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Stock lending resumes after SEBI approval

Ashok Jainani

MUMBAI, July 11

STOCK lending, perceived to be the root cause of the bear hammering during March-April this year, is back in the market. Stock Holding Corporation of India Ltd (SHCIL) resumed its securities lending business last week with the introduction of the rolling settlement.

SHCIL received permission from the Securities & Exchange Board of India (Sebi) end-June to resume the stock lending business from July 2 when rolling settlements began. Stock lending by all approved intermediaries was banned by the markets regulator in m id-March following allegations of some brokers misusing the facility for hammering the stock prices down.

SHCIL has already recorded a volume of nearly Rs two crore in the last five days or so. SHCIL insiders said the product is picking up again with good demand from the stock brokers. During the one week period, they have lent stocks in bluechips and techno logy scrips in over eleven transactions.

The product is available for individuals or corporates and brokers with minimum networth of Rs one crore. Individuals with lesser networth can avail SHCIL's stock lending facility through their stock brokers who have to be registered with SHCIL.

The SHCIL Managing Director, Mr B.V. Goud, said the corporation has resumed stock lending on behalf of its non-institutional clients. SHCIL's institutional clients such as UTI, LIC, GIC have not yet resumed the lending operations.

Even earlier, UTI's participation in stock lending was on smaller scale and on case-to-case basis with each transaction to be individually approved by UTI, Mr Goud said.

Though it gives flexibility in the rolling settlements system, stock lending is perceived to be a tool for short sellers to shoot the lender himself eroding lender's portfolio if exploited beyond proportion, analysts said.

``Hence, stock lending business needs to be strictly monitored by regulators so that it is not misused,'' analysts said.

SHCIL had stopped its securities lending business mid-March following Sebi ban due to turbulent conditions prevailing in the equity markets then.

SHCIL had earlier decided to suspend the securities lending as one of its major client, Unit Trust of India (UTI) had taken a view against participating in the scheme.