The automated securities lending and borrowing scheme, currently undertakenby the National Stock Exchange (through National Securities ClearingCorporation Ltd), Stock Holding Corporation and Citibank among others, hasnot gained popularity, primarily because of the high costs and the chargeslevied by the lenders.

According to senior officials in NSE, where the scheme has been in effectsince February last year, one of the main reasons for the failure of thescheme is that "it is far more expensive than carry-forward."

However, with rolling settlement being made slowly compulsory in phases (andcompulsory demat) - which will mean squaring off positions on the same dayand giving delivery - and reduction in settlement period, marketparticipants are expected to take recourse to the lending and borrowingscheme.

There is also the matter of awareness of the scheme. Elaborating on the costimpact, NSE officials said that the borrowing and lending rates areridiculously high and in disproportion to the yields, which range frombetween 10 per cent to around 35 per cent (annualised) which is quite low,as against an expected minimum annualised yield of 50 per cent.

When the scheme was immediately launched by NSE last year, the turnover wasquite high at nearly Rs 2 crore that month. It peaked to Rs 3.93 crore inApril 1999, after which it has been falling with a brief resurgence in July.In December last year, only 24 loan transactions were undertakencorresponding to a turnover of a measly Rs 12.26 lakh.

However, recent indications are that with the demand for equities, the hugepositions taken by brokers, the hyper-activity in the stock exchanges hasled to a demand for securities and funds.

Sources said at the NSE, the turnover has again crossed Rs one crore. Thefew other players, who were virtually seeing no action, have also reportedsome sort of activity in such transactions.

The scheme was supposed to be a more transparent alternative to the currentbadla financing, so that sellers (who have short-sold) and buyers (who havebought long) can avail of this scheme to facilitate timely delivery ofsecurities and make payments.

According to industry circles, the very transparency of the scheme issometimes a deterrent to those who have taken huge positions and do not wantit to be widely known. The system works on matching transactions of buy andsell orders, based on which NSCCl gives effect to the transactions bysettling these, along with the obligations of the relevant settlement at thetransacted price.