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What is the concept of Loan against Shares (LAS) & ALBM?
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Answer Posted / jyoti das
Every bank has its individual list of approved securities (a list of companies) against which the bank provides a loan. Both, resident and non-resident Indians can take a loan against the shares. Shares must be held in the physical form or in the demat form.
So, one can get a loan only if the borrower possess shares which are as per the bank's list. But every lender has a different list so if one lender does not offer the loan for your shares then you could try another lender.
ALBM is an acronym for automated lending/borrowing mechanism. It is a stock- lending product introduced by NSCCL (National Securities Clearing Corporation Limited) with the primary objective of providing a window for trading members of NSE to borrow securities/funds to meet their pay-in obligations. ALBM sessions are held every Wednesday for weekly markets and every day for rolling market. ALBM trades are carried out at a spot price called "Transaction Price"(TP), while positions are reversed at a benchmark price called "Securities Lending Price" (SLP). The difference between the SLP and the TP is the return from borrowing or lending funds or securities. ALBM is a means of facilitating sophisticated trading strategies giving good returns.
Let's take an example to demonstrate this mechanism:
A is a trader who has short sold Infosys. He wants to carry forward his position but as the settlement has ended, he must meet his delivery obligation. Trader B holds shares of Infosys. He does not want to sell but at the same time, he wants to maximise returns on his portfolio, taking advantage of whatever opportunities come along.
On the ALBM session on Wednesday, the SLP for Infosys is, say, Rs.8000. Trader B places a sell order for 100 shares of Infosys at Rs.8040 (transaction price). Trader A looking for an opportunity, grabs the shares and the transaction is executed. In effect, Trader B has lent 100 shares of Infosys to Trader A for a fee of Rs 40 per share. Trader A pays Rs 8,00,000 (Rs. 8,000 x 100) as collateral and Rs 4000 towards fees for the loan of securities. In the process, Trader B gets a weekly return of 0.50% or 26% annualised.
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