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