SEBI Looks to Streamline Securities Lending and Borrowing Framework

The capital market regulator, the Securities and Exchange Board of India (SEBI) is considering steps to simplify the Securities Lending and Borrowing (SLB) mechanism, aiming to make it more accessible and efficient for market participants. Ananth Narayan, Whole-Time Member of SEBI, shared this during a conversation on the sidelines of the Global Fintech Fest 2025.

“Discussions around enhancing the SLB framework are still at a preliminary stage,” Narayan noted. “But there’s a clear need to explore avenues that can promote greater adoption of SLB in the Indian markets.” He added that currently, traders often rely on the futures segment for short-selling due to its relative ease. “We are examining how SLB processes and structures can be improved to provide a more user-friendly alternative,” he said.

Current Scenario of SLB Mechanism

The SLB mechanism allows investors to lend or borrow shares for a fixed duration. Borrowers typically use it for short-term requirements, such as avoiding settlement defaults or facilitating short-selling strategies. Long-term investors, meanwhile, can generate passive income by lending out their idle holdings.

Presently, only dematerialised stocks listed in the futures and options (F&O) segments of the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are eligible under the SLB framework. While SEBI has made earlier efforts to widen the scope of eligible securities, significant expansions have yet to materialise.

Globally, SLB transactions are often conducted over-the-counter (OTC), based on bilateral agreements between parties. This approach allows for greater flexibility and tailored terms, although such transactions still remain under regulatory scrutiny.

In contrast, India’s SLB system is managed through stock exchanges, where all trades are routed and overseen. A key feature of the Indian model is the involvement of the exchange’s clearing corporation, which acts as the central counterparty and guarantor, ensuring the security and settlement of each transaction.

Also Read: SEBI Tightens Block Deal Rules; Raises Minimum Trade Size to ₹25 Crore

Conclusion

With regulatory backing and potential reforms on the horizon, the SLB segment in India could soon become a more integral tool for traders and investors.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in securities market are subject to market risks, read all the related documents carefully before investing.