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ORGANISED INSTRUMENTS
1. Call money market
2. Treasury Bills
. Commer!ial "a#ers$. Certi%i!ate o% De#osits
&. Re#o ' Re(erse re#o
). MMM*s
+. D*,I-. A*
/. CBO
prof. Nandini Katti
MONEY MARKET INSTRUMENTS
UNORGANISED
INSTRUMENTS
1. In0ienous Bankers
2. Cit %un0s. Ni00is
$. Money len0ers
&. *inan!e !om#anies
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It is a market %or o(ernit to sort term %un0s an0
instruments a(in a maturity #erio0 o% one or less tan one
year.. Te money market !onstitutes a (ery im#ortant sement o%
te In0ian %inan!ial system Te a(erae turno(er o% te money market in In0ia is o(er
Rs. $3333 !rores 0aily Tis im#lies tat 2 4 o% annual GD" o% In0ia ets tra0e0 in
te money market in 5ust one 0ay6 an0 ten trou te moneymarket it is many times larer tan te !a#ital market6 it is not
e(en a %ra!tion o% te 0aily tra0in in 0e(elo#e0 markets.
prof. Nandini Katti
INTRODUCTION
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Te !all money market is a market %or (ery sort term %un0s
re#aya7le on 0eman0 an0 8it a maturity #erio0 (aryin
7et8een one 0ay to a %ortnit
No !ollateral se!urity is re9uire0 to !o(er tese transa!tions.
Te !all money market is a ily li9ui0 market6 It is ily
risky.
Commer!ial 7anks 7orro8 money %rom oter 7anks to
maintain a minimum !as 7alan!e kno8n as te !as reser(e
re9uirement :CRR;. Tis inter 7ank 7orro8in as le0 to te
0e(elo#ment o% te !all money market. Te interest rate #ai0
on !all loans is kno8n as te to>0ay our>to>our. It is (ery sensiti(e
to !ane in te 0eman0 %or an0 su##ly o% !all loans. ?itin
one %ortnit rate are kno8n to a(e mo(e0 %rom 1>2 #er!ent
to (ary 1$34prof. Nandini Katti
Call/Notice Money market
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Treasury 7ills are sort term instruments issue0 7y teReser(e Bank on 7eal% o% te o(ernment to ti0e o(er sort
term li9ui0ity sort%alls.
Tis instrument is use0 7y te o(ernment to raise sort>term
%un0s to 7ri0e seasonal or tem#orary a#s 7et8een its
re!ei#ts :Re(enue an0 !a#ital; an0 e@#en0iture.
Tey %orm te most im#ortant sement o% te money market
not only in In0ia 7ut all o(er te 8orl0 as 8ell.
T – Bills are reai! at ar on mat"rity. Te 0i%%eren!e
7et8een te amount #ai0 7y te ten0er at te time o% #ur!ase.
:8i! is less tan te %a!e (alue; an0 te amount re!ei(e0 on
maturity re#resent te interest on T 7ills an0 is kno8n as te
0is!ount. Ta@ 0e0u!te0 at sour!e :TDS; is not a##li!a7le on T
7ills.prof. Nandini Katti
Treas"ry Bills
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#eat"res o$ T – %ills&
Tey are neotia7le se!urities.
Tey are ily li9ui0 as tey are o% sorter tenure an0 tereis a #ossi7ility o% te inter7ank re#os in tem.
Tere is an a7sen!e o% 0e%ault risk.
Tey a(e an assure0 yiel0 lo8 transa!tion !ost6 an0 are
elii7le %or in!lusion in te se!urities %or SR #ur#oses. Tey are not issue0 in s!ri# %rom. Te #ur!ases an0 sales are
e%%e!te0 trou te su7si0iary eneral le0er :SG; a!!ount.
At #resent tere are /1 0ays6 1-2 0ays an0 )$ 0ays. T 7ills
in (aue. Te /1 0ays T 7ills au!tione0 7y te RBI e(ery*ri0ay an0 te )$ 0ays T 7ills e(ery alternate ?e0nes0ay
i.e. te ?e0nes0ay #re!e0in te re#ort on *ri0ay.
Minimum amount o% %a!e (alue Rs.1 la! an0 in multi#les
tereo%. Tere is no s#e!i%i! amountlimit on te e@tent to
8i! tese !an 7e issue0 or #ur!ase0.prof. Nandini Katti
Treas"ry Bills
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Te 8orkin Grou# on Money Market in 1/-+sueste0 te intro0u!tion o% te !ommer!ial #a#er
:C"; in In0ia.
