The value of the NGX’s securities lending market has risen to N513 million as at August 2021 with an uptick in the stakeholders’ participation, according to a recent report by the Nigerian Exchange Group.
As a result of the increase in participation, leading telecoms firm, MTN Nigeria, has recorded a significant rise to 2.3 million units in its total transferred or borrowed shares within the market with a value of N395.6 million.
Securities lending is the market practice of transferring shares for a fee from a lender to another party who is the borrower, agreeing to return the securities to the lender either on-demand or at the end of the agreed loan term. Consequently, the practice essentially means that the owner of a share can in the short term loan out his shares to someone else and earn an income that they ordinarily would not have enjoyed if the shares were left sitting in their portfolio.
According to the NGX report, the volume and value of share units transferred within the securities market rose to 6.8 million units valued at N513.1 million as of August 2021, rising from a value of N95.2 million with 7.38 million units in 2020 resulting from the covid-19 effects.
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However, prior to the pandemic, the total volume and value of the deals in the NGX securities lending market stood at 61,435 valued at N344,555.
A further breakdown from the report for the review period on companies acknowledged that 77.33 million units of shares of Zenith Bank were pledged in the market, with MTN Nigeria (8.89 million), Dangote Sugar (43 million) Guaranty Trust Holding Company (31.09 million) and UBA pledging 45 million shares, during the period.
The NGX, in a bid to widen the pool of securities available to stakeholders and also increase participation, issued guidelines to allow for the transfer of shares among companies. The guidelines, which became effective on January 7, 2019, were prepared to adequately address the expectation of stakeholders in securities lending transactions, while it also provides proper education on the procedures and controls pertaining to securities lending transactions.
Meanwhile, Jude Chiemeka, head, trading business division at the NGX, at an interactive session organised by the exchange, had hinted that securities lending presented significant benefits to investors in a bull or bear market.
“Whether you are a speculative investor looking to make quick gains, or a long-term investor holding stocks, securities lending provides strong potential to deliver benefits to all market players through capital gains and low-risk incremental income. It also plays an important role in the capital market by providing liquidity, which in turn reduces the cost of trading and promotes price discovery,” said Chiemeka.