The value of the securities lending market of Nigerian Exchange (NGX) Limited has risen to N513Million as at 20 August 2021. According to NGX’s most recent report, there has been an uptick in stakeholders’ participation as 2.3 million units of MTNN valued at N395.6 million was borrowed.
Securities lending is the market practice of transferring shares for a fee from a 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 essentially means that the owner of a share can temporarily loan out his shares to someone else and earn an income that they ordinarily would not have enjoyed if the shares were left sitting in their portfolio.
Data obtained from the report showed that the volume of units as at 2019 stood at 61,435 valued at N344,555. In 2020, the market grew to 7.38 million units valued at N95.2 million; and as at 20 August 2021, it stands at 6.8 million units valued at N513.1 million. The report also gave the breakdown of the companies that pledged the shares as Zenith Bank Plc with 77.33 million shares, MTNN with 8.89 million shares, Dangote Sugar with 43 million shares, GTCO with 31.09 million shares and UBA pledging about 45 million shares.
It will be recalled that the Head, Trading Business Division at the NGX, Jude Chiemeka, during an interactive session, said that 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 strong potential to deliver benefits to all market players through capital gains and low-risk incremental income. It also plays an important role in the capital market by providing liquidity, which in turn reduces the cost of trading and promotes price discovery.”
NGX, in a bid to widen the pool of securities available for lending and increase participation, issued guidelines which became effective on 7 January 2019. These guidelines were prepared to adequately address stakeholders’ expectations in securities lending transactions and to provide proper education on the procedures and controls involved in securities lending.