Securities Lending & Borrowing (SLB)

Earn from lending or borrowing your idle securities

SLB is a legally approved medium for lending and borrowing of securities. Investors who have 'idle' shares can earn good returns if they lend stocks to traders who want to engage in reverse arbitrage or go plain short on stocks. The trend of lending stocks on the SLB platform is catching up among investors who have long-term stock portfolios. SLB is only allowed for Futures and Options stocks.


Benefits for Participants

SLB has benefits for both the parties Lender - Borrower.

For Lender

SLB provides an incremental return on an idle portfolio. So, if one is holding 1000 shares of xyz, which is to be held for long term; they could be lent whenever there is a demand. The lender gets lending fees, where in NSCCL is the guarantor.

For Borrower

A borrower is probably looking at one of these opportunities: arbitrage in stock price between 2 exchanges, reverse arbitrage when futures are at a discount to stock, to cover short position for avoiding settlement failure, mispricing in options, and other F&O arbitrage or hedging strategies which requires you to have stocks. Here, stocks could be borrowed from a lender for a fee using SLB.

Why SLB?

 

Increaseprofit

Increased Profit & Bonus to Lender

You can earn lending fee on your existing holdings. Also, Dividends/Bonus are transferred to Lender.

Liquidity

Increased Liquidity for Trader

If you’re borrowing securities, you’ll have increased liquidity, and can protect other investments and portfolio, esp. during a downturn.

Tax

Reduced Tax Liability

Lending does not incur short term capital gain tax.

How does it work?

Lending

  • Lender places an order with intermediary mentioning the stock, quantity to lend, time period and expected lending fees. Lending fees is quoted on a per share basis, e.g. xyz 1000 shares to lend at Rs 3/share of July 2014 series.
  • Lender has to place the order through dealer terminal. The clients/branches/franchisees cannot directly place the orders.
  • Order matching on the lending fees takes place similar to trading on an exchange.
  • The lender is required to make an early pay-in of the security on the same day. NSCCL allows pay-in of securities on T+1 day, if 25% of stock value is provided as margin.
  • However, it is compulsory to make an early pay-in of lent securities on T-day itself. No additional margin is required if early pay-in of security is made.
  • The lending fee is credited to the ledger of the lender on T-day.





borrow

Borrow

  • Borrower places an order mentioning the stock, time period, quantity and the lending fees.
  • Borrower has to place the order through dealer terminal. The clients/branches/franchisees cannot directly place the order.
  • Borrower is asked to bring in 125% of the stock value as margin, and also the lending fees over and above the margin.
  • Daily MTM on the margin is levied to the borrower. At the end of contract, lender gets back the stock and borrower's margin is released.



Lending