Monday, February 8, 2010

Legal Issues in Stock Lending

We had earlier noted the recent relaxations introduced by SEBI in order to provide a thrust to the securities lending and borrowing (SLB) mechanism and thereby short selling of securities. Some doubts were expressed regarding the sustainability of even the reformed process.

In a column in today’s Mint, Jayant Thakur highlights several legal issues that are bound to arise when the SLB mechanism acquires widespread practice. These include issues pertaining to taxation (particularly capital gains), the use of stock lending by promoters and the applicability of insider trading regulations and the takeover code. While the column seeks a comprehensive identification of the issues, it points towards the need for a fuller appreciation of the issues involved (all of which understandably cannot be accomplished within the constraints of a column’s word limit). It does provide ample fodder that justifies a thorough legal analysis of the issues involved.

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