Capital Markets

CDSC in securities borrowing and lending pilot plan

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CDSC chief executive Nkoregamba Mwebesa. FILE

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Summary

  • The Central Depository and Settlement Corporation (CDSC) has launched a pilot phase for securities lending and borrowing ahead of a full roll out planned for the fourth quarter of the year.
  • Securities Lending and Borrowing (SLB) is the temporary transfer of shares from one party (the lender) to another (the borrower) at an agreed lending/borrowing fee, with a formal agreement to return the securities either on-demand or at a future pre-agreed date.

The Central Depository and Settlement Corporation (CDSC) has launched a pilot phase for securities lending and borrowing ahead of a full roll out planned for the fourth quarter of the year.

Securities Lending and Borrowing (SLB) is the temporary transfer of shares from one party (the lender) to another (the borrower) at an agreed lending/borrowing fee, with a formal agreement to return the securities either on-demand or at a future pre-agreed date.

The market practice is used as a lubricant for the financial markets and is expected to increase trading.

“The pilot phase will involve carrying out SLB transactions on the CDS in a live but controlled environment with participants providing valuable feedback in preparation for the official roll out in quarter four 2020. We are therefore encouraging our clients to participate in this phase so as to allow us to iron out any kinks,” said CDSC chief executive Nkoregamba Mwebesa.

“SLB is expected to increase liquidity in the market, support trading and investment strategies for instance short selling, intra-day trading, participants to cover temporary shortfalls or overall net debit positions in the CDS at settlement time.”

The CDSC said it will implement SLB pilot phase transactions under a model where the lender and borrower do not know each other, with their activities captured on an automated platform by SLB agents.

It has signed up two agents— Dyer and Blair Investment Bank and Faida Investment Bank—for the pilot phase.

CDSC is the central counterparty that will guarantee settlement of all transactions.

The launch follows a stakeholder workshop in January.

CDSC was then admitted to the Regulatory Sandbox on April 7 by Capital Markets Authority (CMA) to test the process. The pilot phase was to be rolled out in May but was delayed due to Covid -19 restriction protocols.

The trading is expected to benefit institutional investors like pension funds that hold a significant part of their portfolio in equities and individual investors with long-term investment strategies.