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MONEY MARKETS
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REPOS (READY FORWARD) TRANSACTIONS1. Collateralised lending a debt-security sold to
repurchase in future at a fixed price/date.
2. Widely resorted to by RBI-Overnight and Term repos.
3. Master Agreements and Margins are fixed.
4. Margin calculated on the current market priceof the security plus accrued interest thereon.
5. Risks involved Counter party risk and Issuer risk.
6. Double Ready Forward transactions refer to sale ofone
security with intend to repurchase and a matchingpurchase of one security with intend to sell.
7. Reverse repo facility refers to security purchased nowwith intend to re-sell later
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ADVANTAGES
Increases turnover in the money market.
Volumes of trade in debts increase.
Delivery vs. Payment mechanism.
Confirmation & matching of trades automated.
KINDSBUY-SELL REPO.
CLASSIC REPO.-INTEREST PAID SEPARATELY.
HOLDIN CUSTODY REPO HAIR CUTS.
BOND LENDING COVER FEE BASED.
TRIPARTITE REPOS.
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NEW!!-
Marginal Standing Facility
Effective 7-5-11, RBI has opened new window forBanks to meet short term liquidity problems:-
MSF is a borrowing facility upto 1% of total deposits
of any bank. Secured 5% margin on G.Sec and 10% on SG-sy
ROI- 100 bps higher than repo rate.( so -8.50%)
Maximum for Overnight needs and 3 days on
Fridays. Lot size- Minimum Rs. 1 crore and above
Electronic application and credit through NDS.
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BILL MARKET
Refers to trade in Commercial Bills.New Bill Market scheme.1952.
Bills Rediscounting Scheme.1970.
Use of Derivative Usance Promissory Notes.
Aims at making Commercial Bills active in the secondary
money market.
Due to reluctance of traders in resorting to B/Exchange,
incidence of stamp duty, legal provisions etc. the Bill Market
has not taken off to the desired extent.
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INTER BANK PARTICIPATION
CERTIFICATES
Dealt with by banks/FIs.
Based on concept of debt securitisation. No stamp duty/No transferability.
With risk IBPs Borrower Bank-reduces advances. Lending
Bank shows as Advances.
Without risk IBPs Borrower Bankshows as Borrowing fromBanking System and Lending Bank shows as Advance to
Banking System and hence affects CRR/SLR.
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Nature Short Term money market Instruments.)
Tenure Min.-15 days Max-90 days.
Instrument Units
Mode of Payment Cheque-
Min. Size Not fixed
Interest Issued at discounted value-Discounted market guided-
Participants High net worth individuals.
Advantages 1. Smoothens short termliquidity imbalances.2. Facilitates saving surpluses.
contd.-2
Money Market Mutual Funds(MMMFs)
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-2- Eligibility Norms 1. The sponsoring Bank can raise upto 2%
of its fortnightly average aggregate deposits.
Disadvantages: Investments restrictions as underhas rendered the scheme unattractive:
a) Max. 30% in CPs of Ind. Cos.
b) Max. 25% in Treasury Bills.
c) Max. 30% in Call Money.
d) No investment in Inter corporatedeposits/bonds of
PSUs/debentures of PublicSector Units.
BECAUSE OF THE INHERENT RESTRICTIONS AS STATEDABOVE
THE MMMF OPERATIONS ARE ON A VERY LOW KEY.
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Commercial Paper (CPs) Nature Usance Promissory Note.
(Short Term money market Instruments.)
Tenure Min.-7 days to 12 mths.
Instruments Written Prom. Note.
Mode of Payment Cheque-
Min. Size Rs. 100000 and multiplies.
Interest Issued at discounted value-
Discount market guided-
(Redeemable at par)
Participants Corporates/Primary Dealers
And Satellite Dealers.
All India FIs.
Advantages 1. Can be rediscounted with RBI.
