What is Securities Lending and Borrowing?
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Transcript of What is Securities Lending and Borrowing?
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What is Securities Lending and Borrowing (SLB)
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Securities Lending & Borrowing - Concept
• Securities lending transaction is a temporary loan of securities between Lender & Borrower.
• Describes the market practice by which, for a fee, securities are transferred temporarily from one party, the lender, to another, the borrower.
• Borrower is obliged to return them either on demand or at the end of any agreed term and also has an option to early return.
• Lender may recall securities at any time within normal market settlement cycle.
• It promotes market efficiency and liquidity
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Market Participants
Lender– Insurance Companies– Banks– HNI’s– Mutual Funds – Retail
Borrower– Short sellers, especially long term shorts– Cash & derivatives arbitragers– Market makers– Retail
Approved Intermediary– Clearing Houses
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Why participate in Securities Lending & Borrowing ?
Lender’s Motivation– It provides lender incremental return on an idle portfolio
Borrower’s Motivation– To cover a short position : avoidance of settlement failure– Hedging of futures & options positions– Borrow and lend to reap benefits of the market sentiment
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Salient Features in New SLB Platform
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• SLB Contracts up to 1 year (12 monthly contracts)
•Early Return and Recall
•Base Minimum Capital reduced to NIL
•No separate exe – Login same as BOLT
•Facility of Early pay-in
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SLB Mechanism
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Example of the contracts available for SLB
No. of Contracts Scrip ID First Trade Day Last Trade Day Stock Return Day
1 RIL27SEP12 30-Aug-12 24-Sep-12 27-Sep-12
2 RIL25OCT12 30-Aug-12 19-Oct-12 25-Oct-12
3 RIL29NOV12 30-Aug-12 23-Nov-12 29-Nov-12
4 RIL27DEC12 30-Aug-12 21-Dec-12 27-Dec-12
5 RIL31JAN13 30-Aug-12 28-Jan-13 31-Jan-13
6 RIL28FEB13 30-Aug-12 25-Feb-13 28-Feb-13
7 RIL28MAR13 30-Aug-12 25-Mar-13 28-Mar-13
8 RIL25APR13 30-Aug-12 22-Apr-13 25-Apr-13
9 RIL30MAY13 30-Aug-12 27-May-13 30-May-13
10 RIL27JUN13 30-Aug-12 24-Jun-13 27-Jun-13
11 RIL25JUL13 30-Aug-12 22-Jul-13 25-Jul-13
12 RIL29AUG13 30-Aug-12 26-Aug-13 29-Aug-13
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Settlement CycleActivities Proposed Timings
Trade Day
Securities Lending & Borrowing session 09:15 a.m. – 03:30 p.m.
Custodial confirmation by 06: 00 p.m.
Final obligations download 07:00 p.m.
Trade day +1
Pay-in of securities/funds 9:30 a.m.
Pay- out of securities/funds 11:00 a.m.
Fund or securities shortages Financial closeout
Early return/recall day + 1
Pay-in of securities/funds 9:30 AM
Pay-out of securities/funds 11:00 AM
Fund or securities shortages Financial closeout
Stock return day
Pay-in of securities 9:30 AM
Pay-out of securities/funds 11:00 a.m.
Buy-in auction for failure of borrower to return securities 12:00 noon to 1:00 p.m.
Auction obligations download 2:00 p.m.
Stock return day + 1
Pay-in of securities for auction settlement 9:30 a.m.
Pay-out of securities/funds for auction settlement 11:00 a.m.
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Application Process
Application to BOISL
Member agreement with BOISL (Part A#)
Deposit additional base capital for margins
Fulfill all conditions specified in SEBI / BOISL Circular
Member agreement with Clients (Part B#) and complete all KYC Formalities
Activation of the members
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SLB Snapshot