The Securities and Exchange Board of India (Sebi) has engaged itself in measures that can enhance making the process of borrowing and lending shares easier in Indian stock markets. As the recent reports suggest the idea is to increase the liquidity and efficiency of the market. By enhancing the framework of Securities Lending and Borrowing (SLB) and Sebi will create an equitable and vibrant equity ecosystem.
Enhanced Mechanism to Facilitate Short Selling
Traders majorly exploit the futures market for executing the short-selling strategy and avoid the use of the SLB platform. Ananth Narayan, the whole-time Member of Sebi conveyed to a Mumbai audience the views of the regulator on promoting the use of the SLB mechanism for short transactions. The aim is to promote better price discovery and risk management by making the process easier and more accessible for investors.
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Mitigating the Imbalance between Cash & Derivative Markets
The extent of the market for derivatives in India with index options, outstrips that of the cash market with the volume on expiration days is several hundred times greater than that in the underlying cash market. An object that blames the SLB system for being improved has been seen by Sebi and this will assist in consolidating lending and borrowing between shares to bring a floating cash market closer to the derivatives space and co-create a more healthy and more integrated trading environment.
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Addressing Structural Constraints & Market Inefficiencies
The Indian share lending market has significant hurdles to overcome with Limited participation and a significantly small number of equities available for lending prevent the possibility of large-scale transactions. Unlike many world markets, where these trades take place by OTC between counterparties with little regulation, India requires its SLB transactions to occur via exchange and involve many intermediaries This creates friction and increases costs.
Sebi reforms the aim to streamline this process, reduce friction and deepen market liquidity with encouraging more widespread participation in lending and borrowing shares should help stabilize prices and bolster overall resilience in the market, according to the regulator.
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Disclaimer: The content is for informational purposes only and does not constitute financial advice. Figures and regulatory positions may change over time.
