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| No takers for revised stock lending, borrowing scheme | |
| BS Reporter / Mumbai December 30, 2008, 0:08 IST | |
The stock lending and borrowing scheme (SLBS) has found no takers despite recent initiatives by the Securities and Exchange Board of India (Sebi) to revive the segment.
Only two trades each were conducted on the National Stock Exchange (NSE) as well as on the Bombay Stock Exchange (BSE) since December 22 when the revised scheme came into effect.
Sebi had issued a circular in October, asking both the exchanges to put in place a revised framework for SLBS. Following the Sebi circular the tenure for returning the borrowed shares was increased from 7 days to 30 days.
The time period for the scheme too was extended from one hour (10 am to 11 am) to the normal stock trading hours of 9.55 am to 3.30 pm.
Sebi was of the view that the longer SLB tenure of 30 days will result in the need for appropriate adjustments for corporate actions like dividends, stock splits, bonus, merger, amalgamation and open offers. Accordingly, the dividend amount would be worked out and recovered from the borrower at the time of the reverse leg (in 30 days) and passed on to the lender.
Similarly, in the case of a stock split, positions of the borrower would be proportionately adjusted so that the lender receives the revised number of shares.
However, according to market players, it would be too early for anyone to comment on whether the scheme has been a complete failure. “Currently, the investor interest in the stock market has reached its nadir. No one wants to look at stocks and there is hardly any activity even in the futures and options (F&O) segment. In this scenario, how can one expect any activity in SLBS,” said the Managing Director of a broking firm.
However, a section of stockbrokers said that the revised scheme has been completely ignored by market participants since traders are already shorting stocks through F&O, where the tenure is up to three months. Also, market players are of the view that not many would borrow stocks to short and incur additional interest costs, when they can use F&O as the domestic market is cash settled and delivery is not necessary.
“Perhaps some tweaking of the regulations along with a more buoyant stock market can draw more participants to this scheme in future. Currently, the F&O segment itself does not create any need for stock borrowing, as this segment is settled purely in cash,” said a research analyst of a financial services firm.
Apart from Sebi, NSE too had tried to boost SLBS by slashing margin requirements last month. It was decided that the NSE’s clearing corporation will not levy value at risk (VAR) and extreme loss margin (ELM) on the lender. Stock lenders would continue to pay the mark-to-market (MTM) margin as well as 25 per cent of the lending price. In case of early pay-in of securities, the lender will not be levied any margins.
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