This idea is probably too ambitious and far fetched, but has Zerodha or other brokers considered pushing for regulations for a Securities Lending/Borrowing Platform on Zerodha/other brokerages, among their own customers?
SLB market on NSE barely sees any activity.
I know that for this to work, it will have to be integrated with CDSL (like the pledging mechanism) to move shares from 1 demat to another. But with CDSL becoming more digitized off late, such a platform kind of seems more practical now than at earlier times, right @nithin ?
What does SEBI think about SLB, and shorting in general? I guess regulators are usually a little wary of shorts, as they get all the blame in a market decline
Is there any discussion on this or is it completely off limits?
Zerodha or any broker can’t really match transactions between the customers. This has to be done on the exchange SLB platform. The reason SLB platform in India isn’t that popular is because we have a large derivatives market. It is easier, convenient, & cheaper for a person wanting to short a stock to do it on F&O rather than on SLB. The interest to short stock in non-F&O stocks doesn’t seem to be too much, or maybe it is because there aren’t enough lenders out there.
I guess one aspect which is a downer for SLB is that there is a 18% GST on the borrowing rate. Also whenever there are certain corporate actions (Bonus + Rights) there is a forced foreclosure.
SEBI wants India to have a vibrant SLB market. Currently the onboarding + ongoing experience of SLB isn’t that great. Solving this is on our list of things to do. Maybe once we do it, others follow and the liquidity goes up.
I guess people (i.e. retail) also doesn’t know about the SLB mechanism. It is not easy to explain how you can lend your stock to someone for a (dynamic) interest rate. If this takes off, brokers like ZD would play a key role in educating people about the possibility of lending their long term holdings.
As goes for everything, if the product is well put together, it should work