Custodial and securities services in Nigeria have been evolving gradually for some time now. What would you say is the state of the market at this time?

Nigeria’s capital market is progressing, with custodial organisations transforming from passive players to proactive account administrators and capital enablers. As the market deepens, custodians are becoming vital in capital market development, supporting the increasing volume and activity, and meeting evolving business and client needs.

An essential development is the formation of associations like the Association of Asset Custodians of Nigeria (AACN), which amplifies the value custodians offer. Stanbic IBTC Nominees is a key member of this association, actively participating in conferences and discussions that promote industry growth.

It is interesting how you mention that custodian organisations are now regarded as initiators of capital market development rather than recipients. Can you shed more light on this?

Traditionally, custodians safeguarded financial assets, minimising risks. Today, their role has expanded to include account administration, transaction settlements, and tax support. More importantly, custodians now lead advocacy efforts by engaging regulators and market participants to initiate market changes, leveraging their expertise to enhance local market capabilities.

By working closely with regulators and market participants, custodians have driven initiatives like securities lending to improve market liquidity. This collaborative effort has led to the introduction and regulation of securities lending in Nigeria, contributing significantly to market development.

In 2015, Stanbic IBTC Bank introduced securities lending in Nigeria. How would you describe the process and journey that led to this feat?

SEC issued licenses for Securities Lending Agents in 2012, and by 2015, securities lending was officially launched. Since then, Stanbic IBTC has been the most active participant. We have increased market awareness and engagement, collaborating with key market participants to drive adoption.

Now, we are excited to include fixed income securities like Federal Government Bonds and Treasury Bills in our lending services. This expansion provides more opportunities for our clients and enhances market liquidity. 

What exactly does securities lending entail?

Securities lending involves the temporary transfer of securities from a lender to a borrower, with an agreement to return the securities either on demand or at a specified future date. The borrower gains full legal title and can sell the securities, often for short selling.

Transactions are governed by formal agreements detailing the loan terms, fees, and collateral. During the lending period, the borrower is obligated to return the securities upon request at the expiration of the agreement.

How does securities lending contribute to the overall capital markets’ efficiency and liquidity? 

Securities lending is crucial for effective market-making, increasing overall market liquidity, and enhancing the efficiency of price discovery mechanisms. It allows market-makers and investors to take and cover short positions, supporting their market-making activities, investment strategies, or hedging purposes. By enabling these activities, securities lending fosters a more dynamic and liquid market, which benefits all participants.

Can you elaborate on this recent development in the securities lending service in Stanbic IBTC Bank?

Previously, our securities lending services were limited to equities. Now, we are excited to extend this service to include fixed income securities such as Federal Government Bonds and treasury bills. This expansion allows us to offer more comprehensive solutions to our local and international institutional clients; providing greater opportunities for income generation and liquidity creation in the market. We have also opened this offering up to international investors. In 2024 alone, we successfully loaned out assets worth 150 million Naira, underscoring the growing demand and trust in our securities lending services.

What are the implications of increased securities lending for market participants and regulators?

Increased securities lending boosts market activity and liquidity, benefiting both buy-side and sell-side participants. It paves the way for new products like derivatives and attracts more investors. For regulators, it means maintaining oversight and adapting to evolving market practices to ensure a stable and efficient market.

Can you highlight the involvement of The Nigerian Exchange Limited (NGX) and The Financial Market Dealers Quotation (FMDQ) in securities lending?

The NGX and FMDQ play crucial roles in facilitating and regulating the securities market. The NGX provides guidelines for securities lending transactions and ensures adherence to best practices. FMDQ, particularly in the fixed income market, supports the inclusion of bonds and treasury bills, enhancing market liquidity.

Are securities lending transactions permitted in asset classes other than equities, such as government bonds and ETFs?

Yes, securities lending is permitted for all listed securities, including equities, government bonds, and treasury bills. As the market develops, we aim to include more diverse and liquid assets in the securities lending pool.

How much of Standard Bank’s expertise was leveraged in establishing securities lending in Nigeria?

Standard Bank, as a leading custodial bank in Africa, provided invaluable technical guidance, training, and platforms for securities lending. Their support was instrumental in launching and operationalising securities lending in Nigeria, enhancing our market’s functionality and appeal.

Stanbic IBTC Bank recently won awards for its custodial services. Some of these include Best Sub-Custodian Bank in Nigeria at the Global Finance Awards for the 15th consecutive time; Best Sub-Custodian Bank at the 2023 International Finance Awards; Best Custodian Bank in Nigeria at the Digital Banker’s Global Transaction Banking Innovation Awards 2023 and Custodian Bank of the Year at the 2023 BusinessDay Banks and Other Financial Institutions’ (BAFI) Awards. What would you say is the key driver of these achievements?

Our success is driven by our commitment to excellence, innovation, and client satisfaction. We constantly raise the bar, leveraging cutting-edge technology and focusing on client-centric services. Our dedication to transparency, efficiency, and accuracy has earned us the trust of investors and recognition through these recognitions. As Investor Services at Stanbic IBTC Bank Limited, can you highlight some of its services?

Stanbic IBTC Bank Limited is the leading custodial and investor services company in Nigeria. We offer a wide range of services, including asset safekeeping, transaction processing, foreign exchange trades, derivatives clearing and top-notch securities lending. Our robust systems ensure seamless operations and business continuity.

How can interested persons or firms register as participants in securities lending? Interested parties can contact us at [email protected] for information on securities lending. We will guide them through the required documentation and onboarding process to become participants in this exciting market opportunity.