The Securities & Exchange Commission, (SEC) on Monday said it is currently engaging high net worth investors like the National Pension Commission (PENCOM) and the Asset Management Corporation of Nigeria (AMCON) on the need to embrace securities lending.
Acting Director-General of the SEC, Ms. Mary Uduk, who spoke in Abuja Monday, said already, the commission has put rules on securities lending together and expects capital market operators to take advantage of the opportunity.
Securities lending, according to a statement by stems from its desire to deepen liquidity in the Nigerian capital market, while offering more returns to both lenders and the borrowers.
Securities lending is the act of loaning a stock, derivative or other security to an investor or firm, and requires the borrower to put up collateral, whether cash, security or a letter of credit.
Uduk said the SEC is engaging PENCOM to see it as an investment opportunity, adding that discussions are ongoing to come up with their guidelines based on their provision of the Act to allow securities lending to take place.
“In addition, we are engaging another institutional investor, AMCON. It is a holistic approach to have a win-win situation in our market,” Uduk said.
A statement by Efe Ebelo, Head Corporate Communications SEC, Abuja, quoted Uduk as saying the essence of securities lending is to give room for the investors to make money so that the profit can then be added to what contributors would get.
Securities lending, she explained, is useful for trading activities such as short selling, hedging, and arbitrage saying that hedge funds can also partake more in the Nigerian capital market as the SEC develops securities lending activities.
“We have a framework that 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 enlightenments 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,” Uduk added.
Furthermore, the Acting DG stated that the commission is engaging institutional investors like the National Pension Commission to set standards that will enable them to lend their equities, Uduk said.
“There are many institutional and even some individual investors that sit on large pools of stocks which they do not trade actively,” she said.
“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 that has been engaging all institutional investors that have a substantial holding of equities. The essence of having this securities lending is to actually deepen our market. All of us are contributing to our pension accounts and these are being invested in equities. What they do is to buy and hold… they don’t sell.
“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 and so that the money will now add up to their own contribution fund. We have a framework that 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.
