MONEY MARKETS

REPOS (READY FORWARD) TRANSACTIONS

1. 2. 3. 4.

5. 6.

7.

Collateralised lending a debt-security sold to repurchase in future at a fixed price/date. Widely resorted to by RBI-Overnight and Term repos. Master Agreements and Margins are fixed. Margin calculated on the current market price of the security plus accrued interest thereon. Risks involved Counter party risk and Issuer risk. Double Ready Forward transactions refer to sale of one security with intend to repurchase and a matching purchase of one security with intend to sell. Reverse repo facility refers to security purchased now with intend to re-sell later

ADVANTAGES

Increases turnover in the money market. Volumes of trade in debts increase. Delivery vs. Payment mechanism. Confirmation & matching of trades automated.

KINDS
BUY-SELL REPO. CLASSIC REPO.-INTEREST PAID SEPARATELY. HOLDIN CUSTODY REPO HAIR CUTS. BOND LENDING COVER FEE BASED. TRIPARTITE REPOS.

NEW!!Marginal Standing Facility

Effective 7-5-11, RBI has opened new window for Banks 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.

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.

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 Bank shows as Borrowing from Banking System and Lending Bank shows as Advance to Banking System and hence affects CRR/SLR.

Money Market Mutual Funds(MMMFs)

Nature Tenure Instrument Mode of Payment Min. Size Interest Participants Advantages

Short Term money market Instruments.) Min.-15 days Max-90 days. Units ChequeNot fixed Issued at discounted valueDiscounted market guidedHigh net worth individuals. 1. Smoothens short term liquidity imbalances. 2. Facilitates saving surpluses. contd.-2

-2

Eligibility Norms 1. The sponsoring Bank can raise upto 2% of its fortnightly average aggregate deposits.

Disadvantages: has rendered the

PSUs/debentures Sector Units.

Investments restrictions as under 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 corporate deposits/bonds of of Public

BECAUSE OF THE INHERENT RESTRICTIONS AS STATED ABOVE THE MMMF OPERATIONS ARE ON A VERY LOW KEY.

Commercial Paper (CPs)

Nature Tenure Instruments Mode of Payment Min. Size Interest

Participants

Advantages

Usance Promissory Note. (Short Term money market Instruments.) Min.-7 days to 12 mths. Written Prom. Note. ChequeRs. 100000 and multiplies. Issued at discounted valueDiscount market guided(Redeemable at par) Corporates/Primary Dealers And Satellite Dealers. All India FIs. 1. Can be rediscounted with RBI. 2. Gives liquidity. 3. Easy to raise as stand-alone facility. contd-2

Eligibility Norms 1. Tangible Net worth not less than Rs. 4 crore 2. Fund based working capital limits duly sanctioned 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.

Procedure

1. Apply to RBI with Credit rating. 2. To be privately placed within 2 weeks of approval through Merchant Bankers. 3. Enter into agreement with NSDL for issuing CPs in Demat form. 4. Draft principal document.adjudicate jumbo CP certificate and stamp. 5. Advise RBI within 3 days of issue. 6. Instruct NSDL to transfer CPs to CP allotment account of the IPA and advise DP id, client id, for credit to customers account next day. Standby assistance/credit back-stop facilities have provided credit enhancement mechanism to the CPs.

Present Status

 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 be submitted 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.

Procedure for redemption of CPs

1.

2.

3.

The holder of Demat CPs approach the DPs, gives transfer/delivery instructions for transfer of CP to CP redemption a/c of IPA. Transfer is done before 3.00 p.m. on one working day previous to the due date. After ensuring the receipt of CPs in the redemption a/c from DP, IPA makes payment and advises Registrar to extinguish quoting the ISIN.

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 ChequeMin. Size Rs. 100000 and multiplies Interest Issued at discounted valuediscount market guided-

Participants Advantages

Commercial Banks/AIFIs. 1. Can be rediscounted with RBI. 2. Gives liquidity. 1. Attracts stamp duty as Applicable to Negotiable Instruments. 2. Banks to maintain SLR/CRR on issue price. 3. Transferable by endorsement and delivery.

