Central Depository and Settlement Corporation (CDSC) has been admitted as the fourth firm in the Capital Markets Authority (CMA) regulatory sandbox. CDSC intends to test a screen-based Securities Lending and Borrowing (SLB) for five months commencing 07 April 2020.
Securities Lending and borrowing (SLB) is the temporary transfer of securities from one party to another, with a simultaneous formal agreement to return the securities at a pre-agreed price either on demand or at an agreed date in the future. Full legal title to the securities is transferred from the lender to the borrower so that the securities can be used entirely as the borrower desires, including selling them onward to others.
In this case, borrowers are market participants who identify trading opportunities that will more than make up for the lending fee costs and include market makers, arbitragers, directional short-sellers or players in the derivatives and Exchange Traded Funds markets.
On the other hand, lenders are institutional investors, particularly pension funds and insurance companies, that are long or medium-term investors in the securities. They, therefore, lend securities in order to earn a lending fee and increase the return on their portfolio.
Acting CMA CEO Wyckliffe Shamiah lauded the new development saying it will improve liquidity by unlocking securities to facilitate trades and subsequently increasing the number of transactions. Moreover, the test of the Screen-based model will ensure that any investor can perform an SLB transaction through approved Central Depository Agents.
Other firms admitted to the Regulatory Sandbox include Innova Limited and Pezesha Africa Limited. Innova is testing its cloud-based data analytics platform, while Pezesha is testing an internet-based crowd-funding platform through which investors can provide loan facilities for Small and Medium Enterprises.
.Upon exit from the Sandbox, participants could be granted a license or approval to operate in Kenya subject to compliance with existing legal and regulatory requirements.