What is SLBM?
SLBM is a regulated framework that allows market participants to lend and borrow securities (stocks) through a screen-based platform provided by the stock exchange. It's mainly used for purposes such as :-
- Short selling
- Meeting settlement obligations
- Hedging strategies
- Arbitrage
SLBM stands for Securities Lending and Borrowing Mechanism. It is a system in the stock market that allows investors to lend or borrow securities (like shares) for a short period of time.
Here's how SLBM works :-
- Lenders (investors who own shares) lend their idle securities to earn extra income in the form of a lending fee.
- Borrowers (usually traders or institutions) borrow securities for purposes like short selling, avoiding settlement failures, or hedging.
- The stock exchange acts as a mediator (through clearing corporations) to ensure safety and proper settlement.
Key Features :-
Time-bound :- Borrowing is done for a specific period (e.g., T+1 to T+30, or longer depending on the exchange).
Collateralized :- Borrowers must deposit collateral to ensure the lender’s interests are protected.
Anonymous and regulated :- The mechanism is anonymous and runs under strict SEBI regulations (in India).
Example Use Case :-
A trader believes a stock’s price will fall. They borrow the stock via SLBM, sell it at the current price, and aim to buy it back later at a lower price to return it to the lender making a profit.
Mechanism (SLBM) :- especially in the Indian context, where it is regulated by SEBI and facilitated by NSCCL (NSE Clearing Corporation Ltd) or Indian Clearing Corporation Ltd (ICCL) for BSE.
How SLBM Works - Step-by-Step
Lender :- Agrees to lend shares they own and are not using
Borrower :- Borrows shares for a fixed duration and pays a fee
Clearing Corporation :- Acts as a central counterparty, guaranteeing delivery and repayment
Exchange Platform :- Matches lenders and borrowers via a transparent, screen-based system
Tenure of Lending
- Loans can be made from T+1 to up to 12 months, depending on the market segment.
- Borrowers must return the securities on or before the due date.
Key Features
Eligible Securities :- Only selected securities approved by the exchange (liquid stocks, usually from Nifty 50, Nifty Next 50, etc.)
Contractual :- Lending and borrowing happen through standardized contracts (e.g., monthly expiry contracts)
No Counterparty Risk :- The clearing corporation is the central counterparty (CCP), ensuring settlement security
Collateral Requirement :- Borrowers must maintain margins (like in futures/options) to cover risk
Early Recall & Early Return :- Lenders can request early recall; borrowers can return early, subject to terms
Income for Lenders
- Lenders earn lending fees, determined by market demand and supply of the specific stock.
- Income is over and above dividends and price appreciation (if held beneficially).
🎯 Why Use SLBM?
For Lenders
- Generate passive income
- Increase portfolio efficiency
- No loss of ownership rights (dividends/bonus, etc.)
For Borrowers
- Enable short selling
- Hedge or arbitrage positions
- Avoid settlement shortages
⚠️ Risks & Safeguards
Counterparty Risk :- Mitigated by clearing corporations.
Price Risk :- Borrower may incur losses if stock price rises (in case of short sell).
Operational Risk :- Managed through SEBI-mandated processes and platforms.
Example Scenario
1. Investor A has 1,000 shares of Infosys. He lends them on SLBM for 30 days and earns ₹1 per share = ₹1,000.
2. Trader B borrows those 1,000 shares, sells them in the market expecting a price drop.
3. Later, Trader B buys back the shares at a lower price and returns them to the clearing house.
4. Clearing house delivers shares to Investor A and handles all settlement.
Platforms Supporting SLBM
- NSE SLB Platform
- BSE SLB Platform
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