The Securities and Exchange Board of India (Sebi) is reviewing the Stock Lending and Borrowing (SLB) mechanism to make it easier for market participants to use and to deepen liquidity in the segment, Ananth Narayan, Sebi's Whole Time Member told Moneycontrol on October 8.
The regulator is assessing whether both process-level and structural changes are needed to encourage greater use of SLB, which currently remains a niche product compared to the futures market.
“We are trying to see if something needs to be done to further the use of SLB in the markets. Currently, most people tend to use futures markets for short-term,” Narayan said.
He explained that Sebi is examining the framework “both from a process perspective as well as from a design perspective” to make it simpler and more efficient for market participants to undertake SLB transactions.
The SLB mechanism allows investors to lend and borrow securities for a fee, providing additional income opportunities and enabling short-selling in the cash market. However, participation has been relatively low, with most traders preferring futures contracts for short-term positioning.
Narayan indicated that the regulator wants to rebalance this trend by making the SLB framework more practical and appealing for participants. “The discussions are still ongoing. It’s too early for it,” he said.
If implemented, the move could broaden market depth, improve price discovery, and provide institutional investors with more flexibility in executing trading and hedging strategies.
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