‘It’s vital in capital market development’ — NGX pledges to enhance securities lending transactions

Nigerian Exchange Limited (NGX) says it will continue to collaborate with stakeholders to enhance securities lending transactions and provide an efficient and liquid market for investors.

The exchange said this was consistent with its commitment to contribute to the growth and development of the capital market in Nigeria and Africa.

Jude Chiemeka, divisional head, capital markets, NGX, who spoke during the company’s securities lending forum 2022 in Lagos, said securities lending transactions have become an important element of capital markets all over the globe.

According to him, in today’s capital markets, securities seldom lie unutilised.

He added that if securities are not bought and sold in outright market transactions, they are lent to parties wanting to borrow them, or used as collateral to raise short-term finance.

Citing data from a 2021 report published by the International Securities Lending Association (ISLA), Chiemeka said the total value of securities made available globally by institutional investors within lending programmes stood at $34 trillion with about $2.9 trillion on-loan globally across all asset classes.

The others, he explained, are 48 percent government bonds, 39 percent equities, six percent corporate debt securities, 4 percent ETF, and 3 percent other fixed income, in December 2021.

Also quoting DataLend, he said the global securities lending industry generated $9.28 billion in revenue for lenders in 2021, representing a 21.2 percent increase from 2020.

Chiemeka said the data shows the huge potential available in securities lending transactions.

“Domestically, Nigerian Exchange Limited (NGX), in response to the need for market expansion and development, introduced many products; securities lending being one of them, to give investors, either retail or institutional, a wide array of asset classes to choose from,” he said.

“Since the securities lending and borrowing (SLB) services were officially launched in the Nigerian market in December 2015, uptake has steadily risen, though not as robust as envisaged.

“According to a report by Nigerian Exchange Ltd. in 2020, the market recorded impressive transactions, with about 7.4 million units worth N95.2 million traded.

“In 2021, while the volume in traded equities fell to about 6.8 million units, the value grew to N513 million.”

Chiemeka further said, from the lender’s point of view, the benefits of securities lending included the ability to earn additional income through the fee charged to the borrower of the security.

But from the borrower’s point of view, it allows them to take positions like short selling and gives investors more options to take different views on the market, he explained.

“It is vital in the development of the capital market, by providing liquidity, which in turn reduces the cost of trading and promotes price discovery,” the NGX divisional head added.

“The exchange no doubt remains keen to provide an efficient and liquid market for investors and businesses in Africa, to save, access capital and investments.

“We promise to continue our collaboration with all market stakeholders, to collectively contribute towards the enhancement of securities lending transactions, and ultimately towards the growth and development of the capital market in Nigeria as well as Africa, at large.”

Also speaking at the event, Majiyagbe Babatunde, managing director, Stanbic IBTC Nominee Limited, said the securities lending market, which started over 40 years ago, had grown.

However, Babatunde said despite the size of the market, only a few trades have been done.

“With Nigeria reporting N600 million in trade value and N5 billion assets pledged by lenders, only a few trades have been done in the securities lending universe,” he said.

“Given the size of the capitalisation of the equities market and how mature we have now become, the market needs to do more.”