2. Gives liquidity.
3. Easy to raise as stand-alone facility.
contd-2
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Eligibility Norms 1. Tangible Net worth not less than
Rs. 4 crore
2. Fund based working capital limits dulysanctioned by Banks/FIs.
3. Shares listed in St. Exchange
a. Min. Credit Rating-P2/A2
b. Under Health Code-1.(Standard asset)
Disadvantages 1. Attracts stamp-duty and
Issue expenses-dealers fee,
rating fees and agency fee.
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Procedure 1. Apply to RBI with Credit rating.
2. To be privately placed within 2 weeks ofapproval through Merchant Bankers.
3. Enter into agreement with NSDL for
issuing CPs in Demat form.
4. Draft principal document.adjudicatejumbo CP certificate and stamp.
5. Advise RBI within 3 days of issue.
6. Instruct NSDL to transfer CPs to CPallotment account of the IPA and adviseDP id, client id, for credit to customers
account next day.
Present Status Standby assistance/credit back-stop
facilities have provided credit enhancementmechanism to the CPs.
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Procedure for issue of CPs in De-mat form
The Issuer through DP Registrar gets from NSDL the ISIN no.
by submitting Letter of Intent in the prescribed form. All
securities held in specific ISIN no. have same maturity date.
Single Pro.note for the face value of the CP duly stamped to besubmitted to IPA.
ISIN no. provided to IPA for transfer of the CP to CP Allotment
a/c.
IPA receives consideration and transfers CPs to respective
Demat a/c of investors.
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Procedure for redemption of CPs
1. The holder of Demat CPs approach the DPs,gives transfer/delivery instructions for transfer of
CP to CP redemption a/c of IPA.2. Transfer is done before 3.00 p.m. on one
working day previous to the due date.
3. After ensuring the receipt of CPs in the
redemption a/c from DP, IPA makes paymentand advises Registrar to extinguish quoting theISIN.
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Certificate of Deposits(CDs)
Nature Document of title to time
deposits.(Short Term money
market instruments.)
Tenure Min.- 7 days to 1 year.
Instrument Certificate
Mode of Payment Cheque-
Min. Size Rs. 100000 and multiplies
Interest Issued at discounted value-
discount market guided-
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Participants Commercial Banks/AIFIs.
Advantages 1. Can be rediscounted
with RBI.
2. Gives liquidity.
Other Aspects. 1. Attracts stamp duty as
Applicable to NegotiableInstruments.
2. Banks to maintain
SLR/CRR on issue price.
3. Transferable byendorsement and delivery.
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Treasury Bills
14 days-91 days-182 days-364 days
Nature Claims against Central Govt.(Negotiable short Term moneymarket Instruments.)
Tenor 14-91-182-364 days Instrument No Script (through SGL A/C)
Mode of Payment -DO-
Min. Size Rs. 100000
Interest Auctioned at discounted value-discount market guided-resetquarterly
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Participants Inter Bank/FIs
Advantages 1. Can be rediscounted withRBI.
2. On tap sale.
3. Approved security.
4. Gives liquidity.
Present Status Ad-hoc T. Bills abolished.
T.Bills issued through Public
Accounts Dept./RBI.
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Call and Notice Money
Nature Short term money market
Instrument Tenure Overnight to 14 days
Instrument Deposits
Mode of Payment Cheque drawn on RBI
Min. Size Rs. 10 crores. Interest Vary from 2% to 15%
Depending on market
Participants Inter Bank/PDs-lenders &
borrowersCorporates lend through PDs.
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Call and Notice Money(contd)
Advantages 1. Approved security forSLR/CRR
2. Gives liquidity
Disadvantages 1. High volatility
(RBI uses repos/refinance
operations and CRR rules to moderate the effect)
Present Status Foreign/Private Banks are
Net borrowers.
Public Sector Banks-
Lenders
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CASH MANAGEMENT BILLS-
a new p roduc t !!
A NEW PRODUCT OF 63-DAYS TENORISSUED BY RBI for Rs. 8000 Cr.