Other Aspects.

Treasury Bills

14 days-91 days-182 days-364 days

Nature

Tenor Instrument Mode of Payment Min. Size Interest

Claims against Central Govt. (Negotiable short Term money market Instruments.) 14-91-182-364 days No Script (through SGL A/C) -DORs. 100000 Auctioned at discounted valuediscount market guided-reset quarterly

Participants Advantages RBI.

Inter Bank/FIs 1. Can be rediscounted with 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.

Call and Notice Money

Nature Tenure Instrument Mode of Payment Min. Size Interest Participants

Short term money market Instrument Overnight to 14 days Deposits Cheque drawn on RBI Rs. 10 crores. Vary from 2% to 15% Depending on market Inter Bank/PDs-lenders & borrowers Corporates lend through PDs.

Call and Notice Money(contd)

Advantages 1. Approved security for SLR/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 BanksLenders

CASH MANAGEMENT BILLSa new product !!

A NEW PRODUCT OF 63-DAYS TENOR ISSUED BY RBI for Rs. 8000 Cr. (dated -19-4-2011)(Due-22-6-11) ISSUED FOR MATURITIES OF LESS THAN 91 DAYS A NON-STANDARD, ZERO COUPON INSTRUMENT. TO MEET TEMPORARY CASH REQUIREMENTS OF THE GOVT.

DEBT MARKETS

LONG TERM DEBT MARKETS

GOVT GILT EDGED MARKET (GOVT. SECURITIES MARKET)

PLAYERS RBI STCI PRIMARY DEALERS FIs AND BANKS LIC/GIC/FINANC E COS. MFG/TRADING Cos. GOVT. BONDS/PSU/UTI BONDS INSTRUMENTS SGL A/C STOCK CERTIFICATES PROMISSORY NOTES BANKERS RECEIPTS/SGL SEGMENTS PRIMARY MKT PRIMARY MKT SECONDARY MKT -do-doPRIMARY MKT.

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

PRIMARY DEALERS
Salient Features

Helps place G. Sec. In primary marketcommitment. Generates active secondary market. Acts as conduit for OMO of RBI. Signals RBI for market intervention

PRIMARY DEALERSELIGIBILITY NORMS

A. B. C.

D. E.

F. G.

Minimum NOF Rs. 100 Crore. Subsidiaries of Banks & Fis. Commitment for 100% of T.Bills & G.Sec. with success ratio of 33.33% & 40% respty. Shall offer two way quotes. Annual turnover not less than 5 times for G.Sec. and 10 times for Treasury Bills. Shall maintain adequate CAR. Shall enjoy privilege of maintaining Current a/c, SGL account, liquidity support, dealing in money market etc.

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 FOR DATED 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.

SATTELITE DEALERS

Are appointed to co-exist with PDs in smaller towns. 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.

SECURITIES MARKET (OTHERS)

A.

DEBT MARKET
DEBENTURES.

1)

2)

BONDS OF EXTG. COS.

ZERO COUPON BONDS. FLOATING RATE BONDS.

3)

4)

SECURITIES MARKET
PRIMARY MARKET SECONDARY MARKET

Call Money-Lendings(daily turnover)

Rs. In Crores 11/00 12/01 10525 9116 3107 2350 10012 11/05 11861 264 5552 03/2009 1260 -----04/2011 17285 ----03/2013 29600 Banks PDs (56) NBFIs.

MONEY MARKET INSTRUMENTS-VOLUMES!!

REPO/REVERSE REPO/MSF 31-3-2013Net 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%)

GOVT SECURITIES (Turnover) (Rs. In Cr.) Turnover02/2010 25/3/11 31/3/13

Govt. of India Dated Securities80550 State Govt. Security 3874 91 days Treasury Bill 11919 182 days Treasury Bill 190 364 days Treasury Bill 1955 compared to Corporate debt ( on NSE) Rs. 12576 Cr.

