What is the Securities Lending & Borrowing Scheme (SLBS)? How does it work?
The Securities Lending & Borrowing Scheme (SLBS) is a system through which traders can borrow shares (that they do not own) or lend shares that they own. The borrower in an SLBS transaction is required to pay the lender certain fees for borrowing securities for a fixed period.
The lender places a request through their broker with details of the stock, quantity, lending period and the expected lending fees. The lending fee is quoted on a per-share basis.
The borrower places a request through their broker with details of the stock, quantity, borrowing period and lending fees he is willing to pay.
The lender and borrower are required to maintain adequate margins of securities and funds respectively, with the broker.
Order matching is carried out based on the quoted lending fees (similar to trading on the stock exchange).
The order is matched (T day).
After the order is matched, the shares are shifted from the lender's demat account to the borrower's demat account on T+1.
The borrower is required to maintain margins and daily MTM to ensure there is no borrower default risk. (if not is there penalty)
At the end of the contract period, the shares are transferred back to the lender's demat account and the borrower's margin is released. (how is the lending fee deducted)