InvestorQ : What happens in case of SLBS where settlement has to be done by the custodian?
Nisha Chandani made post

What happens in case of SLBS where settlement has to be done by the custodian?

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Arti Chavan answered.
2 years ago
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In respect of transactions entered by a Participant which is to be settled by a custodian, the margins from the time of transactions till confirmation by the custodian are levied on the Participant. On confirmation of the said transactions by the custodian, the custodian is levied the margins applicable on such transactions. In case of rejection by the custodian, the margins on the transaction rejected continue to be levied on the Participant.

Short fall of margins

In case of any shortfall in margin the Participant is not be permitted to transact in SLBS with immediate effect. The same is considered as violation and would attract penal charges as may be specified by NSE Clearing from time to time.

Margins from the Client

Participants should have a prudent system of risk management to protect themselves from client default. Margins are likely to be an important element of such a system. The same should be well documented and be made accessible to the clients and NSE Clearing. However, the quantum of these margins and the form and mode of collection are left to the discretion of the Participants.

Margin Shortages - Reverse leg

In case the borrower fails to meet the margin obligations, NSE Clearing shall obtain securities and square off the position of such defaulting borrower, failing which there shall be a financial close-out.

Lending price

Lending price refers to the previous day closing price of the security in the capital market segment i.e. T-1 day closing price in the capital market segment.

25% of the lending price is levied as margin on the Participants for lend transactions on T day. This is released on completion of pay-in of T+1 settlement.

100% of the Lending price is levied as margin on the Participants for borrow transactions starting from T+1 day till the shares are returned by the borrower.

This is collected on an upfront basis by adjusting against the collateral of the Participant at the time of transaction.

This is collected on the gross open position of the Participant. The gross open position for this purpose would mean the gross of all positions across all the clients of a Participant including its proprietary position.

The margin so collected is released on completion of pay-in of the respective settlement.

Lending fee

Lending fee refers to the actual price of the transaction at which the transaction is executed. Lending fee per share is quoted by the participants while entering in to SLB Transactions. Lending fee obligation is the lending fee per share*quantity of shares borrowed/lent.

For e.g. If a transaction is executed at Rs 5 per share for 100 shares of Security "X" then the total lending fee obligation for the borrower for security "X" will be Rs. 500.

Lending fee is levied as margin on the Participants for borrow transactions on T day on an upfront basis.

This is collected on an upfront basis by adjusting against the collateral of the borrower at the time of transaction.

The margin so collected is released on completion of pay-in on T+1 settlement date.

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