‘This should be used as a tool to manage portfolios’

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According to you what could be the objective of launching SLBS?

Stock Lending and Borrowing Mechanism provides an opportunity to an investor who has an opposite view in the rising market. Before SLBS was introduced, investors were not able to sell (short sell) in a stock unless they owned it. Securities lending facilitates short selling and makes the settlement process in the cash market efficient by avoiding settlement failures in submitting deliveries. It also enhances arbitrage activity between the derivatives and cash markets, leading to better price discovery.

How can an investor maximise the returns on their portfolio from SLBS?

Buying a share in the market has become an instinctive reaction whenever somebody talks about share market trading. It is not easy to convince somebody to sell shares. Most investors are interested in buying the shares at low prices and selling them at higher prices. So, conviction to sell the shares is the first and most difficult decision an investor will have to take.

Other factors like market risk, investment risk, cost of transaction should also be considered before indulging in such a transaction. I think this should be used as a tool to manage portfolios in an efficient way rather than as a tool to play in the market.

It is also beneficial to those investors, which are short of delivery. Currently, the required shares are acquired through an auction. In case of a settlement shortage, stocks can be borrowed using SLBS to ensure full delivery.

What is your view on the settlement period of T+8 and high margins levied on the lender and borrower and the probable reason for low volumes in SLBS? Do you see volumes picking up in the future?

Yes, T+8 settlement cycle is very short. I don't think that institutional investors take this type of short view on the market and company and short sell.

Secondly, margins are also very high, which increases the cost of transaction and therefore the low volumes.

Another question here is even if some institutions are willing to take a short-term view in the market, there is no mechanism which enables a borrower to find out a lender who has a large quantity of shares.