Stock Lending and Borrowing

The transactions involving lending and borrowing of securities are executed through approved intermediaries duly registered with SEBI under the Securities Lending Scheme, 1997. Such an intermediary may deal in the depository system only through a special account (known as Intermediary Account) opened with a DP. An intermediary account may be opened with the DP only after the intermediary has obtained SEBI approval and registered itself with SEBI under the Securities Lending Scheme. The intermediary has also to obtain approval of NSDL.

Intermediary

All Intermediaries who can provide the services of stock lending have to be approved by SEBI. The Certificate of Registration is issued by SEBI if an intermediary fulfils the following criteria.

• The applicant has to have a net worth of Rs. 50 crore;
• If the applicant is a clearing house or a clearing corporation and has the specified net worth and has obtained the concurrent approval of the stock exchange; and
• The applicant has adequate infrastructure like office space, equipment and experienced personnel for dealing in securities.

If the applicant fulfils these conditions, SEBI gives a Certificate of Registration valid for three years initially on payment of the required fees.

Procedure for Lending and Borrowing Securities

Deposit of Securities by the Lender with the Intermediary

• A beneficial owner of securities intending to participate in a securities-lending programme submits a securities lending request form, in the prescribed manner, through his DP.
• The DP verifies the lending request form for its validity and completeness and executes the instructions as per the specifications on the form.
• On execution of these instructions, NSDL blocks the securities to be lent in the lender's account in favour of the intermediary and intimation is sent to the DP of the intermediary.
• On receiving this intimation from NSDL, the DP informs the intermediary accordingly.
• The intermediary, on receipt of such intimation, submits in the prescribed form his acceptance or rejection of the deposit made by the lender.  
• The DP of the intermediary accordingly intimates the acceptance or rejection of deposit by the intermediary to NSDL.
• In case the intermediary accepts the deposit, NSDL will move the securities from the lender's account to the intermediary's account and inform the DP of the lender. In case the intermediary rejects the deposit, NSDL removes the blocking in the lender's account and informs the DP of the lender.
• The DP of the lender accordingly intimates the lender about the acceptance or rejection of his lending request.

Lending of Securities by Intermediary to Borrower

• Borrower of securities makes a request in the prescribed form through his DP
• The DP verifies the request form for its validity and completeness and executes the instructions as per the specifications on the form.
• On execution of such instructions by the DP of the borrower, NSDL will inform the DP of the intermediary accordingly.
• The intermediary's DP will inform him about the request for borrowing that he may accept or reject. The acceptance or rejection should be communicated to the DP in the prescribed form.
• In case the intermediary accepts the request, the DP informs NSDL accordingly. NSDL then moves the securities from the intermediary's account to the borrower's account and informs the DP of the borrower. In case the request is rejected, NSDL informs the DP of the borrower accordingly. The DP of the borrower, in turn, informs the borrower about the acceptance or rejection of his request.

Repayment of Securities by Borrower to Intermediary

• Borrower desiring to repay the securities borrowed has to make the request in the prescribed form through his DP who verifies the request form for its validity and completeness and executes the instructions given on the form
• On execution of these instructions, the securities proposed to be repaid are blocked by NSDL in the borrower's account in favour of the intermediary and intimation is sent to the intermediary's DP.
• After receiving intimation from NSDL for the blocking the securities, the DP informs the intermediary accordingly.
  On receipt of such intimation, the intermediary submits, in the prescribed form, his acceptance or rejection of the repayment made by the borrower.
• The DP of the intermediary accordingly intimates NSDL about the acceptance or rejection of repayment by the intermediary.
• In case the intermediary accepts the request, NSDL moves the securities from the borrower's account to the intermediary's account and informs the DP of the intermediary. In case the request is rejected, NSDL removes the blocking of securities created in the borrower's DP account.
• The borrower's DP accordingly intimates him about the acceptance or rejection of his repayment request.
• In case the borrower repays the securities to the intermediary outside the securities lending module of DPM system, the DP of the borrower as well as the intermediary have to inform NSDL accordingly. On receipt of such information, NSDL amends its records and informs the respective DPs accordingly.

Repayment of Securities by Intermediary to Lender.

• If an intermediary wants to return the borrowed securities to a lender, it has to make a request through its DP in the prescribed form.
• The DP verifies the request form for its validity and completeness and executes the instructions as per the specifications on the form.
• On execution of the instructions, NSDL blocks the securities to be repaid in the intermediary's account in favour of the lender and intimation is sent to the lender's DP.
• After receiving intimation from NSDL regarding the blocking of securities, the lender's DP informs him accordingly.
• On receipt of this intimation, the lender has to submit, in the prescribed form, his acceptance or rejection of the repayment made by the intermediary.
• The lender's DP accordingly intimates the acceptance or rejection of repayment by the intermediary to NSDL.
• In case the request is accepted by the lender, NSDL moves the securities from the intermediary's account to the lender's account and informs the lender's DP. In case the lender rejects the request, NSDL removes the blocking of securities in the intermediary's account and informs the intermediary's DP.
• After receiving the intimation for acceptance/rejection of repayment of securities from NSDL, the intermediary's DP informs the intermediary accordingly.
• In case the intermediary repays the securities to the lender outside the securities lending module of DPM system, the DPs of the lender as well as the intermediary should inform NSDL accordingly. On receipt of such information, NSDL amends its records and informs the respective DPs.

Recall of Securities by Intermediary from Borrower

• An intermediary who has lent securities to a borrower is entitled to recall such securities. The request for recall should be made in the prescribed form through the DP.
• DP verifies the request form for its validity and completeness and executes the instructions as per the specifications on the form.
• On execution of such instructions by the intermediary's DP, NSDL informs the borrower's DP accordingly.
• After receiving intimation from NSDL about the recall of securities, the borrower's DP informs the borrower accordingly.
• On receipt of such intimation, the borrower conveys to his DP his acceptance or rejection of the request for recall in the prescribed form.
• The borrower's DP informs NSDL about the acceptance or rejection of the request.
• In case the request is accepted, NSDL moves the securities from the borrower's account to the intermediary's account and informs the intermediary's DP.
• After receiving the intimation for acceptance/rejection of recall of securities from NSDL, the intermediary's DP informs the intermediary accordingly.
• In case the intermediary recalls the securities outside the securities lending module of DPM system, the DPs of the borrower as well as the intermediary should inform NSDL accordingly. On receipt of such information, NSDL amends its records and informs the respective DPs accordingly.

Recall of Securities by Lender from Intermediary

• Lender who has lent securities through an approved intermediary may recall them from the intermediary. The lender has to make the request for recalling the securities in the prescribed form through his DP.
• DP verifies the request form for its validity and completeness and executes the instructions as specified on the form.
• NSDL intimates the intermediary's DP who, in turn, informs the intermediary accordingly.
• On receipt of such intimation, the intermediary submits, in the prescribed form, his acceptance or rejection of the recall request made by the lender.
• The DP, on receiving intimation of acceptance/rejection, intimates NSDL accordingly.
• In case the request is accepted by the intermediary, NSDL will move the securities from the intermediary's account to the lender's account and informs the lender's DP. After receiving the intimation for acceptance/rejection of recall of securities from NSDL, the lender's DP informs the lender accordingly.
• In case the lender recalls the securities from the intermediary outside the securities lending module of DPM system, the DPs of the lender as well as the intermediary should inform NSDL accordingly. On receipt of such information, NSDL amends its records and informs the respective DPs accordingly.