Approved Intermediary
The Securities Lending Scheme, 1997, introduced by the Securities and Exchange Board of India (SEBI), has been designed to enable securities lending and borrowing (SLB) transactions in India. This scheme allows market participants to lend and borrow securities, which aids in the development of the securities market by increasing market liquidity, improving price discovery, and enabling short selling. To facilitate this process, SEBI has introduced the concept of an approved intermediary.
What is an Approved Intermediary?
An approved intermediary is a person or an entity that has been duly registered by SEBI under the Securities Lending Scheme, 1997, to act as a facilitator between the lender and borrower of securities. The intermediary acts as a middleman between the two parties, helping the lender to deposit the securities and the borrower to borrow the securities.
The approved intermediary could be a stockbroker, a bank, or a custodian, who has been granted permission to act as an intermediary by SEBI. These intermediaries provide a platform for the borrower and lender of securities to interact and transact with each other.
The Role of Approved Intermediaries in Securities Lending
The role of an approved intermediary is critical in SLB transactions. They act as a bridge between the lender and the borrower, facilitating the smooth execution of the transaction. The intermediaries perform the following functions:
- Facilitate the Matching of Lender and Borrower: The approved intermediaries have a database of lenders and borrowers of securities, and they help match the two parties based on their requirements.
- Deposit and Transfer of Securities: The approved intermediary receives the securities from the lender and transfers them to the borrower. They also ensure that the securities are deposited in the borrower’s account as per the SLB agreement.
- Collateral Management: The approved intermediary plays a crucial role in the collateral management of the SLB transactions. They ensure that the borrower provides adequate collateral against the securities borrowed, as per the SLB agreement.
- Settlement of Transactions: The approved intermediary ensures the settlement of the transaction between the lender and the borrower. They make sure that the securities are returned to the lender after the completion of the borrowing period, and the borrower returns the collateral.
Advantages of an Approved Intermediary
There are several advantages of using Approved Intermediary to market participants in the SLB transactions:
- Facilitates Access to Lenders and Borrowers: The approved intermediaries have a database of lenders and borrowers of securities, making it easier for market participants to find counterparts for their transactions.
- Streamlines the Transaction Process: The intermediary helps to simplify the process of securities lending by taking care of the operational aspects of the transaction.
- Improves Security: The approved intermediary acts as a custodian of the securities and collateral, ensuring their safety and security during the transaction.
- Provides Transparency: The intermediary provides transparency in the transaction by maintaining records and documentation of the transaction.
Thus, role of approved intermediaries in SLB transactions is crucial, and their participation has helped in the development of the securities market in India.
