The Central Depository and Settlement Corporation(CDSC) has received approval from the Capital Markets Authority(CMA) to exit the regulatory sandbox and offer Securities Lending and Borrowing(SLB) in a live market environment.
This approval follows extensive consultation with stakeholders and tests to ensure the platform is robust with risk management and technology structures to make the securities lending and borrowing product attractive and efficient.
The CDSC Securities lending and borrowing product was admitted into the CMA Regulatory Sandbox in April 2020 to test the product in a live but controlled environment.
CDSC also received approvals from the Retirements Benefits Authority(RBA) in September 2020, allowing pension and retirement benefit schemes to engage in SLB as an additional investment return avenue.
Securities lending and borrowing (SLB) is the temporary transfer of securities (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.
CDSC is implementing SLB pilot phase transactions under the Screen-Based Model. Screen-based-model is where the lender and borrower do not know each other as the lending and borrowing requests are captured on a platform in an automated system (CDS) by the SLB agents on behalf of their clients or on their own behalf.
Within the Regulatory Sandbox, the financial, legal and operational as well as risk management frameworks for SLB have been validated by successful transactions carried out by the Central Depository System(CDS)- the versatile platform supporting SLB.
CDSC has so far onboarded 10 agents to facilitate the rollout of SLB to investors and is in the process of onboarding all other Central Depository Agents to facilitate accessability of this new product to investors
” We are quite pleased and grateful that our regulator has granted us approval to go live with SLB. This is a major milestone not only for CDSC but the entire market as investors will have an opportunity to earn positively from the stock market during both the bull and bear market conditions,” said CDSC Chief Executive Nkoregamba Mwebesa.
He added that as SLB transactions grow, significant volumes of valuable shares that are currently idle in CDS Accounts, will be released, boosting market liquidity and other products such as short selling and day trading.
” The approval granted to CDSC after successful testing in the regulatory sandbox is a move towards realization of sound maket infrastructure, institutions and operations as envisaged in the CMA strategic plan 2018-2023,” said Wyckliffe Shamiah– CMA Chief Executive.
He added implementation of SLB will improve efficiency, liquidity and collateral management in the secondary market.
NSE Chief Executive Officer Geoffrey Odundo said the more liquid the market is, the lower the cost of transactions and the faster new entrants experience price discovery.
”We congratulate CDSC on launching this platform and will work together to promote the product,” said Odundo.