SECURITIES LENDING AND BORROWING
- WHAT IS SLBM?
- WHY SLBM?
- HOW CAN I GIVE SHARES IN SLBM?
- HOW DO I GET THE RETURN?
- CAN SLBM RESULT IN LOSS?
- TAXATION
WHAT IS SECURITIES LENDING AND BROWING (SLBM)?
SLBM as the name suggest is lending of your shares and earning an interest on it. We understand lending money where we get interest, similarly if someone has sold the shares and is unable to deliver to the market, then they borrow shares.
This facility is available only to those investors who have shares in their Depository account. It is not possible to lend all shares but only those that are in shortage or delivery.
WHY SLBM?
If an investor sells shares he has obligation to deliver them on T+2 day. In case he has sold by mistake, or there is technical difficulty in delivering the shares (for eg the depository signatory is not available) If the investor dose not deliver then the shares are auctioned by the exchange. This auction price can be as high as 20% over the current price. To avoid this price risk, the seller obtains the shares from SLBM
HOW DO I GET THE RETURN?
Shares Lending results is a sale transaction and when the shares are returned it is a purchase transaction. The difference between the sale and purchase price is your return.
CAN SLBM RESULT IN LOSS?
No the returns may be less but there is never a loss since both the purchase and sale transaction are done simultaneously and in event of loss the broker will not participate
TAXATION
The Income Tax gives special recognition to SLBM; hence the trade is treated as an SLBM trade and there is no issue of long term or short-term gain. The income can be treated as Business income or short-term income