Definition
Securities Lending and Borrowing (SLB)
Securities Lending and Borrowing is a regulated mechanism that lets investors lend their shares for a fee to borrowers who need them, typically to facilitate short selling or settlement.
India's SLB scheme runs through the clearing corporation as an approved intermediary, with standardised tenures and lending fees discovered on the exchange platform. Lenders earn an income on idle holdings, while borrowers, often arbitrageurs or short sellers, obtain shares to deliver against a short position.
SLB is important for market-neutral and arbitrage strategies because Indian cash-market short selling is otherwise restricted to intraday. By enabling multi-day stock borrowing, SLB supports pairs trading, cash-futures arbitrage and the avoidance of short delivery auctions, though liquidity in the SLB segment remains limited for many stocks.
Related terms
- Market-Neutral StrategyA market-neutral strategy balances long and short positions so that the portfolio has little or no net exposure to broad market movements, isolating the manager's stock-selection skill.
- Margin Trading Facility (MTF)Margin Trading Facility is a SEBI-regulated facility that lets investors buy shares by paying only part of the value upfront, with the broker funding the balance against the shares as collateral.
- Short DeliveryShort delivery occurs when a seller fails to deliver the shares they sold by the settlement deadline, leaving the buyer's trade unfulfilled and triggering an exchange auction to source the shares.
- Auction SettlementAuction settlement is the exchange process of buying in shares to resolve a short delivery, where the clearing corporation auctions the failed quantity and delivers the purchased shares to the affected buyer.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.