Dual Listing: Fungible securities explained

Many investors are always on the lookout for new ways to make a profit, and fungible instruments allow just such a thing through the action of arbitrage.

In other words, fungible securities allow investors and speculators to buy low and sell high to make a profit.

A security is considered fungible if it can be bought or sold on one market or registered Exchange, and then sold or bought on another market or registered Exchange.

In trading, fungibility implies the ability to buy or sell the same financial instrument in two or more different markets.

For example, if one hundred shares of a stock  can be bought on the Zimbabwe Stock Exchange (ZSE) in Zimbabwe, and the same one hundred shares of the same stock can be sold on the London Stock Exchange in the UK, with the result being zero shares (100 bought and 100 sold), the stock is fungible.

There are two types of fungibility, namely:

◆ Partial Fungibility, and
◆ Full Fungibility.

There are currently three counters which are fully fungible on the Zimbabwe Stock Exchange (ZSE) which are Old Mutual Limited (OMU.zw), PPC Limited (PPC.zw) and Seedco International Limited (SCIL.zw).

There is at least a 51 percent limit of the listed shares that should remain on the Zimbabwean Register.

The remaining 49 percent of the company's shares can be held on a Foreign Register as permitted by the Exchange Control guidelines.

Fungible stocks are usually in demand during periods of uncertainty such as now with the reintroduction of the Zimbabwean Dollar which has led to mixed trading.

This is as a result of fungible stocks' ability to withhold local shocks. In order for investors to be able to move stocks from the local register to a foreign register, they first have to seek approval from the ZSE through an application.

◆ To learn more about fungibility, stay tuned!