The Central Depository & Settlement Corporation (CDSC) has received a nod from the Retirement Benefits Authority (RBA) to engage pension schemes in its Securities Lending and Borrowing (SLB) product.
This follows the commencement of a pilot screen-based securities lending and borrowing platform by the CDSC and its admission to the Capital Markets Authority (CMA) sandbox- a business incubation facility.
Nzomo Mutuku, RBA Chief Executive Officer said that the screen-based model of the securities lending and borrowing would result in increased liquidity in the market and boost returns of securities owners. He said the pension regulator has no objection to pension schemes participating in this platform provided the managers obtain requisite approval from trustees.
Nkoregamba Mwebesa, CDSC Chief Executive, applauded the move RBA and said the endorsement would undoubtedly be beneficial to the pension industry, including earning them extra income from equities held for a long-term period. He said the success of securities lending and borrowing would increase liquidity in the market, making it more attractive to local and international investors.
CDSC takes pride in being the pioneer CSD in the region to introduce a SLB product.
SLB allows the temporary transfer of securities from one party or the lender to the another-the borrower, with an agreement to return the securities on demand or at a future date. The lender earns a cash return from loaning out the securities for a specific period. This instrument allows institutional investors to earn returns on their securities. The transaction has a low-risk profile because of its collateralized nature. Pension funds and other lenders receive extra income while maintaining the right to recall the securities at any time.
SLB has traditionally acted as a lubricant in financial markets, providing firms with risk management options and creating more liquidity in the market.