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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Other Services Provided by Brokers

Under the SEBI framework for securities lending and borrowing (SLB), a lender lends 1,000 shares of a company, which pays a dividend during the tenure of the lending. Who is entitled to the economic benefit of the corporate action, and how is it handled?

The lender remains entitled to the economic benefit of the dividend. Because the borrower holds the shares on the record date, the borrower must compensate the lender for the benefit, with adjustments handled through the clearing corporation, so the lender is not disadvantaged by lending.

  1. AThe lender is entitled to the benefit, and the borrower must compensate the lender for the corporate action benefitCorrect
  2. BThe borrower keeps the dividend entirely
  3. CThe clearing corporation keeps the dividend
  4. DThe benefit lapses because the shares were lent

Explanation

In SLB, the lender keeps the economic rights over lent shares. The borrower, who holds the shares at the record date, must compensate the lender for benefits such as dividends, usually through adjustments handled by the clearing corporation. The other options deny the lender's rights.

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