18 July 2021

What is Securities Borrowing & Lending (SBL)?

Recently, news reporting that EPF is lending out its Kossan shares for a fee to investors who intend to short the stock. How do we know whether a stock is being lent out? How do we know a stock is under SBL?

In the blog post, let's explore together... Jom...

What is SBL?

Securities Borrowing and Lending (SBL) is a facility offered by Bursa Malaysia to enable the borrowing and lending of securities. The two models of SBL currently offered are Central Lending Agency and Negotiated Transaction.

This is an enhanced lending model that offers temporary loans of securities between the lender and borrower, which expects the price of a stock to fall to hold a short position for a longer duration, while the lender who loans the stock receives a lending fee from the borrower. It's a kinda win-win here for both parties to achieve their respective objectives.

How does SBL work?

The SBL mechanism allows, say, a borrower who expects the price of a stock to fall to hold a short position for a prescribed duration. The borrower immediately sells the securities in the hope of profiting from the sale and buys them back later when the price falls.

During this period, ownership of the securities is provisionally transferred to the borrower, who pays all dividends due to the lender. The lender also receives an agreed-upon fee — which is usually an annualized percentage of the value of the loaned securities — from the borrower. The securities are returned to the lender at the end of the deal.

"If you wish to be a lender, you may lend the requisite number of stocks directly to CLA or through an approved Lending Agent. Securities to be lent will be registered and displayed as a lending interest in the Bursa SBL – Lending Pool. The minimum number of securities to be lent is 50,000 units. A lending fee of 2% will be charged by Bursa", according to AM Equities.

The picture source is here

Why is Bursa Malaysia allowing SBL?

Regarded as an important activity in many markets, SBL provides greater liquidity, tighter spreads, better risk management, and possibly reduces the cost of capital.

Come back to this recent EPF example...

The EPF thinks that Kossan's share price may fall in the short term and there is demand in the market to short the counter. So, instead of selling its holdings, EPF can lend it out to short-sellers to short the counter, while EPF can maximize returns on securities sitting idle in their portfolios by earning some fee from lending its shares.

Hence, this will enhance the liquidity of the share transactions. This is good for the local market as well. Well, pandai-lah EPF ni ☺☺☺

According to bourse filings by Kossan, the transaction was classified as ‘Disposed (SBL)’.

SBL Eligible Securities

Not all types of stocks are able to lend out. The Securities prescribed by the Clearing House in the SBL Circulars are reviewed twice a year in May and Nov as approved for lending or borrowing either in a Bursa SBL Transaction or a SBL Negotiated Transaction.

SBL Eligible Securities for RSS (RSS is short selling that is carried out by investors in accordance with the Rules of Bursa Malaysia Securities Bhd (“BMS Rules”) )

Surf here to download the full list of SBL Eligible Securities. Currently, there is a total of 256 stocks eligible under the SBL mechanism [effective since 24 June 2021].

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