Investors at the Nairobi Securities Exchange (NSE) will start lending their shares to brokers at a fee
The scheme allows investors to diversify income and insulate them from undue losses.
This is expected to stir capital market participation by attracting temporary traders while retaining principal investors.
The move follows the Central Depository Settlement Corporation's (CDSC) rolling out of trials for Securities lending and borrowing (SLB) on Tuesday, targeting official launch early next year.
SLB is the temporary transfer of securities (shares) from one party, the lender to another, the borrower at an agreed lending or borrowing fee, with a formal agreement to return the securities either on-demand or at a future pre-agreed date.
This form of trading will be guided by a contract between the borrower and the lender, spanning one to 365 days. The profit on the shares an investor lends out to a stockbroker will either be cash or the shares lent out plus interest, after an agreed period.
This scheme was among the recommendations by the World Bank to boost liquidity and efficiency on the Kenyan stock market.
The regulations for SLB transactions were gazette in early 2018 and NSE and CDSC have been upgrading their systems to accommodate it.
The CDSC shall be implementing SLB transactions under the Screen-Based Model.
Screen-based-model is where the lender and borrower do not know each other as the lending and borrowing requests are captured on a platform in an automated system (CDS) by the SLB agents on behalf of their clients or on their own behalf.
Speaking during the virtual pilot launch, CDSC chief Executive Nkoregamba Mwebesa said they take pride in being a pioneering depository in the region to introduce the SLB product.
"We should be able to roll out the product later this year in the fourth quarter. This product is expected to stir market participation with special focus on youthful lenders,’’ Mwebesa said.
He added that there is no limit to the number of shares a lender can float as long it is above 100 and are from NSE 20 firm.
The NSE chief executive Geoffrey Odundo termed the new product as a big achievement for the bourse, saying they would like to see it go well in order to have the market vibrant.
‘’Through the Securities Lending and Borrowing product, we are going to achieve liquidity in the market,’’ NSE chief executive Geoffrey Odundo said.
The Capital Market Authority (CMA) has in the past seven years rolled out several products aimed at increasing market participation and increase liquidity especially at the NSE which has recorded low activities in the past three years.
In 2013, the Nairobi bourse launched Growth Enterprise Market Segment (GEMS) to enable small and medium-sized firms to raise substantial initial and ongoing capital, while benefiting from increased profile and liquidity within a regulatory environment designed specifically to meet their needs.
The product which aimed at ending listing dry spell at NSE has managed to attract only five firms since then, compared to an annual projection of at least three companies.
These are Atlas, Flame Tree, Home Afrika, Kurwitu and Nairobi Business Ventures.
In 2017, it introduced Exchange Traded Fund which has only sold 12,600 units worth Sh15.8 million.
Last year, it launched the Ibuka accelerator program aimed at growing the visibility, brand recognition and business opportunities among hostee companies.