On safety of getting shares back in SLBM (Renting stocks)

1

Dhan has done a great job on SLBM making it easy.

I’m looking to rent as I have a long term portfolio, for extra passive income.

I was just looking at how safe this is and found this: https://www.nseclearing.in/clearing-settlement/slbs

It says SLBS, surely the same thing as SLBM? The text:

In the event the borrower fails to return the securities NSE CLEARING conducts a buy-in auction in the Capital Market segment of NSEIL.

In the event of no offer in buy in auction/ failure to give delivery for offer in auction market on the settlement date, the transaction is closed out as per the below procedure.

Higher of:

  • The maximum traded price in the Capital Market segment of NSEIL from (reverse leg settlement date – 1day) to reverse leg settlement date, or

  • 25% above the closing price of the security in the capital market segment on the reverse leg settlement date.

So it IS possible that I will get cash instead of my shares back - but they’re paying 25% extra on LTP (presumably to cover for capital gains tax).

Did I read this right?

2

@KumarS Yes. Initial attempt - “Buy-in” auction, if that fails then cash settlement with premium.

3

Hi @KumarS,

You read that right, Incase or SLBM or SLB the NSE Clearing Ltd (NCL) acts as the central counterparty and guarantor for every transaction, you aren’t exposed to individual borrower risk. If a borrower fails to return your shares on time:

  • Buy-in Auction: The clearing corporation immediately conducts a market auction to procure the exact shares and return them to your demat account.
  • Financial Compensation: In the rare event that shares aren’t available in the auction, the transaction is “closed out” financially. You will receive a credit equivalent to 125% of the stock’s value

Tanvi Vartak
Product