Published on December 30, 2013
Paterson Securities Pvt. Ltd. A Subsidiary of Hinduja Bank (Switzerland) Ltd. 75 years of excellence . Investment Opportunity in Stock Lending & Borrowing Scheme Equity Broking | Depository | Investment Banking | PMS | Currency Trading | Derivatives | Mutual Funds
SLBS – how it works • Investors with a long-term stock portfolio, now have an opportunity to earn risk free additional returns on their portfolio of stocks. •This can be achieved by lending their stocks through the Stock Lending and Borrowing Scheme (SLBS) launched by NSE. • Transparent system, that shows the prices and transactions on the Trading Screen. • All stocks which are part of Futures & Options segment of NSE can be borrowed or lent in SLBS. • The clients remain the beneficial owners of their shares and will be entitled for the corporate benefits like Dividends and Stock Splits. • Further, the risk is mitigated as the trades are guaranteed by NSCCL, so the client will not be bearing any counter-party or credit risk. • Any investor having a stock portfolio can earn additional return by lending the stock through Paterson Securities, after registration. • The lender will receive a lending fee, which will be determined by market forces. • Through the “Early Recall" facility, the investor also enjoys the liberty to withdraw from lending if he wants to sell the stock. ( A nominal charge will apply ) Paterson Securities Pvt. Ltd. | Portfolio Management Services
Highlights Investor earns risk free returns on dormantly held shares, while at the same time not forgoing benefits like dividends and bonus. Time frame can be one month to a year, though shorter duration contracts are more actively traded. Tax aspect simple. Transaction procedure is very simple – client has to register with Paterson Securities; paperwork is minimal. Transaction fee is very low. Key concerns : SLBS opportunities may be short lived. Quick decision making and fast action is required to grab what comes up. DP operation of stock transfer to happen within 15 minutes of closure of market hours. Paterson Securities Pvt. Ltd. | Portfolio Management Services 3
Taxation & Risk Factors CDBT has issued a circular No 2/2008 dated 22nd Feb 2008, stating that lending and borrowing of securities under SLBS –2007 of SEBI will not be treated as “Transfer of securities” under Section 2(47) of Income Tax Act in the hands of the lender, so the capital gains will not be generated in the hands of the Assessee.* Further, Securities Transaction Tax (STT) will not be payable on lending and borrowing transactions. The lending fee will be treated as Business Income or Other income depending on the individual assessment of the investor. Once a security is lent under SLBS, until the reverse leg of the lending transaction in SLB Segment is completed, the said security will not be available either for selling in cash/capital market segment or for providing as margin/collaterals for the purpose of taking any exposure. In the event the borrower fails to return the securities, NSCCL shall conduct a buy-in auction. It is possible that in the event of a short delivery by any other market participant, the Lender client may get lesser number of shares than originally lent and may get cash in place of short delivery. The buy-in auction shall be carried out in the Capital Market segment of NSEIL. If the security cannot be bought through the buy-in auction, the transaction shall be closed out. The methodology and rate of close out shall be intimated by NSCCL from time to time. Paterson Securities Pvt. Ltd. | Portfolio Management Services 4
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