Referring to KPEI Rule Number II-10 regarding Scripless Securities Borrowing-Lending Services, Securities Borrowing and Lending (SBL) is the borrowing and lending activity of securities between the securities owner as Lender to KPEI as the borrower or between KPEI as the lender with parties which require securities as the Borrower by submitting collateral as guarantee, in order to support the exchange transaction settlement activity. SBL transaction is temporary, which means that lenders transfers or lends his rights to use the securities to the borrower in a given period. The lender or the borrower can withdraw or reimburse these securities at any time.
In the SBL transaction, the borrower must provide collateral and is obligated to pay the loan fee and transfer all the rights for the securities lent as the lender. Some of these rights are manufactured dividens, bonus shares, and any other corporate actions.
Some of the benefits obtained by the lender and borrower of SBL transactions, among others:
|Lender||Additional income gained as Lender|
1. Avoid the default risk in delivering stocks for exchange transaction settlement
2. Support short selling transaction strategy, margin trading performed by Clearing Member or its clients
Parties that can participate in SBL transactions, in particular lenders are Clearing Members or Custodian Banks that have signed an agreement with KPEI. For Clearing Member clients or Custodian Banks may regularly lend its securities for SBL transaction purposes through its Clearing Member or Custodian Bank. Meanwhile the parties that may become borrowers are Clearing Members that have signed an SBL agreement with KPEI.
The provisions to become SBL members can be seen in KPEI Regulation No II-10 and the registration procedures through membership menu here.
There are two (2) types of SBL available in KPEI, the Regular SBL and Front End SBL. Regular SBL is a type of SBL that has a fixed amount of fee, while Front End SBL is the type that has a service fee calculation determined through a bargaining process between the lender and the borrower. In addition to the fee amount, the difference between the SBL types lies in the lending process. For regular SBL mechanism, by contacting KPEI manually to borrow securities, which, if a counterparty is already available i.e. the lender, then the borrower and the lender will make a SBL order in the e-CLEARS system. On the other hand, the SBL front end mechanism is done through front end application in borrowing, where there is a bargaining process between for the fee amount between borrowers and lenders. If the fee bargaining process is finalized (matched), the borrowing order will be forwarded to the e-CLEARS system.
Compensation calculations for services above are made daily at the end of the day. Both SBL types are further divided into two (2) types based on the reimbursement time and i.e. Open Term and Fixed Term loans. On the open term loan type, the lender and the borrower can make reimbursement/recall before maturity. In contrast to fixed-term loans, the lenders and borrowers cannot make reimbursement/recall before maturity.
For extending the loan period (automatic roll over / ARO), the borrower can extend the loan period by informing the additional time extension request to KPEI as a facilitator, to be submitted to the lender for approval.
In accordance with the definition in KPEI Rule Number II-10, that corporate action is any Issuer action granting all securities beneficial owners of the the same type and class such as the right to attend the General Meeting of Shareholders, the right to receive cash dividends, stock dividends, stock bonus, cash bonuses, preemptive rights, warrants or other rights.
In case of corporate action activities on lent stocks, KPEI may take the following actions:
- Dividend (stock / cash)
KPEI will request the Borrower for the dividend payment at the Payment Date to be transferred to the Lender on the same date. The cash dividend value transferred is the Gross Amount. The definition of the gross amount is the amount of cash that will be accepted in accordance with the dividend value without tax deduction or other charges. Meanwhile, the payment date is the date of dividend payment to all shareholders who are entitled to receive dividend.
- Stock split / reverse stock split
SBL system will automatically make adjustments on the stock loan balance being transacted in accordance with a new volume ratio at the time of the effective date.
- Voluntary corporate action
The lender may conduct a recall on lent stock because of a Voluntary Corporate Action such as the GMS participation, the tender offer activities, and rights issuance and others.
In performing SBL transaction, the systems used are e-CLEARS and SBL Front End applications. Specifically for SBL Front End application, it is only used for the ordering process and the loan fee rate determination with a continuous auction mechanism for Front End SBL transactions. Meanwhile for Regular SBL, borrowing order process is done manually by contacting KPEI. On the other hand, the settlement process either for the Front End SBL and Regular SBL transactions are carried out in the e-CLEARS system.