Securities Lending and Borrowing (SLB) is a mechanism through which clients can lend or
borrow securities at a specified price and time. Lenders and borrowers can quote a lending fee and
quantity at which they want to lend or borrow, and the order will be executed if the quotes match at the
exchange.
Why borrow securities?
- Borrow and sell the stock immediately or short sell if the view is that the price of stock
will
go
down over a period of time.
- Take advantage of arbitrage opportunities when futures or options are mispriced.
- To fulfil physical delivery obligations for F&O trades.
Why lend securities?
Investors can lend their securities to generate some additional return over and above their
investment.
- The lender will be eligible for all corporate actions.
- The clearing and settlement of trades are handled and guaranteed by National Securities Clearing
Corporation of India (NSCCL),
- Just like futures and options contracts, SLB too, has contracts that expire on the first
Thursday
of every month.
- Contract expiry is on the first Thursday of every month for whichever series it is traded on.
In
case of exchange holidays, the expiry will be on the next working day.
Benefits of SLBM
- Additional Income-Generate additional income from the idle portfolio.
- Enables Short Sell-Short sell if the view is that the price of stock will go down over a
period of time.
- No Counter Party Risk- Securities lending and securities borrowing transactions are
guarantee
by NSCCL. NSCCL act as a financial guarantor for SLB product.
- Avoid physical settlement- No issues of physical settlement, you can borrow the stock
from
slb and avoid physical settlement.
What are the charges for SLB transactions?
The processing charges for SLB transactions are 20% of the lending/borrowing price plus 18% GST. DP
charges of 0.02% + GST will be applicable when the shares are moved from demat for settlement.
The minimum eligibility criterion to place SLB orders:The order value per security to
lend/borrow
(no. of quantity offered to lend/borrow*interest rate) should atleast be Rs.2500, below which orders
will not be processed.
How are Securities Lending and Borrowing (SLB)
trades taxed?
The income from Securities Lending and Borrowing (SLB) trades is treated as income from other
sources or
as income from a lending business. There is no Capital Gains tax involved in this whole transaction.
The
stocks are not considered to have been sold. So there’s no question of a ‘capital gain’ here.
Clients must consult a tax advisor with the trade confirmation memo for computing the tax liability.
What does Repay/Recall & Rollover in SLB mean, or
how to foreclose the SLB positions?
Repay
When a borrower wishes to return shares, they can return them to the exchange, and they do not have
to
wait for the settlement period to end. Exchanges will reverse the margin amount the same day the
shares
are returned.
Recall
When the lender wants their shares back before the expiry of the contract, they have an option of
recalling the shares by placing a recall order in the same series in which it is lent. However, this
isn’t guaranteed as it depends on the price and open orders. The lender can also recall the shares
at
the market rate if they require the shares back urgently.
Roll Over
Traders can roll over their SLB position for over 11 months. A rollover means extending the contract
for
another 11 trading months by quitting the current month’s contract that is close to expiring. For
example, if a customer transacted in the Feb contract and wished to extend the SLB position to the
March
contract, this can be settled using rolling over. And if there are no borrowers in the rollover
series,
the shares will be returned on the settlement day.
Can pledged shares be lent under SLB?
No, pledged shares cannot be lent under SLB. Orders can only be placed once the shares are
unpledged.
What happens in case of a corporate
actions?
Dividend: The borrower would pay the dividend received on the record date +1 (1 day after
stock
goes ex dividend) to the Exchange and the Exchange would pass it on to the lender of the
securities.
Stock split: The borrower’s obligation is adjusted proportionately and lender receives the
revised quantity.
In case of Corporate Actions like bonus/merger/amalgamation/open offer, the transactions are
foreclosed
2 days prior to ex‐date or as prescribed by NSCCL from time to time. The lending fee would be
recovered
on a pro-rata basis from the lender and returned to the borrower.
However, in case of foreclosure where the corporate action
is announced upfront by NSE Clearing before the transaction has been executed
there will be no adjustment of lending fee. Market participants shall
accordingly quote lending fee for the shorter transaction cycle.
Margins
The lender is asked for 25% of the total amount of stock he is lending immediately to ensure that he
doesn’t default after saying yes to lend. This margin is released as soon the stock moves out of his
demat account to the participant. At GEPL Capital, we ask for the security the same day from the
lender
and hence don’t ask for the 25% margin.
Borrower is asked to bring in 125% of the stock value he is borrowing as margin, and also lending
fees
over and above the margin. Out of the 125% asked, once he borrows he can sell the stock effectively
blocking only 25%. But he would have to bring in 125% while entering the transaction.
How to get Started
Apply offline: Email support@geplcapital.com for
SLBM activation documents, which are to be signed & submitted.
Offline form 1 :SLBM Letter from client
Offline form 2 :New Addendum to existing Power of Attorney
Apply online: Email https://selfcare.geplcapital.com - Online
Modification –
SLBM.
