India’s NSE and BSE have launched new three-working-day securities lending and borrowing contracts aiming to boost liquidity, deepen market participation, and support the reformed closing auction mechanism amid evolving market dynamics.
India’s stock exchanges have begun offering three-working-day securities lending and borrowing contracts in a bid to improve short-term liquidity and encourage greater use of the new closing auction session, people familiar with the discussions said. The move comes as market participants and regulators try to smooth the rollout of a mechanism that is meant to produce a single closing price through matched buy and sell orders, rather than the earlier volume-weighted average price used in the final stretch of trading.
According to The Hindu BusinessLine, the shorter-tenor contracts were launched by NSE Clearing and BSE Clearing from Monday and are designed to let traders borrow shares for a much briefer period than under the standard securities lending and borrowing scheme. The exchanges said the new contracts should give participants more flexibility around delivery needs and help deepen the lending market, while BSE Clearing said they may also support arbitrage across venues and improve price alignment.
The timing matters because the closing auction session has drawn concern over thin participation and sharp price moves since its introduction earlier this month, Moneycontrol reported. Business Standard said exchanges had already been preparing for the phased launch with mock trading sessions and other adjustments to help brokers, arbitrage funds and other market users adapt to the new system. NSE Clearing’s own materials show the existing securities lending framework typically runs for much longer tenures and includes recall and early repayment features, underlining how unusual the new three-day contracts are.
Speaking at a cyber-defence event at the National Institute of Securities Markets on Monday, Securities and Exchange Board of India chief Tuhin Kanta Pandey said the closing auction session was “here to stay for sure” and that wider participation was essential, The Hindu BusinessLine reported. He also said the regulator would soon issue a draft paper on a reworked securities lending mechanism. HDFC Securities managing director and chief executive Dhiraj Relli said the shorter contracts should help the closing auction and lift market depth, though he added that it remained to be seen how quickly volumes would build.
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