The Securities and Exchange Board of India (SEBI) is reviewing the Securities Lending and Borrowing Mechanism (SLBM) to increase its effectiveness [1].
This overhaul is intended to improve liquidity within the cash market by modernizing how stocks are lent and borrowed. By digitizing the framework and encouraging more custodians to participate, the regulator aims to create a more active trading environment [1].
SEBI Chairman Tuhin Kanta Pandey is leading a dedicated working group operating out of the agency's headquarters in New Delhi [1]. The group is tasked with identifying specific bottlenecks that have hindered the growth of the SLBM and proposing structural changes to revive stock lending [1].
"We are looking at ways to make the securities lending framework more active and effective, as it is a key part of improving liquidity in the cash market," Pandey said [1].
The strategy focuses heavily on the role of custodians, who act as intermediaries in the holding, and transfer of securities. SEBI believes that greater custodian participation is essential for the mechanism to scale effectively [1].
In addition to personnel and participation, the regulator is prioritizing the transition to digital processes. A SEBI spokesperson said, "The working group will focus on greater custodian participation and the digitisation of the SLBM to revive stock lending" [1].
Digitization is expected to reduce the operational friction associated with manual processing and legacy systems. By streamlining these workflows, SEBI hopes to attract a broader range of participants to the lending market [1].
“The working group will focus on greater custodian participation and the digitisation of the SLBM to revive stock lending.”
The move suggests that SEBI views the current SLBM as underutilized or inefficient. By focusing on digitization and custodian involvement, the regulator is attempting to lower the barriers to entry for institutional lenders. If successful, this could reduce volatility in the cash market and provide more robust tools for traders to manage their positions.
