SLBM: Stock Lending and Borrowing Mechanism
Hello everyone,
Welcome to your daily dose of financial concepts.
In today’s blog let’s understand the term “Stock Lending and Borrowing Mechanism”.
Stock lending and borrowing is a system where a market participant can lend or borrow shares to/from another market participant. At a certain rate of interest.
This system (SLB) is a mutual transaction between two parties agreed for a specified period (Max. 12 months) as per SEBI regulations and usually the borrower is a short seller and the lender is a long-term investor.
Suppose you have invested in shares of a top company for 5 years, and your friend who is a trader wants to short-sell the shares of that company. In such a scenario, your friend can borrow the required or available amount of shares from you and give you an interest rate (which is decided by market conditions). After a pre-specified time, your friend will return your shares to you.
That’s it for today. I hope you learned something new.
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