(dated -19-4-2011)(Due-22-6-11)
ISSUED FOR MATURITIES OF LESS THAN91 DAYS
A NON-STANDARD, ZERO COUPON
INSTRUMENT. TO MEET TEMPORARY CASH
REQUIREMENTS OF THE GOVT.
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DEBT MARKETS
LONG TERM
DEBT MARKETS
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GOVT GILT EDGED MARKET
(GOVT. SECURITIES MARKET)
PLAYERS INSTRUMENTS SEGMENTS
RBI SGL A/C PRIMARY MKT
STCI STOCK CERTIFICATES PRIMARY MKT
PRIMARY
DEALERS
PROMISSORY NOTES SECONDARY
MKT
FIs AND BANKS BANKERS
RECEIPTS/SGL
-do-
LIC/GIC/FINANC
E COS.
-do-
MFG/TRADING
Cos.
GOVT. BONDS/PSU/UTI
BONDS
PRIMARY MKT.
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Features of Gilt edged Market
SAFETY FUNDS
CAPTIVE MARKET
MANDATORY INVESTMENT NOT COMPARABLE TO OTHER INVESTMENT
AVENUES
MOVE TO MARKET RELATED RATES
GREATER TRANSPARENCY OF OPERATIONS
BUIDING VIABLE INSTITUTIONAL FRAMEWORK
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PRIMARY DEALERS
Salient Features
Helps place G. Sec. In primary market-
commitment.
Generates active secondary market.
Acts as conduit for OMO of RBI. Signals RBI for market intervention
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PRIMARY DEALERS-
ELIGIBILITY NORMS
A. Minimum NOF Rs. 100 Crore.
B. Subsidiaries of Banks & Fis.
C. Commitment for 100% of T.Bills & G.Sec.with success ratio of 33.33% & 40% respty.
D. Shall offer two way quotes.
E. Annual turnover not less than 5 times for
G.Sec. and 10 times for Treasury Bills.
F. Shall maintain adequate CAR.
G. Shall enjoy privilege of maintaining Current a/c,
SGL account, liquidity support, dealing in money market etc.
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PRIMARY DEALERS
AUTHORISED TO DEAL IN GOVT. SECURITIES ADD DEPTH
TO THE DEBT MARKET.
GET COMMISSION/UNDERWRITING FEE FROM RBI.
REQUIRED TO GIVE MINIMUM BID COMMITMENT FORDATED SECURITY AND 100% COMMITMENT FOR
TREASURY BILLS.
RBI GRANTS ENHANCED UNDERWRITING OPTION TO PD.
RBI GIVES PD CALENDAR FOR TREASURY BILLS ISSUE.
RBI PROVIDES LIQUIDITY TO PD AGAINST GOVT.
SECURITY AT BANK RATE.
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SATTELITE DEALERS
Are appointed to co-exist with PDs in smallertowns.
Should have min. net owned funds Rs. 5cr.
Registration with RBI compulsory. Minimum turnover to be assured.
Minimum CRAR/PORTFOLIO SIZE.
Can have access to SGL account. Can borrow/lend in call money market.
Participate in repos.
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SECURITIES MARKET (OTHERS)
A. DEBT MARKET
1) DEBENTURES.
2) BONDS OF EXTG. COS.
3)
ZERO COUPON BONDS.
4) FLOATING RATE BONDS.
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SECURITIES MARKET
PRIMARY MARKET
SECONDARY MARKET
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Call Money-Lendings(daily turnover)Rs. In Crores
11/00 12/01 11/05 03/2009 04/2011 03/2013
Banks 10525 9116 11861 1260 17285 29600
PDs 3107 2350 264 -- --
(56) NBFIs. 10012 5552 ----- ----
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MONEY MARKET INSTRUMENTS-VOLUMES!!
