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National Clearing Company of Pakistan Limited. Securities Lending & Borrowing. Securities Lending and Borrowing (SLB). Introduction

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securities lending and borrowing slb
Securities Lending and Borrowing (SLB)

Introduction

  • SLB is defined as the temporary exchange of securities with an obligation to redeliver the same securities in the same number and at an agreed premium on a future date.
  • The potential lenders and borrowers can be the brokers, banking companies, financial institutions, investment finance companies and other person approved by NCCPL and SECP.
  • All potential lenders/borrowers shall have to be the Clearing Members of NCCPL.
  • The motivation for lenders is to earn income/return on their Idle Securities.

cont….

securities lending and borrowing slb1
Securities Lending and Borrowing (SLB)

Introduction

  • The borrowers may utilize SLB functionality for the following purposes:
    • To avoid delivery failure in ready/future market ; and
    • To borrow SLB Eligible Security before affecting the short sale
slb models
SLB Models
  • To Manage Delivery Failure of Ready/Future Market
    • SLB facility provides effective solution for managing delivery failures as per the following process:
      • Clearing Member (“CM”) may borrow securities on Trade Day from SLB market after normal ready market sell for proprietary and client as well. In such case the delivery obligation for such CM shall be zero on the relevant settlement date;
      • NCCPL may also borrow securities upon receiving written request from CM on the settlement date i.e. on T+2 from SLB Spot Market. In such case relevant lenders shall be required to deliver lend securities on spot basis to NCCPL;
      • Accordingly, NCCPL shall deliver such borrowed securities to the respective buyer(s);
slb models1
SLB Models
  • To Manage Delivery Failure of Ready/Future Market
      • In case of borrowing by NCCPL, the delivery defaulter CM shall remain responsible for the settlement of such SLB Contract in the capacity of borrower; and
      • In case where securities are not available in the SLB Spot Market, then normal squaring-up/close-out process will be initiated in accordance with the NCSS Procedures.
slb models2
SLB Models
  • To Facilitate the Market Participants Affecting Short Sales
  • In case of short sale, CMs shall be required to borrow securities from SLB Market before affecting short sale.
  • Short sale and corresponding borrowing transactions shall be settled on net basis on T+2, through NCSS whereby delivery obligation becomes zero on settlement date.
slb modus operandi
SLB-Modus Operandi
  • SLB market is available in parallel to the Regular Market.
  • SLB is operating through an automated platform will be provided, by NCCPL as an Authorised Intermediary, to SLB Participants (lenders and borrowers) for placing offers and bids for SLB Eligible Securities to be lent and/or borrowed.
  • The Premium of lending and borrowing is determined by the market forces on demand & supply basis. However, such Premium is capped to KIBOR+8%.

cont…

slb modus operandi1
SLB-Modus Operandi
  • The SLB transactions are carried out on an undisclosed basis in the SLB Market.
  • The valuation of SLB transactions are done at the immediate preceding price of the SLB Eligible Securities exist in Ready market at the time of execution.
  • SLB Contract period is 22 working days. On 23rd day SLB Contract shall be forced released.
  • Only borrower may release SLB contract at any given point of time during 22 working days.
  • SLB Contracts shall be force released on a day before the start of Spot Period of a particular SLB Eligible Security
  • The settlement of the SLB transactions shall be on T+2.

Conti…

slb modus operandi2
SLB-Modus Operandi
  • On Settlement Day of SLB Transaction, the lender shall be required to deliver lended securities and borrower shall be required to pay the total amount of borrowed securities. However, in case of corresponding sale, the money obligation of such borrower will be netted-off in NCSS;
  • Accordingly, 50% value of the lended securities shall be held by NCCPL and remaining 50% amount shall be paid to the lender (such amount may either be received from the borrower directly or received from the corresponding ready market buyer);
  • At the time of release of SLB Transaction (SLB-R), the lender shall be required to pay 50% amount of the lended securities (along with the Premium adjustment, if any) and receive the lended securities.
slb modus operandi3
SLB-Modus Operandi
  • At the time of release of SLB-R Transaction the borrower shall be required to deliver the borrowed securities.
  • Accordingly, NCCPL will pay 100% amount to the borrower, after the adjustment of premium.
  • SLB Participants shall not be allowed to lend and borrow the same security(ies) i.e. SLB Participants shall not allowed to further lend any borrowed security(ies).
slb risk management
SLB-Risk Management
  • The borrower/lender shall pay VaR based exposure margins in the form of Cash only, of the borrowed securities to the NCCPL against SLB Transactions on pre-trade basis.
  • The mark-to-market losses shall be collected from the borrower/lender on daily basis in the form of Cash only.
  • Special Margins shall be collected from borrowers in Cash only.

Conti…

slb risk management1
SLB-Risk Management
  • Upon settlement of SLB Transaction by the Borrower, the exposure margins, special margins and mark to market loses shall remain applicable on till settlement of SLB-R Transaction.
  • Upon settlement of SLB Transaction by the Lender, only mark to market losses on open position upto 50% shall remain applicable till settlement of SLB-R Transaction.
  • Following Position limits on SLB Participant shall be applied:
    • Market-wide: 20% of free float
    • Member-wide: 2% of free float
    • Client- wide: 0.5% of free float
slb default management
SLB-Default Management
  • Where borrowers/lenders fail to return/deliver securities that have been borrowed/lent, on the settlement date, the NCCPL shall initiate squaring-up or close out process, as the case may be, in accordance with NCCPL Regulations and NCSS Procedures.
  • Where lenders/borrowers fails to meet their money obligations and/or fails to pay margins and mark-to-market losses, they may be considered as money defaulter and necessary default proceedings in terms of Chapter 13 (Money Default Management) of the NCCPL Regulations, shall be initiated.
slide15

Thank you !

NATIONAL CLEARING COMPANY OF PAKISTAN LIMITED

8th Floor, Karachi Stock Exchange Building, Stock Exchange Road, Karachi – 74000 Pakistan

TEL : (92-21) 3246 0811-19 FAX: (92-21) 3246 0827

E-Mail : rehansaif@nccpl.com.pk

Website : http://www.nccpl.com.pk