45473 646 13804 1542 1862

51100 1900 2300 2200 3600

NSE-TRADING VOLUMESName of the Instrt Equity Index Futures Stock Futures Index options Stock options WDM Trading volume(Cr.) 6,21,569 43,952 2,86,532 9,247 1,00,133 10,68,701 No. of trades 240,000,000 21,26,763 106,76,843 4,42,241 35,23,062 1,67,778 Trdg.siz e(Cr) 0.0026 0.02 0.027 0.021 0.028 6.37

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 8/5/2011 10/5/2011 14/5/2011 15//5/2011 16/5/2011 17/5/2011

46500 46063 47443 47554 43297 41140 41400

30.61 28.86 30.22 30.12 33.09 28.19 30.02

6.85 6.05 3.03 8.82 9.31 9.06 8.60

6.62 5.87 2.79 8.70 9.08 8.87 8.46

5.21 4.14 0.84 7.74 7.80 7.78 7.80

5.86 4.68 1.91 7.75 7.91 7.85 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

FINANCIAL INSTITUTIONS

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 under BRA and RBI Acts.

STCI

Authorized and Paid up Capital Rs. 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

STCI

MAIN FUNCTIONSParticipation in primary issues Underwriting primary issues Market making Trading (IN GOVT. SECURITIES) Primary/Secondary MktIN PSUs/Corporate Bonds) CPs/ICDs and CDs

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.

SHCIL

OBJECTIVES:On-line servicing Market making Research reports Govt. Bonds trading/holding in demat form Securities lending schemes. investor counselling/new products.

CLEARING CORPORATION OF INDIA LTD(CCIL)

Promoted by leading Banks/Fin. Insttns. Localises risk of settlements to participants in the money/debt/forex market. Continuous linked settlements(CLS) for crosscurrency cases and FX-Clear for Re/Dollar settlements Settlements through members accounts with the RBI. For funds(on multilateral netting basis) For Securities(on gross/trade by trade basis)

CCIL

All original trades are on -line through NDS Platform via INFINET network through VSAT/Leased lines. After trades are concluded on NDS-details transmitted on line to CCIL for settlement CCIL becomes a central counter- party to every trade through novation guarantees settlement of trades.

CCIL- FUNCTIONS

Business & technical validation of trades. Checks exposure limits in respect of validated trades. Guarantees settlements where members get Trade Acceptance Report If trade exceeds exposure limit, undertakes settlement on behalf of the member without any guarantee.

CCIL-FUNCTIONS

Generates final securities/funds obligations report to each member on daily basis. Delivers settlement files to RBI

Member-wise security wise pay in/pay-outs Member-wise net funds receivable/payable RBI debits/credits members account who have unique Ids and pass- words.

CCIL-FUNCTIONS
G-SEC SETTLEMENTSLinkages with Brokers/Depositories/MFs/FII On line time bound concerted action. FOREX SETTLEMENTSContinuous linkage system with markets FOREX DEALINGSCOLLATERALISED BORROWING & LENDING OBLIGATIONS(CBLO)

CCIL-CBLO

Money Market instrument for 1 day to 1 year tenure Issued at a discount to Face value Obligation to return the main security on the specified date. Option to transfer the rights to the lender Charge on the security with the CCIL- electronic book entry form. Settlement throu RBI/Banks Facilitates expanding the depth of debt market and easy liquidity in repo market

CCIL-CBLO

Presents short term investment opportunity to nonbanking 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, Position monitoring and query clarifications.

Securities Lending & Borrowing Scheme ( SLBS) A system wherein one can lend and borrow securities for T+8 days. ALBS launched in 1997 was withdrawn in 2001 for lack of transparency and specified process. New scheme SLBS with technology backup and regulatory mechanism introduced.

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.

Securities Lending & Borrowing Scheme ( SLBS)

The Process:

Parties Involved: Client( borrower & lender)-opens account with SLBS Participant 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 mitigate the risk. For the present the clients have to trade through SLBS Participants only. Market timing 10.00 a.m. to 11.00 a.m.

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

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 tool to manage portfolio efficiently.) Bhavesh Shah(VP),Asit C Mehta

(Insurance funds, Pension funds and mutual funds withcore portfolios for long-term duration will be the lenders-)
Amitabh Chakraborty, Religare Securities