SLBM Review by SEBI: How Stock Lending and Borrowing Works
Why in the news
SEBI is examining SLBM to make it more workable, since little short selling happens through it despite being allowed.
Key facts
- SLBM lets investors temporarily lend or borrow securities, mainly for short selling, hedging or market-making.
| Element | Role |
|---|---|
| Lender | Mutual fund, insurer or retail investor earning a fee |
| Borrower | Trader or institution needing shares to short-sell or deliver |
| Collateral | Cash or securities covering the lender’s risk |
| Settlement | Shares come back by the agreed date; collateral returns to borrower, fee to lender |
Benefits
- Hedging; short selling aids price discovery.
- Extra income for long-term holders; better liquidity.
Exam angle
- Reviewing body: SEBI; key terms: short selling, collateral, hedging.