What is SLB?

Securities Lending and Borrowing is a mechanism through which investors can borrow or lend shares to other market participants. The platform provides a viable alternative to derivatives market for purposes of hedging. Borrowers in SLB are usually short-sellers i.e. traders who want to sell shares that they don’t own. Lenders on the other hand are those investors who have bought shares for long-term purposes and such shares are lying idle in their Demat account.

Benefits for Participant

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?

Increased Profit & Bonus to Lender

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

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.

Reduced Tax Liability

Lending does not incur short term capital gain tax.

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