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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.


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


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



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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( 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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( 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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( 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

m Market

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