Experts pitch for stock lending

The time is ideal for the introduction of lending and borrowing of securities. It will be appropriate to limit the scheme to high-liquid stocks in the futures and options (F&O) segment to address concerns of possible manipulation, say experts.

Stock lending and borrowing is a prime requirement for short-selling of shares, which is currently awaiting regulatory approvals from the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi).

Short-selling is the sale of securities that the seller does not own and stock lending and borrowing allows the short seller to borrow shares to provide delivery.

The timeframe for lending and borrowing such securities should be linked to the expiry of derivatives contracts in the F&O segment, they said.

Manoj Vaish, president and CEO, Dun & Bradstreet Information Services India, admitted that there were several grey areas in the proposed securities borrowing and lending scheme.

A major problem relates to the calculation of the FII (foreign institutional investor) limit.

"If the FII limit in a stock has been crossed, the FIIs cannot trade in that stock. But, can they borrow?" he asks.

Though the Sebi had initiated a discussion on short-selling and securities lending and borrowing in December 2005, it is yet to see the light of day.

In the last budget, Finance Minister P Chidambaram had also promised the introduction of short-selling.