This article first appeared in The Edge Financial Daily on January 18, 2019

KUALA LUMPUR: In collaboration with Bursa Malaysia Bhd, Affin Hwang Investment Bank Bhd has launched a securities borrowing and lending (SBL) scheme that enables retail investors to lend out their idle shares and earn interest income over and above the dividends they would normally receive.

At the launch yesterday, Affin Hwang’s SBL equity finance senior associate director Karu Ramesh Kumar said the retail SBL enables investors to lend assets which they already own but do not intend to sell immediately, to Affin Hwang as the borrower.

In return, these retail investors would earn interest income of between 0.5% and 12% per year, depending on the supply and demand of the stocks they own, he added.

“The average SBL interest for Malaysia is about 3%, making us one of the most expensive in the region. Some of the more mature and deeper markets would have lower interest — Singapore’s average rate is about 0.8%.”

Karu said each tranche of SBL requires a minimum value of RM100,000 on a single counter and that the scheme is part of the bank’s efforts to boost retail interest in the market.

In an initial roll-out in the third quarter of 2018, the bank had offered retail SBL to its commissioned and salaried dealer representatives through only three branches. It had successfully loaned out RM8.5 million of retail clients’ shares in less than two months in spite of a relatively slow market in the October -to-December quarter.

Karu said Affin Hwang’s target for 2019 is to achieve a book size of RM50 million in securities lending.

Borrowed retail securities would be lent to the bank’s institutional clients for a number of purposes including short selling.

Bursa securities market director Mahdzir Othman said the intraday short selling (IDSS), which was introduced in April last year, has not significantly contributed to the volatility of the market in terms of volume.

“The data that we have says that IDSS doesn’t really contribute to the volatility of the market; the amount is actually quite small, less than 5% actually. IDSS is a very small fraction of the whole market.

“We do have a control mechanism in place, which will manage the volatility so that we don’t have extreme situations where people take advantage of the facilities. There has not been any major extreme situation where short selling actually contributed to volatility,” he maintained.

Affin Hwang Capital group managing director Datuk Maimoonah Hussain said the new product offers retail investors the potential to enhance the performance of their idle assets.

“Retail investors continue to play a significant role in the Malaysian stock exchange as evidenced by their net contribution of 17% of the volume traded on Bursa for 2018.”

Bursa chief executive officer Datuk Seri Tajuddin Atan said as at December 2018, there were 1.87 million retail accounts, with a portfolio value of RM137.3 billion.

He added that 239 stocks are eligible for the SBL mechanism at present, and the exchange is looking at enabling more stocks.