The Securities and Exchange Board of India (Sebi) will soon make another attempt to convince the Insurance Regulatory and Development Authority (Irda) for allowing insurance companies in the stock lending and borrowing (SLB) mechanism.
According to persons familiar with the development, Sebi has decided to give another shot to the long-pending demand of the market after TS Vijayan was named Irda chairman last month.
Sources say that the capital market regulator is quite optimistic this time as Vijayan ? who was associated with LIC for over three decades ? is well verse with the insurance sector and its demands related to capital market operations.
Incidentally, LIC itself has been keen on getting an approval for participating in the SLB segment as it will improve the insurance behemoth’s return on the huge corpus of idle securities in its portfolio.
SLB refers to a mechanism through which an entity can borrow shares on a temporary basis to meet its delivery obligations. Stock exchanges fix the fee for lending/borrowing of shares while Sebi has laid down the broad guidelines related to tenure of lending/borrowing and margins. The borrower has to return the shares at the end of the agreed term.
This is not the first time that the regulators would be sitting together to arrive at a consensus on insurance players being allowed in SLB. Many meetings were held during former Irda chairman Hari Narayan’s tenure. Vijayan’s predecessor was an IAS officer of the 1970 batch with widespread experience, but none directly associated with the insurance sector.
?Insurance companies are the biggest suppliers of securities. This segment is meant for players like insurance companies and mutual funds. In fact, there was a committee also set up for this (allowing insurance companies in SLB) and everyone had approved it also. But Irda seems to have its own share of concerns,? said an industry player familiar with the deliberations.
Market participants say that if Sebi succeeds in convincing Irda this time, it would provide the much-needed fillip to the sagging SLB segment, which has failed to register significant volumes even after five years of launch. They say the absence of long-only institutional players is acting as the biggest hindrance in the growth of SLB in India.
According to the NSE data, the monthly turnover has been in the range of only R1-2 crore for the past several months (see table). The segment has seen an average of mere 3,000 trades every month since June last year.
Interestingly, while one can argue that the volumes are still insignificant, there has been some amount of upswing in the last couple of years. In 2011, for instance, less than 300 trades were registered every month.