Sebi to review SLB framework for wider user participation: Ananth Narayan G

Whole-time member Ananth Narayan says Sebi aims to improve design and process efficiency for SLB trades, boosting participation and cash market depth

The Securities and Exchange Board of India (Sebi) is reviewing the securities lending and borrowing (SLB) framework to make it more user-friendly as the existing framework has seen limited traction in the domestic market, Whole-Time Member Ananth Narayan G said on the sidelines of the Global Fintech Fest on Wednesday.

 

Under this mechanism, investors or institutions holding shares in their demat accounts can lend them for a fee. The transaction takes place through the stock exchange platform, with the clearing corporation providing a counter-guarantee. Experts said borrowers typically use such securities for short-selling or to avoid settlement failures.

 

The system allows lenders to earn additional income on idle shares while the SLB mechanism contributes to greater efficiency in the overall market.

 

“We are trying to see if something needs to be done to further the use of SLB in the markets. Currently, most people tend to use the futures market for shorting. We are trying to see if we can both from a process perspective as well as from a design perspective make it easier and better for market participants to actually undertake SLB transactions,” said Narayan, adding that a more user-friendly SLB framework could also improve volumes in the cash market.

 

He noted that globally there is an active SLB market where institutions such as mutual funds lend securities and earn additional income.

 

The regulatory official added that Sebi will seek feedback from market participants through a consultation paper.

 

Narayan also said that the regulator has initiated preliminary discussions on requests from foreign portfolio investors (FPIs) to allow margin netting.

 

A day earlier, several FPIs at the same event urged regulators to permit margin netting to reduce forex costs and ease currency inflows and outflows.

 

The deliberations may include allowing netting of margins across buying and selling for different securities, and facilitating margin netting during index rebalancing.

 

However, any change in the margin framework will require consultations between Sebi and the Reserve Bank of India (RBI), particularly on the treatment of intraday risks involved in clearing, as payments would remain pending during the process.

 

A few FPIs have already made formal representations to Sebi regarding margin netting.