With the removal of multiple tax footprints from securities lending and real estate investment schemes in the new Finance Act 2019, stockbrokers yesterday, stressed the need for the Securities and Exchange Commission (SEC), to update existing rules consistent with the law to enable operators to unlock value in both sectors to deepen the market.
Securities lending is the act of loaning a stock, derivative or other security to an investor or firm. This requires the borrower to put up collateral, whether cash, security or a letter of credit.
The Vice-Chairman, Highcap Securities Limited, David Adonri, said: “Now that some of the impediments to investments in these sectors have been removed, SEC should take a look at the new Finance Act and compare it with the existing rules on securities lending to see whether there is an area that calls for harmonisation.”
A Stockbroker with APT Securities Limited, Muhammad Jamiu Kayode, said the commencement of securities lending would boost liquidity in the market. “When you see a stock that is moving considerably without trading a sizeable number of units in the market, somebody can just borrow and make sure that the stock is registered and ensure that liquidity is created along that side.
“Foreign investors do not normally invest in the market that does not have the provision for securities lending, and that is why you see foreign investors prefer South Africa over Nigeria in investment in stocks and shares.
“NSE has started a number of means to ensure that this thing works by establishing market maker and that there is liquidity around every stock that you are market-making.
“In that regard, those things have not worked well for the market, so NSE has to go further to ensure that it is complying with global best practices where securities lending is allowed in the market because it will create more liquidity around that particular stock.”
The Partner and Head, Deal Advisory Tax Regulation and People Services, KPMG, Ajibola Olomole, urged SEC to clarify the rules on securities lending, to enable brokers to unlock value on the segment.
“That is what operators are hoping for that now the law has been passed, that the SEC can now make rules that will make it clear for capital market operators to know what they are expected to do.
“SEC has done a lot of work in this area over the year. They have issued rules on real estate investment trusts (REITs), they have draft rules for securities trading.
“Once those rules are finalised, published and updated in the light of the new Finance Act, then businesses would be encouraged to go into this line of trade.
“The impact, in my opinion, will depend on the capacity of capital market operators to participate in the trade, but we have seen the impact in other countries. In other countries where securities lending occur, it has had a multiplier effect on the market itself, so if you can grow and deepen out the capital market, Nigeria itself will benefit from that then capital market operators will also grow bigger and everybody benefits.”
Meanwhile, at a symposium tagged, “Finance Act 2019”, organised by the Nigerian Stock Exchange (NSE), in collaboration with KPMG Nigeria, in Lagos, Chief Executive Officer, NSE, Oscar N. Onyema, said: “The signing of the Finance Bill into law represents a landmark achievement for the Nigerian capital market. Since 2014, the Exchange alongside SEC, as well as other capital market stakeholders, have been at the forefront of advocacy with policymakers and tax authorities for favourable tax structures for primary and secondary market activities in the Nigerian capital market.
“The NSE, in its efforts to support the growth of the Nigerian economy and its issuers is, therefore, happy to collaborate with leading tax expert, KPMG to highlight the implications of these new rules and provide guidance on how to effectively navigate the provisions of the bill, especially as it relates to taxes.”