NSE Clearing To Launch 3-Day SLB Contracts From August 17

NSE Clearing Limited will introduce shorter-duration contracts under the Securities Lending and Borrowing (SLB) framework from August 17, giving market participants an option to undertake stock-lending transactions with a three-day settlement period.

The new contracts, designated as the R3 series, will be introduced on a daily basis, according to a circular issued by NSE Clearing on August 14. The facility will be available only for securities that are eligible for trading in the equity derivatives segment.

How the new R3 SLB contracts will work

Under the new arrangement, the initial leg of an SLB transaction executed on the transaction date, or T Day, will be settled on the following working day, known as T+1. The reverse transaction will subsequently be settled on T+3, excluding applicable settlement holidays.

The shorter-tenure contracts will differ from existing SLB contracts in certain respects. R3 contracts will not automatically be foreclosed if the underlying security faces an Annual General Meeting or Extraordinary General Meeting. In addition, market participants using these contracts will not have access to repay, recall or rollover facilities.

NSE Clearing said other provisions governing market timings, clearing and settlement procedures, risk management and treatment of corporate actions will remain unchanged and continue to follow the existing framework.

What shorter SLB contracts mean for investors

The Securities Lending and Borrowing Mechanism enables investors to lend securities they own to other market participants for a specified period in exchange for a fee. Borrowers, meanwhile, can use the securities for purposes such as short-selling or meeting other market requirements.

The exchange and clearing corporation facilitate the transaction by providing systems for matching lenders and borrowers while managing collateral, settlement and associated risks.

The introduction of the R3 series effectively gives market participants access to a shorter-duration borrowing and lending option compared with existing longer-tenure SLB contracts. This could be particularly useful for traders and investors seeking greater flexibility in managing short-term positions.

For lenders, the mechanism can provide an opportunity to earn additional income from securities already held in their portfolios. Borrowers can gain access to stocks for shorter periods without having to enter into longer-duration SLB arrangements.