SEBI modifies the Securities Lending and Borrowing (SLB) Framework

SEBI vide circular SEBI/MRD/DoP/SE/Dep/Cir- 01 /2010 dated January 06, 2010 has modified the Securities Lending and Borrowing (SLB) Framework. The framework for SLB was specified vide circular MRD/DoP/SE/Dep/Cir- 14/2007 dated December 20, 2007 and was operationalised with effect from April 21, 2008. The SLB framework was revised vide circular MRD/DoP/SE/Cir-31/2008 dated October 31, 2008.

Background

Securities Lending and Borrowing (SLB) is a scheme that has been launched to enable settlement of securities sold short. Short selling means selling of a stock that the seller does not own at the time of trade. Short selling can be done by borrowing the stock through Clearing Corporation/Clearing House of a stock exchange which is registered as Approved Intermediaries. SLB enables lending of idle securities by the investors through the clearing corporation/clearing house of stock exchanges to earn a return through the same.

Modified framework

Under the modified framework the tenure of the securities lending, borrowing (SLB) contract can be upto 12 months and the lender and borrower can recall repayment of shares in the SLB contract. Initially the SLB framework mandated tenure of 7 days for SLB. Later this was increased to 30 days and now to 12 months. These modifications are pursuant to the feedback received by SEBI from the from market participants.

A copy of the circular is available here.