Stock Lending and Borrowing Mechanism (SLBM) and its issues

Stock Lending and Borrowing Mechanism

SLB or stock lending and borrowing is a system in which a trader can borrow shares that they do not already own or can lend the stocks that they own.

An SLB transaction has a rate of interest and a fixed tenure.

The mechanism is helpful for earning a yield of 5-10% on stocks that an investor intends to hold for the long term. However, liquidity is an issue in SLBM. It is very difficult to find borrowers for the securities. This is apparent in the trading volume data on NSE for SLB.

Considering the volume of NSE, the above numbers are very low in the SLB segment. Only around 19000 trades were executed in the entire month of March. The total lending fees for the entire month of March for all stocks in the SLB segment combined was only Rs. 23 Cr.

This is the daily position report for SLB segment where the open positions are very high but the volume is extremely low. This shows there are hardly any borrowers for the SLB stocks.

Moreover, most discount brokers do not have the SLB facility although full service brokers offer it. Zerodha has the facility but only through offline mode (There is no interface to trade SLB on Zerodha)