Short selling of securities is coming

GSE reviews new trading rules to check market volatility
Ekow Afedzie, Managing Director, GSE

Lending and borrowing of securities on the capital market will soon be possible in Ghana, following the successful introduction of Global Master Repurchase Agreement (GMRA) which has brought the Ghanaian repo market to global standards, a market regulator has revealed.

This, largely known as short selling, generally occurs when investors sell securities that they do not own. This scheme enables lending of idle securities through investors by way of clearing corporations or clearing house of stock exchanges – Central Securities Depository (CSD) in Ghana – in order to earn a return.

In short selling, investors sell their securities with the belief that the prices of the securities in future would drop lower; enabling them to buy back the securities at a lower price and make a profit.

Managing Director of the Ghana Stock Exchange (GSE), Ekow Afedzie, in an interview with the Business and Financial Times revealed said: “work on introducing securities lending and borrowing in Ghana, in line with the global agreements covering such transactions has commenced, following the successful introduction of GMRA which has brought our repo market to global standards.”

The committee comprising representatives from Bank of Ghana, Ministry of Finance, Licensed Dealing Members (LDMs), Securities and Exchange Commission (SEC), CSD and ACI Financial Markets Association, Ghana, has already commenced work. A Legal Consultant is being engaged to support the work of the committee and draft the Ghana Annex of Global Master Securities Lending Agreement (GMSLA).

“What the securities lending and borrowing will do is to improve liquidity on the market, such that you can now borrowing securities when you don’t have it,” Mr. Afedzie said.

Currently, the Securities Industry Act 2016, Act 929 does not allow investors to short sell securities. However, the regulator is about getting the new guidelines operational on the market soon. It is expected that the new guidelines will cover the bonds and equities market.

“If for instance you are in the Repos or GMRA, and you want to meet or fulfill some obligations at a particular period and you don’t have the securities to do that, you can borrow the securities to fulfill the obligations, which later will be paid back,” the MD explained.

The Ghana Fixed Income Market (GFIM) has been highly liquid as it closed the month of July with an impressive 19.46 billion volumes being traded, valued at GH¢20.41 billion, representing a 7.15% increase from the total volume traded in the previous month, and 94.11% beyond the total trades in the same period last year.

Cumulatively, from January to July 2021, securities volumes traded was 127.07 billion, valued at GH¢132.20 billion on the GFIM market. More interestingly, speculators will have a big time short selling securities when guidelines are finally introduced to the market.

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