In a move to bolster market liquidity and effectiveness, the Kuwait Stock Exchange is set to introduce a revamped stock lending and borrowing mechanism. Currently encompassing central lending and borrowing services through predefined templates and market maker interventions, this development opens avenues for direct agreements between lenders and borrowers, facilitated through registration with the Kuwait Clearing Company.
This enhancement of the stock lending and borrowing framework aims to elevate the role and impact of market makers, whose current trades constitute a modest 15 percent of total financial market transactions. Furthermore, it paves the way for short selling operations, enriching trading strategies and promoting market depth, reports Al-Jarida daily.
Eight licensed investment firms have already applied to serve as market makers for select stocks, with allocations not exceeding 25 percent of total listed companies. While the initial phase focuses on servicing market makers and financial institutions with share balances, future stages will extend the lending and borrowing facility to investors and traders directly on the exchange.
This mechanism, facilitated by stringent controls to safeguard transactional rights, is expected to broaden the spectrum of investment tools, attracting both local and foreign capital. It enables short selling maneuvers during specific market conditions, such as saturation points, corrections, or targeted price movements.
Stock lending and borrowing entail temporary security loans for specified durations, allowing for seamless returns within the market settlement cycle. Borrowers assume ownership rights and may utilize securities for trading or further lending, subject to prescribed regulations and cash guarantees.
This service serves as a pivotal instrument in capital markets, empowering investors with strategic portfolio management capabilities and risk-balanced returns. Beyond facilitating short selling, it fosters market stability, liquidity, and efficiency, underpinning the market’s developmental trajectory.
