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What is SLB?
SLB (Stock Lending and Borrowing) is a medium for lending and borrowing of securities. Investors who have ‘idle’ shares can lend his shares to someone who needs it, in returns of some fee. The fee is paid by the borrower who wants shares.
Who can participate in SLB?
SEBI has permitted all categories of Investors viz. Retail and Institutional to participate in SLB.
Applicant can participate in the SLB segment either as Lender or as Borrower-
Lender: A lender is one who has ideal securities available and wants to earn incremental returns (Lending fee) on his ideal portfolio.
Borrower: A Borrower is one who immediately wants shares for a shorter period of time and ready to pay required Lending fee.
Lender/Borrower has to contact our call n trade or linked branch for placing such orders.
How can I activate SLB facility?
Applicant can either give request at the time of account opening. Existing clients can place offline request with Reliance Securities by filling offline Change Request Form-CRF.
What is the settlement cycle for a SLB Transaction?
T Day: The Transaction is executed on T Day between the lender and borrower.
T+1 day: The Lenders demat account is debited for delivery of the securities for pay-in. Securities are thereafter transferred to the borrowing participants during pay-out on same day. The borrower shall bring the lending fee on T+1 which shall be passed on to the lender in the funds pay-out.
Reverse leg settlement date: The borrower needs to deliver the securities at the time of pay-in which shall be returned back to the lender during the pay-out.
Which Exchange & securities are available for transactions in SLB?
The SLB facility is available on NSE and BSE exchange. Securities on which derivatives are available in the F&O segment are eligible for transactions in SLB. At Reliance Securities Ltd (RSL), currently NSE platform is available for SLB.
How shall one quote the lending fee?
Lending fee is quoted on per share basis. Lending fee may be quoted based on the annualized yield expected by the lender or the cost which the borrower expects to pay. For e.g. If the lender is lending shares for a period of 180 days he could quote lending fee per share which is based on the rate of return expected by the lender.
Associated Risk :
Is there any Counterparty risk involved in SLB transactions?
NSCCL acts as a central counterparty providing financial settlement guarantee for SLB transactions. NSCCL has a robust risk management system and collects adequate margins from participants to cover counterparty risks.
Lender: Deliver shares and receives lending fee; and on contract expiry, receives shares back and retain the lending fee.
Borrower: Pays Lending fee, pays margin money as guarantee; on expiry, receives his margin money, and deliver shares.
What action is taken if the borrower fails to bring securities at the time of reverse leg settlement?
If the borrower fails to deliver the securities NSCCL conducts a buy-in auction to acquire the securities on the reverse leg settlement date. If securities are not available in auction then the transaction is financially closed out at the below mentioned close out rate.
• Maximum trade price in the capital market segment of NSEIL from (reverse leg settlement day – 1 day) to reverse leg settlement day, or
• 25% above the closing price of the security in the capital market segment on the reverse leg settlement day.
What action is taken if the lender fails to deliver securities on T+1 day?
The transaction shall be financially closed out at the below rate
• 25% of closing price of the security on T+1 day (closing price for the security in the capital market segment of NSE), or
• (Maximum trade price of the security in the capital market segment of NSE from T to T+1 day) - (T+1 day closing price of the security in capital market segment of NSE)
What action is taken if the borrower fails to bring the funds/collaterals on T+1?
The transaction shall be cancelled; however, the lending fee shall be collected and passed on to the lender.
Tenure & Charges:
What are the transactions charges applicable for SLB?
Currently, there are no transaction charges and STT is not levied in case of SLB transactions as levied on equity transactions, as specified in circular no. 2/2008, dated 22-2-2008 of the income tax department. Brokerage and service tax as per delivery trade on SLP (Security Lending Price) will be applicable.
What is the tenure for SLB transactions?
The tenure for SLB transactions is up to 12 months. 12 fixed monthly tenures with fixed reverse leg settlement dates are available for transactions in SLB. The fixed settlement dates are the first Thursday of the respective month and the date is displayed on the NEAT SLB trading screen at the time of order entry. Each month is assigned a series to it with January having series as 01 up to December having series as 12.
What are the various margins applicable to the borrower & lender on T Day?
a) In case of borrower the lending fee is levied upfront as margin and 100% of the Lending Price, VaR, ELM & MTM at EOD.
b) In case of lender, 25% of the lending price (T-1 cash market closing price) and Mark to market (MTM) at end of day are charged to the lender. These margins are not applicable to lender in case if lender does Early Pay-in of securities.
What margins are applicable to the borrower & lender from T+1 to Reverse leg settlement day (Reverse Leg)?
a) No margins are levied on the lender
b) 100% of lending price, Value at Risk margins, Extreme Loss Margins (same as applicable in Cash market for buying or selling a security) and EOD MTM are levied on the borrower.
What form of collaterals can be provided towards margin requirement?
The margins can be cash or approved collaterals or the combination of the both.
Repay/Recall & Position limits:
What is early recall of securities by the lender?
A client having an existing lend position can recall his shares by entering a recall order. The lender shall quote the lending fee it wishes to forego for the balance period. In case the order is matched successfully then the settlement of the early recall transaction happens on a T+1 basis. After successful completion of pay-in, the position of the lender would cease to exist.
Recall orders can be entered upto 3 days prior to the respective reverse leg settlement day.
What is early repayment of securities by the borrower?
A client having an existing borrow position can repay the securities to NSCCL. On receipt of securities the margins levied on borrower are immediately released. The borrower can further lend the securities for the balance period of the tenure. For this the borrower needs to enter a repay order on the trading terminal by selecting order type as “Repay”. The borrower shall quote the fee he expects to receive for the balance period. In case the order is matched successfully then the settlement of the early repay transaction shall happen on a T+1 basis. After successful completion of pay-in the position of the borrower shall cease to exist. Repay orders can be entered up to 3 days prior to the respective reverse leg settlement day. The orders can also be entered for partial quantity.
Are there any position limits applicable in SLBM?
Yes position limits are applicable in case of SLBM. The Client Level Position Limit is set by NSCCL is maximum of 1% of the market-wide position limits.
Corporate Action & Taxation:
Will the lending/borrowing of securities under the Securities Lending Scheme will amount to “transfer” under clause (47) of section 2 of the Income-tax Act (Act) in the hands of the lender?
As per the clarification from Income Tax vide their circular no. 2/2008, dated 22-2-2008 transactions done in the SLB shall not be regarded as transfer. According to that no capital gain will be attracted for lender. However, lending fee received by lender will be treated as income in client account.
What action is taken in case of Corporate Actions?
In case of Corporate Actions other than dividend and stock split, transactions are foreclosed 2 days prior to ex-date or as prescribed by NSCCL from time to time.
For dividends the dividend would be collected from the borrower and passed on the lender at the time of book closure/record date. In respect of stock split the borrower's obligation would be revised as per the proportionate spilt and would be passed on to the lender during the reversal leg.
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SEBI Registration Nos.:
Stock Broker:- INZ000172433
CDSL:- IN-DP-257-2016 | NSDL:- IN-DP-NSDL-363-2013
AMFI ARN No.29889
IRDA Corporate Agent (Composite) Registration Number :
CA0195 (valid till 31-Mar-2019)
Corporate Identity Number:
Brokerage will not exceed the SEBI prescribed limit. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Insurance is a subject matter of solicitation.
Compliance Officer :
Mr. Palkesh Shah (email id: firstname.lastname@example.org
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