Ugo Aliogo posits that Stanbic IBTC has driven the adoption of securities lending more than any other organization in the capital market
In response to the clamour for market expansion, the Nigerian Exchange Limited (NGX) introduced many products – securities lending being one of them – to give investors an array of asset classes to choose from.
Since introducing the guidelines for trading in securities lending a couple of years ago, uptake has steadily risen, though not as robust as envisaged. However, the latest report on the asset class by the NGX reflects its huge potential. The report showed that in 2019, a mere 61,435 shares worth N344,555 were exchanged. In 2020, however, the market witnessed impressive growth, rising to over 7 million units worth a combined N95.2 million traded in August 2021. While the volume in traded equities fell, the value grew to N513 million.
Analysts continue to see promise in securities lending due to the unique nature of the asset class. Indeed, it presents significant benefits to investors and the market. “Whether you are a speculative investor looking to make quick gains or a long-term investor holding stocks, securities lending provides the strong potential to deliver benefits to all market players through capital gains and low-risk incremental income,” said Jude Chiemeka, Head, Trading Business Division of NGX. It is also important in providing liquidity for the market.
The COVID-19 pandemic has shown how important it is for investors to build a diversified portfolio, one that can withstand market shock and volatility. With securities lending, a wider bouquet of investment choices is made available to prospective investors. Due to its unique and novel nature in the Nigerian capital market, it is crucial to engage the services of expert securities lending agents that can guide and assist in facilitating this kind of transaction.
For proper perspective, it is essential to examine what securities lending is. According to Jesuseun Fatoyinbo, Head, Transactional Products and Services, Stanbic IBTC Bank, securities lending is the temporary transfer of securities from one party to another, with a simultaneous formal agreement to return the securities either on-demand or at an agreed date in the future.
Full legal title to the securities is transferred from the holder of the securities (the lender) to the party temporarily taking ownership of the securities (the borrower) so that the securities can be sold by “the borrower” for short selling.
Securities lending and borrowing transactions are governed by the terms of securities lending agreements aligned to terms and conditions as agreed by the parties and in line with international best practices. The lending agreement must be completed, and it sets forth the terms of the loan, including duration, fees, and the nature of collateral (cash, government securities, equities, among others).
Over the past years, however, Stanbic IBTC appears to have driven the adoption of securities lending more than any other organisation. The Securities and Exchange Commission (SEC) in 2012 issued licenses to five Securities Lending Agents (SLA), and Securities Lending and Borrowing (SLB) services were officially launched in the Nigerian market in December 2015.
In 2015, Stanbic IBTC introduced a securities lending product. “We are delighted to be introducing the Stanbic IBTC Securities Lending product into the Nigerian market. The product launch further demonstrates our commitment to facilitating stability and growth of the Nigerian capital market via confidence-building initiatives and leveraging investment opportunities in the market. Other derivatives will be introduced in the future,” the spokesperson for Stanbic IBTC had said at the launch.
The introduction aligns with Stanbic IBTC’s tradition of highlighting opportunities to help investors derive optimal value from their investment. As a member of the Standard Bank Group, Stanbic IBTC has a responsibility to help grow the capital market through offerings and initiatives that could help investors harness investment opportunities in Nigeria.
Investors need to spread their investment options across different financial derivatives, and in doing this, they minimise risks associated with tying investments in particular stocks and securities.
Diversification into different asset classes reduces risk levels while offering higher returns.
In driving the product’s success, Stanbic IBTC continues to rely on its extensive product knowledge and expertise, rich technology capabilities, access to lenders and borrowers to drive utilisation, sound risk management fundamentals and comprehensive reporting capability.
Borrowers are typically market participants such as market makers, portfolio investors, broker-dealer firms, investment banks, intermediaries, stockbrokers, and other similar organisations.
Lenders are usually institutional investors and high net worth individuals interested in growing the value of their portfolios over the medium to long term, thereby increasing the return on their portfolio. However, the Nigerian market has opened the opportunity for securities lending to a broader range of clients. The recent guidelines by the market for retail participation were issued, and individuals holding assets for the long term can now pledge their securities for lending purposes for a fee.
Securities lending has an enormous impact from a benefits realisation perspective on every participant in the market. For instance, it translates to more trades and activities both on the buy-side and the sell-side. This will herald continuous liquidity, and the Exchange will also become fully functional to accommodate other types of transactions like derivatives. It will steadily improve market development for new products and attract more investors into the capital market.
Just recently, Stanbic IBTC concluded the biggest securities lending transaction in Nigeria’s history between a willing lender and a willing borrower. Speaking on the transaction, Jesuseun said: “These milestones are very pertinent to our journey to developing and deepening liquidity in the capital market. This is also a critical piece in moving Nigeria from a frontier market status to an emerging market.”
Stanbic IBTC has had different stocks in the pool over the years and currently has Dansugar, Guaranty, MTN, UBA and Zenith whilst it continues to engage more lenders with liquid stocks into the lending pool. The NGX report showed that Zenith Bank Plc pledged 77.33 million shares, MTNN 8.89 million shares, Dangote Sugar 43 million shares, GTCO 31.09 million shares, and UBA about 45 million shares.
However, beyond the securities lending product launch, Stanbic IBTC has continued to organise roadshows, training modules, media interviews, and other learning initiatives to create awareness of the asset class. In 2020, Stanbic IBTC hosted the Nigerian Securities Lending Forum in partnership with the NGX. The forum hosted over 290 experienced industry players and regulators to update and unpack the conversations on the future of securities lending in the Nigerian market. A similar webinar was also hosted in partnership with the NGX in 2021.
The forum also brought the entire investment value chain, including regulators, up to speed on where the market is on the securities lending journey and how players can leverage it to build more depth and liquidity into the capital market, amongst other benefits.
Efforts by the market and Stanbic IBTC on securities lending will undoubtedly continue to broaden the opportunities in the market. Already, market players are curious and aspire to learn more about the asset class, with a handful already getting their clients onboard to participate. If efforts by Stanbic IBTC and others remain consistent, securities lending has the potential to boost the NGX’s goal of becoming the leading bourse and a gateway to Africa when it comes to capital formation and investment.