NSE securities lending market valued at N1.07bn
The Nigerian Stock Exchange’s securities lending market has been valued at N1.07bn ($2.96m).
The NSE, in its Securities Lending Report of October 2019, had said 20.78 million shares were available for lending to investors.
It stated that the shares were pledged by 10 companies.
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 said securities lending played an important role in the capital market by providing liquidity, which in turn reduced the cost of trading and promoted price discovery.
Data obtained from the NSE showed that the 20.78 million shares amounted to a 3,307 per cent increase from the 61,435 shares available for lending in the whole of 2019.
The report gave the breakdown of the companies that pledged the shares as Guaranty Trust Bank Plc with 8.44 million shares, Presco Plc with 4.08 million shares and MTN Nigeria Communications Plc with 2.38 million shares.
Others are Okomu Oil Palm Plc with 2.34 million shares, Dangote Cement with 1.65 million shares, United Bank for Africa Plc with 900,000 shares, Dangote Sugar Refinery Plc with 700,000 shares, Nigerian Breweries Plc with 200,000 shares, Flour Mills of Nigeria Plc with 100,000 shares and Chemicals and Allied Products Plc with 21 shares.
The Head, Trading Business Division, NSE, Mr Jude Chiemeka, said securities lending presented 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 capital market by providing liquidity, which in turn reduces the cost of trading and promotes price discovery.”
The NSE, in a bid to widen the pool of securities available for lending and increase participation, issued guidelines, which became effective on January 7, 2019.
Chiemeka said the guidelines were prepared to adequately address stakeholders’ expectations in securities lending transactions.
He noted that it was important for investors to properly understand the procedures involved in securities lending and implement the necessary controls.