By Adedapo Adesanya
Acting Director-General of the Securities and Exchange Commission (SEC), Ms Mary Uduk, has called on market operators to take advantage of securities lending in the Nigerian capital market.
Ms Uduk stated this in Abuja on Monday, saying that this would deepen liquidity, as well as offer more returns to investors and all parties involved, adding that the commission has rules in place to encourage market confidence.
“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 enlightenment 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,” the SEC chief stated.
She noted that securities lending is a useful trading tool for short selling, hedging, and arbitrage. Explaining that hedge funds can also partake more in the Nigerian capital market as the SEC develops securities lending activities.
According to her, the SEC is currently in discussions with other institutional investors like the National Pension Commission (PenCom) to put in place frameworks 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.
“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 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,” she said.
She also said that the commission was also engaging the Asset Management Commission (AMCON) to see how they can give room for investors to invest through securities lending.
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. When a security is loaned, the title and the ownership are also transferred to the borrower.