REPO/REVERSE REPO/MSF
31-3-2013-
Net injection of liquidity: Rs. 123635 cr. Certificate of Deposits:
22-3-2013-389600 Cr.- o/stg: (8.80-10.12%)
Commercial Papers: 31-3-2013- o/stg Rs. 109200 cr. (8.05-13.42%)
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GOVT SECURITIES (Turnover) (Rs. In Cr.)Turnover- 02/2010 25/3/11 31/3/13
Govt. of India Dated
Securities- 80550 45473 51100
State Govt. Security 3874 646 1900
91 days Treasury Bill 11919 13804 2300
182 days Treasury Bill 190 1542 2200
364 days Treasury Bill 1955 1862 3600
compared toCorporate debt ( on NSE)
Rs. 12576 Cr.
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NSE-TRADING VOLUMES-
Name of the
Instrt
Trading
volume(Cr.)
No. of trades Trdg.siz
e(Cr)
Equity
Index FuturesStock Futures
Index options
Stock options
WDM
6,21,569
43,9522,86,532
9,247
1,00,133
10,68,701
240,000,000
21,26,763106,76,843
4,42,241
35,23,062
1,67,778
0.0026
0.020.027
0.021
0.028
6.37
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BENCHMARK RATE IN MONEY MARKET
Date Total Money
Market
operations
% of Call
Money to
Money
Market
MIBOR CALL RATE CBLO RATE MARKET
REPO RATE
7/5/2011 46500 30.61 6.85 6.62 5.21 5.86
8/5/2011 46063 28.86 6.05 5.87 4.14 4.68
10/5/2011 47443 30.22 3.03 2.79 0.84 1.91
14/5/2011 47554 30.12 8.82 8.70 7.74 7.75
15//5/2011 43297 33.09 9.31 9.08 7.80 7.91
16/5/2011 41140 28.19 9.06 8.87 7.78 7.85
17/5/2011 41400 30.02 8.60 8.46 7.80 7.87
MIBOR RATE POOLED AT NSE AT 9.30 A.M. AND ANNOUNCED AT 9.40 A.M.
CBLO RATE ADVISED BY CCIL AND MARKET REPO RATE APPEARS IN RBI WEBSITE
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FINANCIAL INSTITUTIONS
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SECURITIES TRADING
CORPORATION OF INDIA
STCI set up in May,1994 as market maker of
Government Securities.
Largest Primary Dealer-Vision as Future
Debt House of India.
Develops active secondary market for Govt.
securities and Bonds of PSUs.
An Approved Financial Institution underBRA and RBI Acts.
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STCI
Authorized and Paid up CapitalRs. 500 Cr.
Asset Portfolio- Rs. 3000 Cr.
Govt. of India dated Securities
State Govt. Development Loan Bonds.
Treasury Bills
Net Owned Funds- Rs. 801 Cr.(Mar. 2002)
RBI extends conditional liquidity support
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STCI
MAIN FUNCTIONS-
Participation in primary issues
Underwriting primary issuesMarket making
Trading
(IN GOVT. SECURITIES)Primary/Secondary Mkt-
IN PSUs/Corporate Bonds)
CPs/ICDs and CDs
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STOCK HOLDING CORPORATION OF INDIA LTD
SHCIL
Started in 1988 as a premier Custodian for shares
traded by FIs/FIIs/Domestic Mutual Funds and
Insurance majors. Largest Depository Participant in the country
Promoted by All India Financial Institutions
Has 100 offices in the country
Now a major DP for individual investors
with over 700000 clients.
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SHCIL
OBJECTIVES:-
On-line servicing
Market making
Research reports
Govt. Bonds trading/holding in demat form
Securities lending schemes.
investor counselling/new products.
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CLEARING CORPORATION OF
INDIA LTD(CCIL)
Promoted by leading Banks/Fin. Insttns.
Localises risk of settlements to participants in themoney/debt/forex market.
Continuous linked settlements(CLS) for cross-
currency cases and FX-Clear for Re/Dollarsettlements
Settlements through members accounts with theRBI.
