Investors to lend and borrow shares directly

The board of directors of the Central Deposit and Settlement Corporation has approved the company’s plan to adopt direct Securities Lending and Borrowing (SLB) after the screen-based roll out which went live in February 2022 failed to gain traction and boost liquidity in the market.

SLB is a framework that allows the temporary transfer of shares from a lender to a borrower with an agreement to return the shares at a future date. It enables markets to unlock trading activity from shares that would otherwise be held dormant for long-term horizons due to strategic positions taken by institutional investors.

“It’s been a learning curve. We haven’t seen as much traction but I must say there are trades that have taken place although they are very small,” said Geoffrey Odundo, the chief executive of the Nairobi Securities Exchange as well as a director at CDSC.

“So, in terms of registering critical mass, we are yet to nail it. If you look at the market capitalisation we have, what is trading is just 20.0 percent with the rest lying idle.”

Whereas the screen-based model displays all clients who want to lend stock and one is then able to match demand and supply, the bilateral (direct) model allows lenders and borrowers to engage directly.

Mr Odundo says through the use of a hybrid model which allows SLB through both screen-based and bilateral channels, trading can double from the present 20 percent of market capitalisation to 40 percent.

Odundo says institutional investors are also yet to appreciate SLB.

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