To unleash the growth potential, depth and liquidity of Nigerian capital markets, there is an urgent responsibility to fast track the process of putting in place securities lending and removing the regulatory and tax barriers to its smooth operation in the markets.
Securities Lending describes the market practice by which, for a fee, securities are transferred temporarily from one party, the lender, to another party, the borrower, who collateralizes the loan and is obliged to return them either on demand or at the end of the agreed term.
Investigation showed that tax law is silent on securities lending and there is need for National Assembly and the regulators to introduce law that guides securities lending.
The double taxation may be experienced when the lender pay withholding tax on the dividend and another corporate tax on the manufactured dividend, a payment made to pass through dividend and interest payments from the borrower to the lender of those securities.
Manufactured payments, represented as interest or dividend payments, occur frequently in securities lending. In such an arrangement, title to the securities passes to borrower, but the lender customarily maintains the right to payments which accrue on the security.
The Head, Investors Services, Stanbic IBTC Bank, Mr. Segun Sanni, explained that what banking system is to an economy is what securities lending is to the capital market.
Sanni, who said that the bank is the first to begin securities lending in Nigeria, said, “I wonder why it took so long to embrace securities lending in Africa.”
He stressed that the capital market is not mirroring the size of Nigeria’s Gross Domestic Product, saying that the securities lending market is bigger than the banking industry in advanced countries.
He said, “For lack of information, we have not embraced securities lending in the capital market. We need to engage the system and stop any barrier to securities lending.”
It was gathered that with the obvious contribution of securities lending from the 1990’s, capital market assets in the UK and USA are now more significantly larger than the total holdings of their banking systems.
Sanni added that securities lending is a very strong and effective stimulus to market depth and liquidity which however, Sub – Saharan African markets have neglected, apparently for lack of information.