NSE slashes margin in revised SLB scheme

In a move that will bring relief to arbitrageurs and traders, the National Stock Exchange (NSE) has slashed the margin for the revised stock lending and borrowing (SLB) scheme.

The Securities and Exchange Board of India (Sebi) had issued a circular in October asking both the Bombay Stock Exchange and NSE to put in place a revised framework for stock lending and borrowing. However, the regulator had not stated a reduction in margins in that circular, leaving that decision to the exchanges.

In a circular issued today, NSE said its clearing corporation will not levy the value at risk (VaR) and extreme loss margin (ELM) on the lender. Stock lenders would continue to pay the mark-to- market 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.

In the case of reverse leg transaction (borrower returns shares to lender), the lender would not be charged any margin at all. The NSE clearing corporation will continue to charge VaR, ELM, mark to market and fixed percentage of lending price as margin from the borrower. In the earlier version of the scheme, the margin needed to shell out to lend shares to shortsell was as high as 140 per cent.

The changes will be applicable from December 22. Apart from these changes, the regulator had also asked the stock exchanges to increase the tenure of the scheme from seven to 30 days and increase the market timings from 9.55 am to 3.30 pm. The revised scheme comes nearly a year after Sebi put out the initial framework for the stock lending and borrowing scheme.

However, the tenure of that scheme was only seven days, where the borrower of the stock had to return the stock within the said time. Sebi had put out a circular on the revised SLB scheme in November 1.