MUMBAI: The markets regulator is plans to simplify the Securities Lending and Borrowing (SLB) framework for members, stated Ananth Narayan, whole-time member of the Securities and Change Board of India (Sebi).
“The discussions round SLB are nonetheless within the early phases…however we have to discover what might be accomplished to encourage better use of SLB within the markets,” Narayan stated on the sidelines of the International Fintech Fest 2025.
At present, market members have a tendency to make use of the futures phase for shorting. “We are attempting to see if we are able to make SLB transactions simpler from a course of and design perspective for members,” he stated.
SLB permits buyers to lend or borrow shares for a specified interval. Debtors usually use it to satisfy short-term wants reminiscent of avoiding settlement failures or executing quick gross sales, whereas long-term shareholders can lease out their holdings briefly to earn further earnings.
Eligible securities for SLB embody dematerialized shares traded within the F&O segments of the Nationwide Inventory Change (NSE) and the BSE. Sebi has beforehand tried to increase the record of shares eligible for SLB, however no important modifications had been carried out.
Globally, SLB normally operates as an over-the-counter product, functioning by means of non-public agreements between events. This permits for better customization and suppleness, although transactions stay topic to regulatory norms.
India’s SLB framework, in distinction, is overseen by inventory exchanges, which regulate and monitor all trades. The alternate’s clearing company acts as a counterparty guarantor, guaranteeing the protection and settlement of each SLB transaction.
Saurabh Jain, head of elementary analysis at SMC International Securities, stated Sebi is contemplating reforms to make the SLB scheme extra accessible, aiming to spice up market liquidity and broaden investor participation.
At present, the scheme faces a number of challenges, together with restricted participation, operational constraints, an absence of transparency because of over-the-counter transactions, and underutilization of idle securities. Reforming the SLB framework may deal with these points by growing liquidity, enhancing worth discovery, and permitting buyers to earn further earnings by lending dormant securities.
Enhanced SLB operations would additionally help short-selling and hedging methods, whereas aligning India’s framework with international finest practices—doubtlessly strengthening the credibility and attractiveness of the Indian securities market. Jain emphasised that Sebi ought to implement these reforms cautiously, balancing innovation with efficient danger administration.
One problem for debtors is the extra GST levied when borrowing shares by means of SLB, specialists say.
Chirag M Shah, senior securities lawyer, stated, “For the lender, there’s no problem — they merely earn a lending price per share for a specified period, and the cash is obtained instantly, web of brokerage fees.”
Nonetheless, the issue arises for the borrower, who should pay GST on the lending price since inventory borrowing is handled as a service, Shah added. Many market members, significantly proprietary merchants, can’t declare enter credit score on this GST as a result of they don’t seem to be offering any onward service, he added.
Additional, there is no such thing as a motive for this phase to be stored below the T2T mechanism, intra-day sq. up ought to be allowed and this phase must also be made interoperable throughout exchanges like money and F&O phase for margin optimization.
