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Nigeria details sec lending plan
05 August 2011
Nigerian stock exchange CEO identifies the challenges still to be overcome and outlines likely restrictions, Alastair O’Dell reports
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Nigeria
short-selling
Oscar Onyema
The Nigerian stock exchange CEO Oscar Onyema set out a multi-pronged plan to ensure that securities lending can happen “in the very near future” in an interview with Global Investor/isf. Onyema identified three core challenges: failures to deliver, short-selling rules and technology.
The decision to allow securities lending was taken jointly by the Nigerian Stock Exchange and the Securities and Exchange Commission (SEC) of Nigeria last week. Securities lending will be allowed as soon as the appropriate regulatory framework and operational procedures have been drawn up and approval given by the SEC.
Onyema said: “Regulation has to be in place to target potentially problematic failures to deliver. Regulations need to be approved by the Securities and Exchange Commission. From an [Nigerian Stock] Exchange perspective, appropriate rules for short-selling need to be in place. The technology to support these rules also has to be in place.”
The Nigerian Stock Exchange wants to deepen its market and to achieve this is encouraging "a diversification of products".
Onyema said: “We believe also that securities lending provides the market with two important benefits: market liquidity and price efficiency. We believe that a vibrant securities market should provide for lending and borrowing of securities.”
The regulatory framework under development will determine whether there will be restrictions on short-selling. There would “probably” be a locate requirement, requiring broker-dealers to have reasonable grounds to believe that the security can be borrowed in the future so that it can be delivered on the delivery date before short selling equities.
Naked short-selling is unlikely to be allowed.
“Naked short-selling would probably only be allowed for market makers. Market makers stand ready to buy and sell the security on a regular and continuous basis at a publicly quoted price, even if there were no other buyers or sellers,” said Onyema.
The Nigerian Stock Exchange announced that it was to allow short-selling to the Nigerian newspaper Vanguard on 5 August 2011.