|
INDIA BUSINESS WORLD - NOVEMBER 1st – NOVEMBER 15th 2008
SEBI REVISES SECURITIES LENDING AND BORROWING (SLB) GUIDELINES
CAPITAL market regulator, Sebi, has revised the Securities Lending and Borrowing (SLB) system in an effort to get the stock lending and borrowing mechanism in the local markets more functional. The tenure of borrowing and lending contract has been increased to 30 days from the present seven days since most market participants had expressed concern that the seven day time frame was too short, as the borrowed shares had to be returned to the lender on the eighth day from the day of transaction.
On the corporate actions during the 30 day SLB contract, Sebi has said that the dividend amount would be worked out and recovered from the borrower at the time of the reverse leg and passed on to the lender. When stock split happens, the positions of the borrower would be proportionately adjusted so that the lender receives the revised quantity of shares.
While on other company actions such as bonus, open offer and M&A , the transactions would be foreclosed from the day prior to the ex-date and the lending fee would be recovered on a pro-rata basis from the lender and returned to the borrower. Also, Sebi has decided to provide longer duration for placing trades, by extending the time window for SLB session to the normal trade timings (9:55am to 3:30pm) from the present one hour (10am to 11am).
With regard to risk management in SLB, the common risk management practices should be followed by stock exchanges, the regulator has said. Margins in SLB will continue in the form of cash. "Overall it will definitely have a positive impact on SLB. Foreign investors will have more interest as the period was a major concern for a lot of FIIs," said a senior official with a UK-based brokerage.
Although the SLB system was launched amid great fanfare in the month of April this year, the response has been muted so far. Short-selling is the process of selling securities that one does not own, the settlement of such trades are met by borrowing the shares which are lent under the stated condition that they will be returned to the lender by a process called stock lending and borrowing (SLB).
|
