Securities Borrowing and Lending (SBL) is a service that allows clients to borrow and lend securities as an option to create opportunities for investment returns in volatile and bearish market conditions. It involves borrowing securities from others to sell short, and when the stock price decreases, buying back the borrowed securities to return them. It serves as another tool to assist clients in managing risks.
The transaction involves two parties:
- Borrower: The client who intends to borrow securities to sell short.
- Lender: The client who agrees to lend securities to generate additional income while still holding the stocks.
The brokerage firm acts as an intermediary (principal) between the clients who want to borrow and lend securities. The firm will be the borrower to the lender and the lender to the borrower, using an "On Call" arrangement where the lender can recall the securities immediately according to the agreement in the contract.