The Securities & Exchange Board of India (Sebi) is looking to reform the structure of stock lending and borrowing mechanism (SLBM) in India as the segment has not been able to attract participants.
On his last day of tenure, whole-time member Ananth Narayan was interacting with the media as he walked towards the Sebi stall at the Global Fintech Festival. He said, making SLBM more user friendly is one of the things that can be done to improve liquidity in the cash market.
He added: “Shorting through SLBM is allowed in theory but it doesn’t happen in practice. Globally there is an active SLBM market where mutual funds, institutions lend securities and earn some money and shorting happens on the back of that.”
Why India’s SLBM lags behind global markets
Kaku Nakhate India, CEO of Bank of America, said in a session on Tuesday that the security lending market has not taken off and there is a need to revisit that structure because it is going to become bigger world over.
NSE data shows that so far in October only 13,218 trades have happened in this segment of the exchange across stocks and the traded quantity was 19.51 million.
Balancing market development with investor protection
Aparna Thyagarajan, Sebi’s chief general manager, agreed that there should be an active mechanism to make it easier for stocks to be borrowed and lent on an ongoing basis and structural reforms will shape the way for using shorting as a strategy.
Narayan noted that a lot of investor protection measures need to be undertaken for the money being lost in the derivatives market, improving tenure of the contracts and increasing cash market volumes. But he said, “We are conscious that a bulk of the ecosystem depends on derivatives for revenue.”