CSE introduces Regulated Short Selling through Stock Borrowing and Lending to enhance trading opportunities

The Colombo Stock Exchange (CSE) announced a groundbreaking development in the Sri Lankan stock market with the launch of Regulated Short Selling (RSS) through Stock Borrowing and Lending (SBL), with effect from 06 November 2023.

The initiative aims to promote market efficiency, liquidity, and investor confidence while fostering economic growth, aligning with international standards and practices.

Stock Borrowing and Lending (SBL)

SBL, a groundbreaking initiative by the CSE, connects lenders and borrowers of shares for a predetermined period, allowing them to capitalize on market trends as in prevailing interest rates.Only eligible securities specified by the CSE will be allowed for SBL transactions, and the eligibility of these securities will be reviewed by the CSE on a quarterly basis.

All investors who maintain Central Depository System (CDS) accounts will now have the privilege of engaging in SBL transactions as lenders and borrowers via the CDS through their respective trading participants and custodian banks (CDS participants).

CDS participants are empowered to act as intermediaries for SBL transactions. Investors can seamlessly carry out SBL transactions by submitting the lending/borrowing orders using the participant pool account or by submitting orders directly to the CDS through their participants.

Advantages of SBL mechanism

For lenders, SBL offers a unique opportunity to leverage a portion of their portfolio that may not be actively used for regular trading, while simultaneously earning an additional fee-based income. On the other hand, borrowers can leverage the potential of price movements in a declining market, amplifying their gains.Investors can take advantage of this opportunity by establishing a SBL agreement with the relevant lending or borrowing participant.