Guarentee of getting shares back in SLBM (Renting stocks)

General
1

Some brokers have launched rent/borrow portals, and IIRC Zerodha will be adding soon (currently needs ticket to rent).

I’m looking to rent as I have a long term portfolio, for extra passive income.

I was just looking at how safe this is and found this: https://www.nseclearing.in/clearing-settlement/slbs

It says SLBS, surely the same thing as SLBM? The text:

In the event the borrower fails to return the securities NSE CLEARING conducts a buy-in auction in the Capital Market segment of NSEIL.

In the event of no offer in buy in auction/ failure to give delivery for offer in auction market on the settlement date, the transaction is closed out as per the below procedure.

Higher of:

  • The maximum traded price in the Capital Market segment of NSEIL from (reverse leg settlement date – 1day) to reverse leg settlement date, or
  • 25% above the closing price of the security in the capital market segment on the reverse leg settlement date.

So it IS possible that I will get cash instead of my shares back - but they’re paying 25% extra on LTP (presumably to cover for capital gains tax).

Did I read this right?

1 Like
2

when you lend shares and borrower sells in the market then at time time of settlement if the security gets locks in upper circuits then the borrower may not be able to buy back shares and it is likely that no one will offer shares in auction market(although depending on the strength of buyers) then exchange has no choice but to compensate you in that case that is why there is 25% premium. borrower will pay that premium. it has nothing to do with taxes.
(correction is welcomed).

3

In this circuit scenario, even the lender will likely not be able to buy again with the cash?

And any idea how often this happens?

4

is not the same as 20% on “profits”. But 25% may not be enough if the stock is stuck in UC. Say, If it goes up 100% in circuits, you won’t be able to get back in until the top.

Not sure…