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The stock lending and borrowing (SLB) mechanism or short selling was designed to help the borrower to sell the shares he feels are overpriced but are not in his possession. Revising these existing norms, Sebi said in a circular that the revision has been effected following feedback from market participants and revision proposals from the bourses.
“The tenure of contracts in SLB may be upto a maximum period of 12 months. The approved intermediary (clearing corporation/clearing house) shall have the flexibility to decide the tenure (maximum period of 12 months),” the circular said. Moreover the lender or borrower will also be provided with a facility for early recall or repayment of shares.
Under the existing SLB scheme, a person who owns shares can lend them through Sebi-approved intermediaries, which also act as the central counter-party, National Securities Clearing Corporation and the clearing house of the Bombay Stock Exchange, BOICL.
The circular also stated that in case the borrower fails to meet the margin obligations, the approved intermediary will obtain securities and square off the position of such defaulting borrower.
In case of early repayment of securities by the borrower, the margins related to the same would be released immediately to the approved intermediary. According to the circular, if the securities are recalled early by the lender or repaid early by the borrower, then the “lending fee for the balance period shall be at a market determined rate.” The Sebi has also directed the bourses and depositories to initiate necessary steps for the implementation of the modified SLB framework.