MONEY MARKET INSTRUMENT
COLLATERALISED BORROWING & LENDING
1) AN INTRODUCTION TO MONEY MARKET
2) INTRODUCTION TO CBLO
3) INTRODUCTION TO CCIL
5) WORKING OF CBLO
6) LOOPHOLES IN THE MARKET
7) EXEMPTIONS & PROVISIONS
8) ADVANTAGES OF CBLO
9) CBLO – PROPOSED TO BE USED AS A BENCHMARK RATE
10)CBLO GENERATES ARBITRAGE OPPORTUNITIES
11)CBLO AND MANAGEMENT OF RISK
THE MONEY MARKET
The money market is the market for financial assets that are close substitutes of money .It is a market for short-term funds and instruments having a maturity period of one or less than one year.It is not a single market but a collection of markets for several instruments.It is a need based market where demand and supply of money shape the market. Thus , a money market provides a balancing mechanism to even out the demand for and supply of short term funds. An efficient money market provides liquidity . Perhaps the biggest advantage and the most attractive feature of the money market is liquidity.. This means that if an investor wants to liquidate a money market position, he or she will have very little trouble turning the funds into cash. Money market provides a stable source of funds to banks and encourages the development of non bank intermediaries .
MONEY MARKET INSTRUMENTS :
Call money market
Certificates of deposits
COLLATERALISED LENDING AND BORROWING OBLIGATIONS
COLLATERALISED BORROWING AND LENDING OBLIGATION (CBLO)
RBI, in its Mid-Term Review of Monetary and Credit Policy for the year 2002-03, announced the introduction of "Collateralised Borrowing and Lending Obligation (CBLO)", a product developed by CCIL, as a money market instrument and subsequently issued detailed operative guidelines for the product. CBLO is a discounted instrument issued in electronic book entry form for the maturity period ranging from one day to one year. CCIL provides a dealing platform through which market participants can borrow and lend funds. COLLATERALISED BORROWING & LENDING OBLIGATION
It is an obligation by the borrower to return the money borrowed, at a specified future date and authority to the lender to receive money lent, at a specified future date with an option/privilege to transfer the authority to another person for value received INTRODUCTION OF CCIL
The Clearing Corporation of India Ltd. (CCIL) was set up in April, 2001 for providing exclusive clearing and settlement for transactions in Money, GSecs and Foreign Exchange. The prime objective has been to improve efficiency in the transaction settlement process, insulate the financial system. The Clearing Corporation of India Ltd. (CCIL), the clearing agency, operates a market for CBLOs—a form of tripartite repo (approved by the RBI) that allows market participants to create borrowing facilities by placing collateral securities (government bonds and treasury bills) at the CCIL. Borrowers can then bid for funds (up to their collateral’s value less a discount margin) through the CBLO system—a transparent, electronic order book. CBLOs are an innovative technique unique to India, developed to supplement and possibly supplant the bilateral repo market. Established in 2001, CCIL is India's first exclusive clearing and settlement institution to provide guaranteed settlement facility for transactions in government securities, money market instruments, and foreign exchange.
Initially the membership of cblo segment was extended to banks , primary dealers , mutual funds, financial institutions and insurance companies that are the members of negotiated dealing system .The range of the participants has been widening overtime. By January 2004 , the non NDS members like corporates , cooperative banks, non bank financial companies , pension funds and trusts are also eligible to borrow and lend in the CBLO market.
WORKING OF CBLO :...
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