Security lending transactions can be best described as the most essential aspect of the Nigerian capital market, as it plays a pivotal role in the capital market by providing liquidity, which in turn reduces the cost of trading and promotes price discovery.
Despite the importance of security lending transactions in Nigeria, several impediments have constantly stared at the face of security lending transactions in Nigeria, which has eventually resulted to some shortcomings and pitfalls in Security lending transactions in Nigeria.
This article seeks to provide a cursory overview of the securities lending transactions in Nigeria, the risks, as well as prospects.
Securities Lending Transactions in Nigeria:
It is apt and pertinent to underscore the meaning and scope of security lending transactions in Nigeria, before transcending into the realms of the overview of security lending transactions in Nigeria.
Security lending is the temporary transfer of securities, from one party to another, with a simultaneous formal agreement to return the securities either on demand or at an agreed date in future.
According to the Section 315 of the Investments and Securities Act, security lending is defined as; ‘the temporary exchange of securities, generally for cash or other securities of at least an equivalent value, with an obligation to redeliver a like quantity of the same securities on a future date and includes securities loans, repurchase agreement(repos) and self-buy back agreements.’’
It has also been defined as the practice of loaning shares and stock, commodities, derivative contracts, or other securities to other investors or firms. Security lending requires the borrower to put collateral, whether cash, other securities, or a letter of credit.
Securities lending and borrowing transactions are governed by the terms of securities lending agreements, aligned to terms and conditions as agreed by the parties and in line with international best practices. The lending agreement must be completed, and it sets forth the terms of the loan including duration, fees and the nature of collateral (cash, government securities, equities among others).
It is also important to mention that during the tenor of any securities lending transaction, the title and ownership of the security are also transferred to the borrower. The borrower is obliged to return the security either on demand or at the end of an agreed term.
In securities lending model, borrowers are typically market participants such as market makers, portfolio investors, broker-dealer firms, investment banks, intermediaries, stockbrokers and other similar organizations. While Lenders are usually institutional investors, pension funds, mutual funds, sovereign wealth funds, investment companies, some High Net-worth Individuals (HNI) as well as insurance companies that are long or medium-term investors in the securities market. In addition to these, we also have high net worth individual investors whose interest is to grow the value of their portfolios over the medium to long term. They, therefore, lend securities to earn a lending fee, cover costs, create performance enhancements and increase the return on their portfolio.
In light of the above, it is important to note that there are litany and plethora of benefits of security lending transactions. One of them is that it facilitates various trades that allow investors or institutions to hedge, take a bespoke position, or in arbitrage situations. Also, it allows for the ability to earn additional income through the face charged to the borrower to borrow the security, as well as providing liquidity to markets which can generate additional interest income for long-term holders of securities, and allows for short selling. 
Security lending transactions in Nigeria are beautifully adorned with a garment of benefits, however, it has been engulfed with myriads of impediments, shortcomings, pitfalls and risks. Nevertheless, the risks facing security lending transactions in Nigeria shall be discussed hereunder;