CMA clears securities lending and borrowing

The clearance granted to the Central Depository and Settlement Corporation (CDSC) follows the testing of the platform in CMA’s regulatory sandbox in a live-market environment since April of 2020.

The roll-out of the platform is expected to enhance trading activity at the Nairobi Securities Exchange (NSE) by allowing the non-holders of securities such as stocks and shares to rent the same for trading activities.

Securities lending and borrowing (SLB) allows for the temporary transfer of shares from one party to another with an agreement to return the shares on demand or at a future date.

The borrower can then use the borrowed shares to trade through channels such as derivatives where the securities ownership remains unchanged.

“We are quite pleased and grateful that our regulator has granted us approval to go live with SLB. This is a major milestone not only for CDSC but also for the entire market as investors have the opportunity to earn positive returns from the stock market during both bull and bear market conditions. We also expect that as SLB transactions grow, we shall be able to release significant volumes of valuable shares that currently lie idle in CDS accounts for trading,” said CDSC Chief Executive Officer Nkoregamba Mwebesa.

The roll-out of the SLB platform is expected to boost market liquidity and products such as short-selling and day trading with the latter having launched at the end of November last year.

The platform is expected to be targeted at pension and retirement benefit schemes which largely hold securities for the long-haul with no intermittent trading.

The schemes are expected to earn additional income beyond distributed dividends by lending their securities at a fee.

“This is a significant milestone in the capital markets as Securities Lending and Borrowing is geared towards improving liquidity in the market. The more liquid the market is, the lower the costs of transactions and the faster new entrants experience price discovery. This also serves as a big attraction for foreign investors,” said NSE Chief Executive Officer Geoffrey Odundo.

The CDSC has since engaged 10 agents to facilitate SLB transactions among them Faida Investment Bank, AIB-AXYS Africa and the Standard Investment Bank.