New securities lending, borrowing plan soon

New securities lending, borrowing plan soon

The Securities and Exchange Board of India (Sebi) is trying to put in place a new securities lending and borrowing programme as part of its efforts to start physical settlement of derivatives.

The market regulator has asked its secondary market advisory committee to review the existing norms for the borrowing and lending programme for securities. The committee, headed by former National Stock Exchange (NSE) managing director RH Patil, is expected to discuss the matter soon. Interestingly, Sebi has stopped renewing the licences given to entities which were allowed to provide the facility earlier.

A number of entities such as Kotak Securities and custodians like Stock Holding Corporation had sought renewal of their licences for borrowing and lending securities.

According to sources, Sebi is holding back from renewing their licences as the secondary market advisory committee is reworking the existing norms. Sebi officials confirmed that the secondary market panel is reviewing the norms for stock lending and borrowing and is expected to come out with a new scheme.

The securities lending and borrowing programme was in a limbo for some time. And this was cited as the reason for not starting the physical settlement of derivative contracts. At present, the F&O trades are cash settled and no actual delivery of stock takes place, as there is no mechanism to borrow or lend securities to have actual delivery of stocks at the end of each settlement.

The physical settlement of derivatives contracts, which seek to integrate both the derivative and cash markets, was expected to drive volumes and lead to efficient price discovery in both the segments. In the physical settlement, the investor will get the delivery of shares instead of cash.

The physical settlement was originally proposed to commence six months after the introduction of stock options on July 2, 01. Early this year, Sebi announced new norms for borrowing and lending, whereby clearing corporations of the stock exchanges were allowed to borrow shares to meet any shortfall in the delivery of shares.

Though both the clearing corporation of the National Stock Exchange and the clearing house of the Bombay Stock Exchange have already received Sebis approval for starting the scheme, the programme is yet to be operationalised.

Sebi officials said, We have approved the schemes submitted by the clearing corporations for borrowing stock for meeting settlement obligations and we are expecting that the scheme will be started soon.

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