The Central Depository and Settlement Corporation (CDSC) is testing an automated platform for borrowing and lending stocks through agents after the market failed to pick up over the last three years.
The lending and borrowing market works for idle portfolio holders, who lend stocks at a fee while retaining ownership including voting rights on the equity.
Those who borrow the stock are active market players who can then short the market and return the stocks after an agreed period.
The securities and lending market was launched in 2017 but has not picked up among idle portfolios held by large institutions like pension fund managers and the National Social Security Fund.
CDSC wants to develop a screen-based Securities Lending and Borrowing (SLB) platform for a period of five months from April 7, 2020 which may offer comfort and attract market players.
The Capital Markets Authority (CMA) acting chief executive, Wyckliffe Shamiah said the prototype that will be tested in the regulator’s sandbox envisions trading through agents, which will require tweaking the law if successful.
“While the Capital Markets (Securities Lending, Borrowing and Short-Selling) Regulations 2017 envisages a bilateral model of SLB, the test of the screen-based model will ensure that any investor can perform an SLB transaction through approved Central Depository agents,” Mr Shamiah said.
If the test is successful, the securities lending and borrowing regulations will be amended to include the screen-based model and other issues which have hampered uptake.
Ex-NSE boss Nkoregamba Mwebesa is the new CDSC chief executive.
CDSC is the fourth firm to be admitted to the regulatory sandbox. Others are Pezesha Africa and Innova Limited, the latter testing its cloud-based data analytics platform, while Pezesha is testing a crowdfunding platform Small and Medium Enterprise loans.