By Omobayo Azeez
The Nigerian Stock Exchange (NSE) has reported that securities lending transactions stood at N34.8 billion as at April 17, 2020 as against the comparative period of 2019.
Data obtained from the NSE’s website showed that the volume of securities as at April 17, 2020 stood at 4.13 billion units compared with 61.4 million units while the value rose by N34.8 billion compared with 344.5 million.
According to the latest release by the NSE, the securities available include GTBank, Presco Plc, United bank for Africa and MTN Nigeria.
The report gave the breakdown of the companies that pledged the shares as follows: GT Bank pledged 8.58 million shares; Presco Plc , 4.02 million shares; UBA , 2.6 million shares and MTNN with 2.54 million shares.
Securities lending is the market practice of temporarily transferring securities, for a fee, from their holder (the lender) to another party (the borrower), with the borrower agreeing to return the securities to the lender either on-demand or at the end of the agreed loan term.
It usually requires the borrower to collateralise the transaction with cash or other securities of a value equal to or greater than that of the lent securities, in order to protect the lender against counterparty credit risk.
The NSE had earlier in January moved to enhance investors’ understanding of security lending by rolling outinterpretative guidance to help the investing community to better understand security lending process and advantages.
According to the NSE, securities lending allows investors to borrow shares at an agreed fee, with the borrower agreeing to return the securities to the lender at the end of the loan term.
It usually requires the borrower to collateralize the transaction with cash or other securities of a value equal to or greater than that of the lent securities.
However, to protect the lender against counterparty credit risk, this transaction is done through a Securities Lending Agent (SLA) who stands as an intermediary between the lender and borrower. The SLA stands as a borrower to the lender and as a lender to the borrower.
According to Jude Chiemeka, the head, trading business division, NSE, securities lending presents significant benefits to investors in a bull or bear market.
He said, “Whether you are a speculative investor looking to make quick gains, or a long-term investor holding stocks, securities lending provides a 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.”
Recall that in 2017, the Exchange amended its original Securities Lending Guidelines that was first published in 2012, and the amended guidelines approved by the Securities and Exchange Commission (SEC) in 2017.
Additionally, The Exchange said it had recognised the need to include retail investors in the securities lending program to enable their participation and widen the pool of securities available for lending.