Uche Usim, Abuja
Acting Director-General, Securities and Exchange Commission, Ms Mary Uduk, on Monday explained why the Commission is advocating for securities lending in the Nigerian capital market.
According to her, the move would deepen liquidity in the country’s bourse, as well as offer more returns to both the lender and the borrower.
Securities lending is the act of loaning a stock, derivative or other security to an investor or firm. It requires the borrower to put up collateral, whether cash, security or a letter of credit.
Uduk noted that the Commission has rules on securities lending and expects capital market operators to take advantage of the opportunity.
She said securities lending is useful for trading activities such as short selling, hedging and arbitrage, saying that hedge funds can also partake more in the Nigerian capital market as the SEC develops securities lending activities.
“We have a framework which has been approved. However, we noticed that it is not being fully explored. What we want to do now is to see what restrictions we can remove and what enlightenments we can do to ensure that other necessary parties key into the rules. We are encouraging them to go into securities lending. They are being encouraged to lend out these securities, they make money out of it,” Uduk stated.
Uduk further stated that the Commission was engaging with institutional investors like the National Pension Commission to enact standards that will enable funds to lend their equities.
“There are many institutional and even some individual investors that sit on large pools of stocks which they do not trade actively,” she said. “A vibrant securities-lending market will provide liquidity to such stocks and earn some returns for both the lender and the borrower.”
“We have a committee which has been engaging all institutional investors that have substantial holding of equities. The essence of having this securities lending is to actually deepen our market.
“All of us are contributing to our own pension accounts and these PFAs are buying equities. What they do is to buy and hold, they don’t sell and they hold it, so the essence of securities lending is now to give room for them to make money and so that the money will now add up to their own contribution fund. We have a framework which has been approved and we are encouraging the market to go into self-lending by meeting these institutional investors.
“Pension is the highest institutional investor in our market, they will now lend out these securities and when they lend out, it will be credited back to the pension fund account. At the end of the contract, they will get their securities back. Instead of holding the securities, they are making money out of it; that is the essence.”
Uduk said the SEC is engaging PENCOM to see it as an investment opportunity, adding that discussions are ongoing to come up with their guidelines based on their provision of the Act to allow securities lending to take place.
“In addition, we are engaging another institutional investor, AMCON. It is a holistic approach to have a win win situation in our market,” Uduk said.
She said the essence of securities lending is to give room for investors to make money so that the profit can then be added to what contributors would get.