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

Under the Securities Lending and Borrowing (SLB) scheme, a lender lends 1,000 shares to a borrower through an approved intermediary. Which statement about the lender's position is correct?

The lender earns a lending fee and is compensated for corporate benefits such as dividends during the period, because the shares are lent rather than sold. The borrower passes on these benefits through the system, and the securities must be in dematerialised form.

  1. AThe lender loses all rights to corporate benefits during the lending period and is never compensated
  2. BThe lender receives a lending fee and is entitled to be compensated for corporate benefits such as dividends, which the borrower has to pass on through the systemCorrect
  3. CThe lender must hold the shares in physical form
  4. DThe lender automatically sells the shares to the borrower

Explanation

In SLB, ownership benefits are preserved economically for the lender: the lender earns a fee and is compensated for corporate actions such as dividends during the lending period. The shares are lent, not sold, and must be in dematerialised form.

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