After its introduction in 2008, there was little traded volumes on the Securities Lending and Borrowing Market (SLBM). There was a review of the microstructure of this segment, and a revised microstructure put in place in 2010. In response, there was an increase in SLBM volumes. In this note, we analyse whether the new microstructure had greater benefits to equity traders, and whether the higher volumes on the SLBM resulted in improved efficiency of the derivatives markets. We find that, in the six month period after the change of microstructure was implemented, the number of trades increased by more than 10X on average, while the volume of trades increased by more than 5X. However, there was little change in either the basis or the basis risk between futures and spot equity. An examination of the orders and trades placed in the SLBM shows that while there are many buyers in the market, lenders are still not willing to place orders in the market. In the note, we highlight further changes that are required to improve the confidence of lenders into the SLBM.

Citation: Implication of the revised SLB scheme for equity markets , Rohini Grover and Susan Thomas, FRG Technical Note TR-2011-7-31, July 2011.