InvestorQ : How does the clearing and settlement work in case of the Securities Lending and Borrowing System (SLBS)?
Nisha Chandani made post

How does the clearing and settlement work in case of the Securities Lending and Borrowing System (SLBS)?

Answer
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Arti Chavan answered.
1 year ago


Participant Eligibility

All Clearing members of NSE Clearing including Banks and Custodians referred to as 'Participant' are eligible to participate in SLBS. In order to participate in SLBS, clearing members have to register as Participants in SLBS.

For this purpose, the eligible persons are required to follow the registration procedure as specified by NSE Clearing which includes entering into an agreement with NSE Clearing as per the format specified.

Participants desirous of lending or borrowing securities can do so either on their own account or on behalf of their clients. Prior to undertaking lending or borrowing of securities on account of clients, the Participants are required to enter into an agreement with each client as per the format specified by NSE Clearing.

The Participant need to apply to NSE Clearing for allotment of a "Unique client ID" for each client with whom they have entered into the agreement for participating in SLBS.

The formats of Agreement between NSE Clearing & Participant and Participant & Client along with the procedure of UCI allotment to clients is available in SLB Circular NSE/CMPT/10164 (Ref. Circular No: NSE Clearing/SLBS/2008/002) dated January 30, 2008.

Eligible Securities

Currently, securities available for trading in F&O segment of National Stock Exchange of India Ltd. (NSE) are permitted.

Securities lending and borrowing is permitted in dematerialized form only.

Securities in which there are corporate actions are subject to either foreclosure of transactions or adjustment depending on the type of corporate action.

The eligible securities for early recall/repayment are announced by NSE Clearing along with the list of eligible securities for SLB.

Period of lending

The tenure of lending and borrowing ranges from 1 month up to a maximum period of 12 months.

Accordingly the return of securities by borrower is scheduled on the respective reverse leg settlement day. Each reverse leg settlement date is assigned a specific series number.

Early Recall facility for the Lender

In case the lender wants to recall the securities he has a facility to place a RECALL order on the order matching platform. The relend order should be for same series/security and for the same client. The lending fee for the balance period is at market determined rates hence the lender needs to quote the lending fee he wishes to forego for the balance period. The RECALL order can also be placed at market order.

The lender can only enter a RECALL request if he has existing reverse leg positions. The recall request can be made for partial quantity.

In case the early recall transaction is for a custodial participant, the custodian transaction has to be confirmed as per existing procedure for custodial transactions.

Early Repayment facility for the Borrower

In case the borrower wants to repay the securities and further relend them, a facility to place a REPAY order is provided on the order matching platform. The relend order should be for same series/security and for the same client. The lending fee for the balance period is at market determined rates hence the borrower needs to quote the lending fee he expects for the balance period. The RECALL order can also be placed at market order. In case the early repayment transaction is for a custodial participant, the custodian transaction will be automatically confirmed by NSE Clearing and the securities transferred in NSE Clearing repayment account will be automatically utilized. Before the market places a REPAY order, the borrower has to first make an early repayment of securities in the repayment account prescribed by NSE Clearing. The procedure for transfer of securities is attached as Annexure.