Directive on Registration and Delivery of Shares in Client Names

The Securities Commission of Zimbabwe

20 York Avenue
Newlands, Harare
P. O Box 263, Highlands, Harare
TEL: +263 4 776560, 776511, 776206, 776067, 776166 WEBSITE www.seczim.co.zw EMAIL: securitiescommission@seczim.co.zw A member of CISNA

29 August 2012

Dear

REGISTRATION AND DELIVERY OF SHARES IN CLIENT NAMES

The Commission is issuing this Directive following a review of the Securities Dealing Firm's business operations through on-site and off-site inspections carried out since 2009. This Directive is in terms of paragraph 21 of the First Schedule to the Securities Act [Chapter 24:25].

The inspections revealed gross irregularities in the manner in which Securities Dealing Firms are handling scrip related issues. Further, the Commission has received several complaints from the investing public over misuse of clients' securities.

The inspections revealed the following deficiencies with respect to shares held in safe custody:

(i) Inconsistent Records- There is poor record keeping in most firms with system generated records conveying different information from what is on the ground. Most firms blamed their IT systems. This poor record keeping exposes dealing firms to huge operational risk as it undermines controls put in place to mitigate fraud cases involving scrip.

(ii) Low levels of Capitalization- In instances where firms meet the minimum capital levels required, the capital level is not

Commissioners: W Bonyongwe (Chairman); A T M Charamba (Vice Chairman); C Mutsvangwa; P. Chitando; H. Nkomo Chief Executive Officer: T. Chinamo

The Securities Commission of Zimbabwe

20 York Avenue
Newlands, Harare
P. O Box 263, Highlands, Harare
TEL: +263 4 776560, 776511, 776206, 776067, 776166 WEBSITE www.seczim.co.zw EMAIL: securitiescommission@seczim.co.zw A member of CISNA

consistent with their risk profiles with respect to the value of securities they are holding.

(iii) Insufficient Insurance Cover. Some firms are holding securities worth US$1 million, up to US$90 million. The indemnity cover for these firms is not proportionate with the risk associated with portfolios of this magnitude, with most firms covered under a pool indemnity fund administered by the Zimbabwe Stock Exchange.

(iv) High Incidences of Scrip Frauds- The majority of firms have fallen victim to frauds related to the securities held in custody. Almost all fraudulent incidents reported were committed by employees who skirt set controls.

(v) Abuse of Client Securities- Some firms use client shares to close open positions without the clients' consent. The Commission has received complaints from clients who discovered that their Securities Dealers had transferred securities they own into their nominee companies without the clients' knowledge and consent. In addition, some clients have not been able to access dividends because their securities were held by the securities dealers.

(vi) Custody of shares is in a deplorable state with some share certificates being soiled or torn.

This order urgently requires the Securities Dealing firms to implement the following measures:

Securities Dealing Firms are ordered to register all shares under Nominees in the names of the respective owners and to deliver them to the clients. Where the company faces any challenges in delivering scrip, the shares should be transferred to a licenced custodian within 60 days of receipt of this directive and the Commission should be advised accordingly.

Commissioners: W Bonyongwe (Chairman); A T M Charamba (Vice Chairman); C Mutsvangwa; P. Chitando; H. Nkomo Chief Executive Officer: T. Chinamo

The Securities Commission of Zimbabwe

20 York Avenue
Newlands, Harare
P. O Box 263, Highlands, Harare
TEL: +263 4 776560, 776511, 776206, 776067, 776166 WEBSITE www.seczim.co.zw EMAIL: securitiescommission@seczim.co.zw A member of CISNA

Securities Dealing Firms are not allowed to hold shares for a period of more than 30 days after the expiry of this 60 day notice and those that want to do so, should apply to the Commission for a custodian licence as doing so without one is a violation of the Act.

This will form part of your renewal requirements for 2013.

Be guided accordingly.

Yours faithfully
For and on behalf of the Securities Commission of Zimbabwe

T. Chinamo
Chief Executive Officer

Commissioners: W Bonyongwe (Chairman); A T M Charamba (Vice Chairman); C Mutsvangwa; P. Chitando; H. Nkomo Chief Executive Officer: T. Chinamo