What is Securities Lending and Borrowing?
10
Click here to load reader
-
Upload
bseindia -
Category
Economy & Finance
-
view
910 -
download
17
description
Securities' Lending and Borrowing describes the market practice whereby securities are temporarily transferred by one party (the lender) to another (the borrower) via an approved intermediary. The Borrower is obliged to return them either on demand or at the end of an agreed term and also has an option to early return. Lender may recall securities at any time within normal market settlement cycle. SLB is a major and growing activity which provides significant benefits for issuers, investors and traders alike. SLB helps in improving market liquidity, more efficient settlement, tighter dealer prices and perhaps a reduction in the cost of capital.
Transcript of What is Securities Lending and Borrowing?
What is Securities Lending and Borrowing (SLB)
2
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
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
3
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
4
Salient Features in New SLB Platform
5
• 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
SLB Mechanism
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
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.
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
9
10
SLB Snapshot