For funds(on multilateral netting basis) For Securities(on gross/trade by trade basis)
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CCIL
All original trades are on -line through NDSPlatform via INFINET network throughVSAT/Leased lines.
After trades are concluded on NDS-detailstransmitted online to CCIL for settlement
CCIL becomes a central counter- party toevery trade through novationguaranteessettlement of trades.
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CCIL- FUNCTIONS
Business & technical validation of trades.
Checks exposure limits in respect ofvalidated trades.
Guarantees settlements where members getTrade Acceptance Report
If trade exceeds exposure limit, undertakes
settlement on behalf of the member withoutany guarantee.
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CCIL-FUNCTIONS
Generates final securities/funds obligations
report to each member on daily basis.
Delivers settlement files to RBI-
Member-wise security wise payin/pay-outs
Member-wise net funds receivable/payable
RBI debits/credits members account who have
unique Ids and pass- words.
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CCIL-FUNCTIONS
G-SEC SETTLEMENTS- Linkages with Brokers/Depositories/MFs/FII
On line time bound concerted action.FOREX SETTLEMENTS-
Continuous linkage system with markets
FOREX DEALINGS-
COLLATERALISED BORROWING & LENDINGOBLIGATIONS(CBLO)
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CCIL-CBLO
Money Market instrument for 1 day to 1 year tenureIssued at a discount to Face value
Obligation to return the main security on thespecified date.
Option to transfer the rights to the lender
Charge on the security with the CCIL- electronicbook entry form. Settlement throu RBI/Banks
Facilitates expanding the depth of debt market andeasy liquidity in repo market
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CCIL-CBLO
Presents short term investment opportunity to non-
banking entities.
Develops short term reference rates for Inter Bank
transactions Reduces counter-party risk through the settlement
mechanism.
Covers Order management,Trade management,
Risk management,Market information, Positionmonitoring and query clarifications.
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Securities Lending & Borrowing
Scheme ( SLBS)
A system wherein one can lend and
borrow securities for T+8 days.
ALBS launched in 1997 was withdrawnin 2001 for lack of transparency and
specified process.
New scheme SLBS with technologybackup and regulatory mechanism
introduced.
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Securities Lending & Borrowing Scheme
( SLBS)
Advantages:-
Owner of bulk shares for Investment, can earn
some fees on these idle assets by lending them
for short periods. Promotes short selling and borrowing of securities
for short term.
Increases liquidity in the cash market.
Leads to efficient price discovery
Another platform for trading opportunity.
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Securities Lending & Borrowing Scheme
( SLBS)
The Process:
Parties Involved:
Client( borrower & lender)-opens account with SLBSParticipant having CDSL or NSDL account.
SLBS Participant could be a Bank, broker etc. SLBS Participants have to register themselves with an
Approved Intermediary( AI) NSCCL.
AI is a middle person to smoothen the process and mitigatethe risk.
For the present the clients have to trade through SLBSParticipants only.
Market timing 10.00 a.m. to 11.00 a.m.
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Securities Lending & Borrowing Scheme
( SLBS)
First leg-settlement T +1
Margin to be given by both lender and
borrower
Second leg-settlement-T+8
Margin to be given by borrower only.
Borrower meets the second leg obligation by
buying on T+5 from the market and delivering
on T+8
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Securities Lending & Borrowing Scheme
( SLBS)
Limitations:- Margins too high
( SEBI has now allowed cross margining)
Individuals cannot trade directly
5 days is too short a period for trade.
No mechanism to find out a prospective lender. SLBM only on F & O Group stocks, so limits.
(A good too l to manage portfo l io eff ic ient ly.)
Bhavesh Shah(VP),Asit C Mehta
(Insurance funds, Pension fund s and mutual funds w ithcorepo rtfo l ios fo r long -term du rat ion wil l be the lenders-)
Am itabh Chakraborty , Rel igare Securi t ies