Beyond ensuring smooth settlements and reconciliation of ownership, corporate action settlements also give the BoG and the government a clearer picture of the appetite the investor community has on short-dated instruments.

This plays a key role in policy direction, both at the fiscal and monetary level and that goes a long way to boost economic growth.

That not said, the CSD would have to keep on upgrading its security systems to ensure that the safety of investor details with it is properly guarded against.

It is, therefore, heart-warming that the depository is ISO (27001:2013) certified by International Organisation for Standardisation (ISO).

The certification will help to deepen the management of the company’s Information Security Risk.

This will not only cement CSD’s role as an enabler of a conducive investment climate but a depository of repute in the arena of securities depositories worldwide.