18 January 2018

Kenya: NSE Upgrade to Enable Kenyans Borrow and Lend Each Other Shares

Kenyan investors will be able to lend and borrow shares from each other from June, with the NSE set to roll out a system upgrade to accommodate the product within the next five months.

Treasury CS Henry Rotich gazetted the rules allowing the securities lending and short selling at the end of November, although the notice was only published last week.

The regulations will allow investors to borrow shares from fellow traders and sell them on a bet that a future price drop will enable them to buy back the same stock cheaply and return them at a profit.

"We are upgrading our systems to allow the securities lending and borrowing framework to work... that should be coming onstream possibly in the second quarter of this year.

"The system can also be scaled up to bring on board more products," said NSE chief executive officer Geoffrey Odundo.

The stock exchange is betting on the securities lending framework to improve liquidity in the market, unlocking for regular trading the millions of shares held by long-term investors.

Risk

This form of trading does, however, carry a risk if not strongly regulated, opening the danger of stock manipulation by investors keen to benefit from a price fall and aggressive speculation.

Aggressive speculation by short sellers was partly blamed for exacerbating the 2008 financial crisis which nearly brought down global markets.

The Capital Markets Authority, however, said the regulations put in place will check this risk through the demand of collateral to cover the lender's exposure.

"The short selling that had that impact (in 2008) was naked short selling (without collateral protection) and which is not allowed within the Kenyan legal framework.

"What we have is covered short selling so that we will insulate the market from undue exposure," said CMA chief executive officer Paul Muthaura.

The regulations require that the borrower deposit with the lender a collateral equivalent to 100 per cent the value of the securities being borrowed, and in some cases the lender is allowed to ask for a higher value.

The collateral will also be adjusted regularly to match any increase in the value of the borrowed security.

Kenya

The Big Fish in the Mau Land Grab

Details of how adjudication sections in the Maasai Mau Forest were irregularly increased, leading to encroachment, can… Read more »

See What Everyone is Watching

Copyright © 2018 The East African. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 700 reports a day from more than 140 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.