Kenya’s Capital Markets Authority (CMA) has approved FourFront Management, a division of Standard Investment Bank, to conduct live testing of its short-selling platform as the country introduces regulated securities lending and borrowing (SLB) to the capital markets.
The six-month pilot, which began on August 1, 2026, is being conducted by FourFront Management in partnership with the Central Depository and Settlement Corporation (CDSC).
The platform, owned by FourFront in collaboration with CDSC, will test securities lending and borrowing arrangements under the regulatory framework established by the CMA and CDSC. The introduction of SLB and regulated short selling is expected to affect how investors, particularly institutional and foreign investors, participate in Kenya’s equity market.
Unlocking Capital Held by Pension and Insurance Funds
One of the areas affected by securities lending is the large equity holdings maintained by long-term institutional investors, including pension funds, insurance companies and the National Social Security Fund (NSSF).
These investors typically hold shares for extended periods as part of their investment portfolios. Through securities lending, eligible shares can be made available to borrowers, including investors seeking to establish short positions.
Institutional investors acting as lenders can receive a lending fee for making their securities available while retaining ownership of the shares under the agreed securities lending arrangement.
This creates an additional income stream from equity holdings that would otherwise remain invested for the long term.
The securities lending framework therefore provides a mechanism for connecting long-term holders of shares with investors seeking to borrow securities for trading purposes.
Expanding Liquidity on the Kenyan Stock Market
The FourFront platform also introduces a mechanism for investors to take positions when they expect share prices to decline.
In a traditional long position, an investor buys a security with the expectation that its price will increase. Short selling allows an investor to borrow a security, sell it and later seek to buy it back at a lower price before returning the borrowed security.
Securities lending and borrowing provides the underlying mechanism required for these short-selling transactions.
The availability of both long and short positions can create additional trading activity by allowing investors to participate in the market based on expectations of both rising and falling prices.
The framework also provides investors with another mechanism for trading securities during different market conditions, including periods when share prices are declining.
Opening More Strategies to Foreign Investors
The introduction of regulated short selling and securities borrowing also provides additional tools for foreign portfolio investors operating in Kenya. International asset managers commonly use strategies that combine long and short positions, including market-neutral strategies, arbitrage and hedging.
The availability of securities borrowing allows investors to obtain shares required to establish short positions within the regulated market framework. This gives foreign investors participating in Kenya’s capital markets access to additional trading and risk-management mechanisms beyond traditional long-only equity investing.
Supporting Kenya’s Derivatives Market
The SLB platform also connects with the development of Kenya’s derivatives market. The Nairobi Securities Exchange (NSE) operates the NEXT Derivatives Market, which provides a platform for trading derivatives such as stock futures.
Securities lending can provide access to the underlying equities required by market participants to manage positions associated with derivatives trading. Market makers and derivatives traders can use borrowed securities to cover positions and manage exposure to underlying shares.
The FourFront-CDSC pilot therefore tests infrastructure that can support other areas of Kenya’s capital markets, including derivatives and potential future products such as index options, structured notes and equity swaps.
Testing a New Securities Lending Framework
The six-month pilot is designed to test how securities lending and borrowing arrangements operate in a live market environment.
FourFront Management and CDSC will conduct the testing under the regulatory framework established by the CMA and CDSC, providing market participants with a regulated mechanism for lending and borrowing securities.
Donald Wangunyu, CEO of FourFront Management and Executive Director at Standard Investment Bank, said the platform is intended to introduce a new way of trading shares on the Kenyan market.
“We didn’t just build another investment product. We’re helping build a new way to trade the Kenyan stock market, including the ability to profit when share prices fall,” Wangunyu said.