Te Reser(e Bank intro0u!e0 !ommer!ial #a#ers in
anuary 1//3 . A !ommer!ial #a#er is an unse!ure0 sort>term
#ermission rate6 neotia7le an0 trans%era7le 7y
en0orsement an0 0eli(ery 8it a %i@e0 maturity
#erio0. It is enerally issue0 at a 0is!ount 7y te
lea0in !re0it 8orty an0 ily rate0 !or#orate to
meet teir 8orkin !a#ital re9uirements.
prof. Nandini Katti
Commercial aer
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De#en0in u#on te issuin !om#any6 a !ommer!ial
#a#er is also kno8n as a %inan!e #a#er6 in0ustrial #a#er6
or !or#orate #a#er.
It is also kno8n as %inan!e #a#er6 in0ustrial #a#er or!or#orate #a#er.
All In0ia %inan!ial institution !an also issue C"=s.
It !an also 7e issue0 in interest 7earin %orm.
prof. Nandini Katti
Commercial aer
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'"i!elines Relatin( to C)s > Te maturity #erio0 is a minimum %or +
0ays an0 ma@imum u#to one year. %urter 7rout 0o8n to +0ays in A#ril
233$. Te minimum sie o% te C" is Rs.& lak an0 in multi#les o% it.
Eli(i%ility& * Cor#orate6 #rimary 0ealers an0 all In0ia %inan!es institutions
are elii7le to issue a C". *or a !or#orate to 7e elii7le6 it soul0 a(e
tani7le net 8ort o% Rs. $ !rores an0 a san!tione0 8orkin !a#ital limit
%rom a 7ank or a %inan!ial institution an0 te 7orro8er a!!ount is a
stan0ar0 asset.
Ratin( Re+"irement& Te minimum !re0it ratin sall 7e "2 o% CRISI
or su! e9ui(alent ratin 7y oter a##ro(e0 aen!ies.
In,estment in C)s& in0i(i0uals6 7anks6 !or#orate 7o0ies6 NRIs6 *IIs are
elii7le to in(est.
Iss"in( - )ayin( A(ent .I)A; only a s!e0ule0 !ommer!ial 7ank !an a!t
as an I"A.
prof. Nandini Katti
Commercial aer
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A !ommer!ial 7ill is a sort term6 neotia7le an0 sel%>
li9ui0atin instrument 8it lo8 risk.
It enan!es te ia7ility to make #ayment on a %i@e0
0ate 8en oo0s are 7out on !re0it.
A!!or0in to te In0ian Neotia7le Instruments A!t6
1--16 a 7ill o% e@!ane is a 8ritten instrument!ontainin on un!on0itional or0er sine0 7y te
maker6 0ire!tin to #ay a !ertain amount o% money
only to a #arti!ular #erson6 or to te 7earer o% te
instrument. Bills o% e@!ane are neotia7le instrument 0ra8n
7y te seller :0ra8er; on te 7uyer :0ra8ee; %or te
(alue o% te oo0s 0eli(ere0 to im. Su! 7ills are
!alle0 tra0e 7ills prof. Nandini Katti
Commercial Bills
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When trade bills are accepted by commercialbanks, they are called commercial bills.
The bank discounts these bills by keeping acertain margin and credits the proceeds.
Banks when in need of money can also getsuch bills rediscounted by nancial institutionssuch as L!, "T, #!, !! and $B.
The maturity period of the bills %aries from &'days, (' days or )' days depending on thecredit e*tended in the industry.
prof. Nandini Katti
Commercial Bills
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Certi%i!ates o% 0e#osit :CD; are unse!ure06 neotia7le6
sort term instruments in 7earer %irm6 issue0 7y!ommer!ial 7anks an0 0e(elo#ment %inan!ial
institutions.
Certi%i!ates o% 0e#osit 8ere intro0u!e0 in une6 1/-/.
Only s!e0ule0 !ommer!ial 7anks e@!isin Reional
Rural Banks an0 lo!al Area Banks 8ere allo8e0 to issue
tem initially.
