India’s markets regulator, Securities and Exchange Board of India (SEBI), is consulting stakeholders to make it easy to lend and borrow shares and boost volumes, a regulatory official said on Wednesday.
The move would increase liquidity in India’s cash markets, which presently lag behind its active derivatives market.
The securities lending and borrowing mechanism (SLB) allows investors to borrow securities they don’t own, enabling short selling, boosting trading and aiding price discovery.
On days when derivatives contracts expire, the turnover in the index options market is 350 times the cash turnover.
“Presently, when any market participant wants to execute a short transaction they use the futures market as against using SLB. We are looking for ways to change that,” Ananth Narayan, whole-time member at the Securities and Exchange Board of India said on the sidelines of an event in Mumbai.
The securities lending market in India sees shallow volumes and a limited number of stocks can be dealt, making it hard to execute large trades without impacting prices.
Globally, such transactions are typically over-the-counter contractual obligations executed between lenders and borrowers, with limited to no interference by regulators, an equities dealer at a foreign bank said, requesting not to be named as they are not allowed to speak to media.
“In India, it is conducted on exchanges and with multiple intermediaries involved, making it inefficient,” the dealer said.