Securities Lending and Borrowing - Borrowing by Clearing Corporation/Clearing House

The clearing corporation/clearing house would require to be registered as an approved intermediary with SEBI, under the SEBI scheme for securities lending and borrowing, for handling settlement shortages. The clearing corporation/house may borrow, on behalf of the members, securities for the purpose of meeting shortfalls, if any, in the settlement, subject to the following :

1. The Clearing Corporation/House shall borrow the required securities to meet the shortfall on the day of settlement, for a maximum period of 7 trading days, excluding the day of borrowing.

2. The defaulter selling broker may make the delivery within 3 trading days from the due date, i.e. the settlement date, subject to charges for late delivery as may be prescribed by the stock exchanges.

3. In the event of the defaulted selling broker failing to make the delivery within the aforesaid 3 trading days, the Clearing Corporation/House shall buy the securities from the open market and return the same to the lender within 7 trading days.

4. The cost, if any, incurred by the clearing corporation/house in this regard shall be recovered from the defaulted selling broker. This would be in addition to other penal charges referred to at point (ii) above.

5. The return of the borrowed securities by the Clearing Corporation / House should be independent of the normal settlement.

In case of the inability of the clearing corporation/house to borrow the securities fully or partly for the purpose of meeting the shortfall in the settlement, the outstanding transaction shall be closed out, as described below :

The Clearing Corporation/House shall effect close out of such remaining quantity and/or securities by paying monetary compensation to the receiving/buying clearing member/s worked out as under and debiting such amount to the account of the defaulting selling / delivering clearing member/s :

10% on the highest of the closing prices on the days from the trading day till the settlement day

The exchanges and the clearing house/clearing corporation shall closely monitor the shortages in securities in every exchange at the time of delivery in the settlement and shall take appropriate punitive action against any member who is found to be defaulting frequently in the delivery of securities.