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.
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.
“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.
No comments :
Post a Comment