Stock lending booms as reverse arbitrage opportunities surge - Money - DNA

I read this article today & don't understand what exactly it means - who is lending the stock - how are they lending it - how do they make money out of lending stocks?

Stock lending and borrowing happens in a separate segment.

Nowadays, some stocks are trading at a premium to their futures.

Big traders borrow shares from the SLB market (stock lending and borrowing market) and sell these shares in the cash market. Simultaneously, they buy futures in the same quantity.

On expiry, as spot and futures prices converge, the short sellers reverse their positions.

The borrowed shares are then returned to the lenders.

The lenders get a small premium for lending their stocks.

See this screenshot. It is a quote for Bank of India in the SLB market.

01 indicates that it is the quote (of lending fee) for borrowing Bank of India shares for reverse settlement in January. The reverse settlement will happen on first Thursday of January.

Rs 2.31 is the lending fee that the borrower will pay to the lender.

If a lender is willing to lend for Rs 2.31, he will place an order at Rs 2.31. The "trade" will happen at Rs 2.31.

The settlement will be done on T+1 day. The lender will get his Rs 2.31 per share on T+1 day.

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What is the harm in lending, if the stock is part of your long term holding?

Can it be done via normal trading account?

Are the brokerage same as charged for equity transaction?

There is no harm in lending your long-term stocks and thus making some extra money.

However, I don't think any broker offers this facility to retail clients - at least not online.

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I don't think there is any harm to do so. .

Do you have any idea which broker provides such facility?

Happy Investing!

Who has such a huge quantity to lend?

In case you have it, then why not write options and make money on them? Better than lending.

Big investors (like Rakesh Jhunjhunwala) and institutions (including mutual funds) can lend such large quantities.

Option-writing has upside risk.

If a stockholder writes a call option and stock goes above the strike price, the option writer loses the benefit that he would have got if he had not written the option.

There is no such risk in lending shares.

In fact there is almost zero risk in lending shares via NSE. The counterparty risk is fully borne by NSCCL (NSE's clearing subsidiary).

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