India’s insurance regulator is allowing insurers to lend a maximum of 10 percent of their securities, in rules that are hoped to revive the country's market.
The Insurance Regulatory and Development Authority (IRDA) has been seeking comment as of August last year relating to insurers participating in a securities lending and borrowing scheme.
Comments were received over the course of a year from the various stakeholders including life insurers, general insurers and other entities, along with suggestions for the controls needed.
“After examination of the comments received, it is observed that insurers can generate extra yield on the securities held in their custody by lending securities through [the] SLB mechanism,” said an IRDA statement.
Amongst the rules was the notice that around Rs 50,000 crores of stocks may now be eligible to be lent to short sellers. IRDA said that the lending and borrowing framework should be governed by the SEBI 2007 circular, and any of its subsequent updates.
Insurers can only lend securities to the maximum extent of 10 percent quantity in: “the respective scrips in the respective funds,” said the statement.
The regulations allow insurers to lend around 191 stocks listed in the futures and options segment for a maximum tenure of 12 months in securities that are part of the futures and options segment.
The announcement follows the news on 30 May this year that the Securities and Exchange Board of India (SEBI) was to allow stocks that meet several criteria, including average monthly turnover of at least 1 billion rupees ($17.80 million), to be used under the country's securities lending and borrowing (SLB) programme.
Until then, a limited set of stocks that traded in the futures and options markets were allowed to be borrowed and lent.
It is not the first time that the regulator has attempted to relax what some as seen as particularly severe rules. In November last year, the board stated in a circular that lenders and borrowers of shares could carry forward their positions up to three months, instead of one month as is the current norm.
The “roll-over facility” states that any lender or borrower who wishes to extend an existing lent or borrow position shall be permitted to roll-over such positions for three months, although rollover shall not permit netting of counter positions.
SEBI also indicated the introduction of liquid Index Exchange Traded Funds as eligible for trading, with the ETF deemed liquid provided it has traded on at least 80 percent of the days over the past 6 months and its impact cost over the past 6 months is less than or equal to 1 percent.
