Securities Lending and Borrowing
Also called: SLB · Topic: Financial Markets, Instruments, Insurance and Pensions · NCERT: Beyond NCERT
Meaning
Securities Lending and Borrowing (SLB) lets investors lend shares they are not using to others, in return for a fee. It was introduced in India in 2008. The lending and borrowing goes through the clearing corporation, so neither side has to worry about the other side failing to pay or return the shares. SLB mainly supports covered short selling. Short selling means selling shares you do not own, hoping to buy them back later at a lower price. Covered short selling means borrowing the shares first, and it is legal. Naked short selling, where the seller does not borrow the shares first, is banned in India.
Example
A long-term investor holds 1,000 shares of a company and has no plans to sell. The investor lends them through SLB for a month and earns a fee. A trader who expects the price to fall borrows those shares and sells them. Later the trader buys them back and returns them.
Don't confuse with
- Naked short selling: selling shares without borrowing them first. It is banned. Short selling through SLB is covered and allowed.
Related concepts
- Dividend
- Bonus issue
- Stock split
- Buyback
- Minimum public shareholding
- Delisting
- Insider trading
- Front-running
- Short selling