Kenya’s agent lender platform enters pilot phase
05 August 2020 Nairobi
Image: Zerophoto/Adobe.com
Kenya’s Central Depository & Settlement Corporation (CDSC) has this week entered the pilot phase of its new securities lending platform that allows agents to trade on behalf of asset owners and borrowers for the first time ahead of Q4 launch.
CDSC is approved by the Kenyan Capital Markets Authority (CMA) to provide automated clearing, delivery and settlement facilities in respect of transactions carried out at Nairobi Securities Exchange (NSE), as well as holding of listed and non-listed securities including other documents of title on behalf of investors.
As part of a wider initiative to improve capital market liquidity in the country, spearheaded by the country’s exchange and financial markets regulator, the CDSC is trialling the new platform that will allow asset owners and borrowers to use agents to engage in securities lending with counterparts they cannot trade with bilaterally.
Until now, securities lending activity in Kenya has been conducted bilaterally.
Through the new platform - known as the screen-based model - trade requests are captured in an automated system by the agents on behalf of their clients or on their own behalf.
Currently, only two agents, Dyer & Blair Investment Bank and Faida Investment Bank, are licenced to operate on the platform but more are understood to be waiting in the wings and will join as soon as they conclude the approval process, CSDC says.
According to CSDC, the new model will make it much easier for borrowers and lenders to find each other as well as removing administrative hurdles of having to physically sign contracts.
The CSDC says it will also remove counterparty risk by guaranteeing all trades and collecting and managing collateral itself.
Securities available to lend via the platform are the constituents of the NSE 20 index.
The securities to be lent must have been previously deposited in the CSD and must be balance free.
Collateral must be at least 100 percent of the value of the lent assets and can be made up of cash, government securities or bank guarantees.
CSDC also requires an initial margin of 10 percent of the asset’s value to cover price movements.
The lender has the option to recall securities earlier than the due date but will be required to give a 14-day notice
The overarching legal and regulatory framework for Kenyan securities lending is the Capital Markets Act and the Capital Markets (Securities Lending, Borrowing and Short selling) Regulations 2017.
Currently, the regulations only provide for the bilateral model of lending.
Therefore, CSDC says the new model will need to be operationalised under the Central Depositories Act, the Central Depositories (Securities Lending and Borrowing) Rules and the Central Depositories (Securities Lending and Borrowing) Procedures.
As part of entering the pilot phase, the CDSC has been admitted to the CMA Regulatory Sandbox where the screen-based model will be tested.
The pilot scheme is the latest move in a multi-year effort to boost market liquidity in Kenya.
In 2018, the CMA gave the green light to the NSE to launch a short selling and supporting securities lending facility.
CDSC is approved by the Kenyan Capital Markets Authority (CMA) to provide automated clearing, delivery and settlement facilities in respect of transactions carried out at Nairobi Securities Exchange (NSE), as well as holding of listed and non-listed securities including other documents of title on behalf of investors.
As part of a wider initiative to improve capital market liquidity in the country, spearheaded by the country’s exchange and financial markets regulator, the CDSC is trialling the new platform that will allow asset owners and borrowers to use agents to engage in securities lending with counterparts they cannot trade with bilaterally.
Until now, securities lending activity in Kenya has been conducted bilaterally.
Through the new platform - known as the screen-based model - trade requests are captured in an automated system by the agents on behalf of their clients or on their own behalf.
Currently, only two agents, Dyer & Blair Investment Bank and Faida Investment Bank, are licenced to operate on the platform but more are understood to be waiting in the wings and will join as soon as they conclude the approval process, CSDC says.
According to CSDC, the new model will make it much easier for borrowers and lenders to find each other as well as removing administrative hurdles of having to physically sign contracts.
The CSDC says it will also remove counterparty risk by guaranteeing all trades and collecting and managing collateral itself.
Securities available to lend via the platform are the constituents of the NSE 20 index.
The securities to be lent must have been previously deposited in the CSD and must be balance free.
Collateral must be at least 100 percent of the value of the lent assets and can be made up of cash, government securities or bank guarantees.
CSDC also requires an initial margin of 10 percent of the asset’s value to cover price movements.
The lender has the option to recall securities earlier than the due date but will be required to give a 14-day notice
The overarching legal and regulatory framework for Kenyan securities lending is the Capital Markets Act and the Capital Markets (Securities Lending, Borrowing and Short selling) Regulations 2017.
Currently, the regulations only provide for the bilateral model of lending.
Therefore, CSDC says the new model will need to be operationalised under the Central Depositories Act, the Central Depositories (Securities Lending and Borrowing) Rules and the Central Depositories (Securities Lending and Borrowing) Procedures.
As part of entering the pilot phase, the CDSC has been admitted to the CMA Regulatory Sandbox where the screen-based model will be tested.
The pilot scheme is the latest move in a multi-year effort to boost market liquidity in Kenya.
In 2018, the CMA gave the green light to the NSE to launch a short selling and supporting securities lending facility.
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