Securities Lending and Borrowing Mechanism (SLBM) is a financial market mechanism in India that allows market participants, such as institutional investors, to lend and borrow securities in the Indian capital markets. SLBM helps improve liquidity, facilitate short-selling, and optimize portfolio strategies.

Purpose: The primary purpose of SLBM is to facilitate the temporary transfer of securities between lenders and borrowers. Lenders typically receive a fee or interest income for lending their securities, while borrowers obtain securities for various purposes, such as covering short positions, fulfilling settlement obligations, or obtaining securities for arbitrage strategies.

The key participants in the SLBM framework include:

Lenders: These are investors or institutions who lend their securities to borrowers in exchange for a fee.

Borrowers: These are market participants, often traders or arbitrageurs, who borrow securities to fulfil their short-selling needs or execute other trading strategies.

The lending and borrowing process involves multiple steps:

a. Lenders: Investors willing to lend their securities enter into lending agreements with recognized intermediaries. They deposit the securities in their demat accounts linked to the SLBM system.

b. Borrowers: Borrowers enter into borrowing agreements with recognized intermediaries. They request securities for borrowing, specifying the quantity and the lending fee they are willing to pay.

c. Matching: The SLBM system matches lenders and borrowers based on their requirements and pricing preferences. A lending transaction is established, and the securities are transferred to the borrower's demat account temporarily.

d. Collateral: Borrowers are usually required to provide collateral in the form of cash or other securities to cover the risk of default.

e. Interest Rates: Interest rates (lending fee) for securities lending transactions are determined based on market conditions and the demand for specific securities.