How much are the charges for SLBS?
SLB refers to Stock Lending and Borrowing. It is a legally approved medium for lending and borrowing securities. SEBI originally formed the regulations in May 1997, which were later modified in November 2012.
The SLBM - Securities lending and borrowing Mechanism
The SLB Mechanism is a system where a trader can borrow shares that they don’t own. The associated SLB transaction has a rate of interest and a fixed tenure.
The motivation for the lenders in stock lending and borrowing is to earn an extra income by lending their stocks. Lenders usually are Insurance companies, Banks, High Networth Individuals, and mutual and retail funds.
In turn, the borrowers use the borrowed stock for arbitrage in the stock price between two exchanges. They leverage the opportunities of reverse arbitrage when futures are at a discount to stock, to cover short positions to avoid settlement failure, mispricing in options, and other F&O arbitrage or hedging strategies, which may otherwise require the investor to have the stock. This gets facilitated by the SLB mechanism where a borrower can borrow the stock from the lender for a fee also known as the SLB price. Borrowers include cash and derivatives arbitrage, short-sellers, market makers, and retail traders.
The Securities lending and borrowing scheme are facilitated by the National Securities Clearing Corporation of India (NSCCL), the clearing corporation of the NSE, National Stock Exchange of India, using a screen-based, exchange trading system referred to as SLB- NEAT.
SLB-NEAT has a centralized anonymous order book and all the borrowing and lending transactions are cleared, settled, and guaranteed. The associated lending fee is quoted as the SLB price with tenures available for up to 12 months.
The NSE Clearing Limited (NCL) and BSE clearing corporation (Indian Clearing Corporation Limited) are the only authorized intermediaries with NCL being the more preferred, clearing a higher volume of transactions.
How much are the charges for SLBS?
The SLB transactions are charged on multiple heads. These include:
- Processing Charges on Lend and Borrow transactions
- Penal Interest on shortfalls in margins or pay-ins, if any
- Charges on BGs/ FDs as collateral
- Charges on Securities as collateral
- on Government- Securities and Treasury Bills as collateral
The processing charges on the lending and borrowing transactions are negotiated on a case-to-case basis, being subject to a minimum SLB rate of Rs. 500 per transaction.
For any shortfall in margins or pay-ins, the interest of 0.07% is charged per day on the outstanding amount/shortfall amount.
A 0.04% of the value is charged on the total applicable amount minus the cash collateral from bank Guarantees or fixed deposits. Using a similar methodology 0.04% on post haircut value per day in addition to Rs. 50 per transaction on withdrawal is charged on securities as collateral. The securities include shares and mutual funds.
While using G-Sec and T-Bills as collateral, 0.04% of the value per day in addition to Rs.500 per transaction for both submission and withdrawal is charged.
None of the above-mentioned charges includes any penalties, service tax or cesses and other taxes, etc, as may be applicable or levied by the approved intermediaries, clearing corporations, exchange, SEBI, and other regulatory or government authorities which may be collected/recovered or levied on an “Actuals” basis.
As per the NSE website, currently, there are no transaction charges or securities transaction taxes (STT charges) levied in the case of SLB transactions, as specified in the 2/2008 circular of the income tax department.
The security lending fee or lending fee is quoted on a per-share basis. It may be quoted based on the annualized yield as expected by the lender or the cost that the borrower expects to pay.