*inan!ial institutions 8ere #ermitte0 to issue!erti%i!ates o% 0e#osit 8itin te um7rella limit %i@e0 7y
te Reser(e Bank in 1//2.
prof. Nandini Katti
Certi$icates o$ Deosit:
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Certi%i!ates o% 0e#osit are time 0e#osits o% s#e!i%i! maturity
similar to %i@e0 0e#osits :*D;. Te 7iest 0i%%eren!e 7et8een te t8o is tat CDs6 7ein in
7earer %orm6 are trans%era7le an0 tra0a7le 8ile *Ds are not.
ike oter time 0e#osits6 CDs6 are su75e!t to SR an0 CRR
re9uirement. Tere is no !eilin on te amount to 7e raise0 7y
7anks.
Te 0e#osits attra!t stam# 0uty as a##li!a7le to neotia7le
instruments.
Tey !an 7e issue0 to in0i(i0uals. Cor#orations6 !om#anies6
trusts6 %un0s6 asso!iates6 an0 oters.
. Non>Resi0ent In0ians :NRIS; may also su7s!ri7e to CDs6 7ut
only on a non>re#atria7le 7asis 8i! soul0 7e !learly state0
on te !erti%i!ate su! CDs !annot en0orse0 to anoter NRI in
te se!on0ary market. prof. Nandini Katti
Certifcates o Deposit:
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Te D*,I 8as set u# in A#ril6 1/-- 7y te Reser(e Bank 8it
te o75e!ti(e o% 0ee#enin an0 a!ti(atin te money market. It!ommen!e0 its o#erations %rom uly2-6 1/--.
It is a 5oint sto!k !om#any in %orm an0 is 5ointly o8ne0 7y
te Reser(e 7ank6 #u7li! se!tor 7anks an0 all In0ia %inan!ial
institutions 8i! a(e !ontri7ute0 to its #ai0 u# !a#ital o%Rs.233 !rore in te #ro#ortion o% &2. In a00ition re%inan!e
%a!ility 8it te Reser(e 7ank an0 !re0it o% Rs. 133 !rore %rom
2- #u7li! se!tor 7anks on a !onsortium 7asis are te !ourses
o% its %un0s.
Te role o% te D*,I is to %un!tion as a s#e!ialie0 money
market interme0iary %or stimulatin a!ti(ity in money market
instruments an0 0e(elo# se!on0ary markets in tese
instruments.
prof. Nandini Katti
!isco"nt an! #inance o"se o$ In!ia .D#I0&
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It also un0ertakes sort term 7uy 7a!k o#eration in
te o(ernment an0 a##ro(e0 0ate0 se!urities
Te D*,I mo7ilies %un0sresour!es %rom
!ommer!ial!oo#erati(e 7anks %inan!ial institutions6an0 !or#orate entities a(in resour!es to len0 8i!
are #oole0 an0 lent in te money market.
Te t8o 8ay reular 9uotes in money market
instruments #ro(i0e0 7y te D*,I ser(e as a 7ase to 7roa0en te se!on0ary market an0 i(e an assure0
li9ui0ity to te instruments.
prof. Nandini Katti
!isco"nt an! #inance o"se o$ In!ia
.D#I0&
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Money Markets Mutual *un0s :MMM*; 8ereintro0u!e0 in A#ril 1//1 to #ro(i0e an a00itional
sort term a(enue %or in(estment an0 7rin money
market in(estment 8itin te rea! o% in0i(i0uals.
Tese mutual %un0s 8oul0 7e in(este0 e@!lusi(elyin money market instruments.
MMM* 7ri0es te a# 7et8een small in0i(i0ual
in(estors an0 te money market. MMM* mo7ilies sa(ins %rom small in(estors an0
in(est tem in sort term 0e7t instruments or money
market instruments
prof. Nandini Katti
Money market MutualFunds:
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Base0 on te re!ommen0ations o% te task %or!e6 a
0etaile0 s!eme o% MMM* 8as announ!e0 7y te
Reser(e Bank in A#ril 1//2.
Te MMM* #ort%olio !onsists o% sort term money
market instruments. An in(estor in(estin in MMM*
ets a yiel0 !lose to sort term money market rates
!ou#le0 8it a0e9uate li9ui0ity.
prof. Nandini Katti
Money market MutualFunds:
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Te Narsiman Committee on Bankin Se!tor Re%orms
:Re#ort II6 1//-; re!ommen0e0 tat te Reser(e Bank #ro(i0e
su##ort to te market trou an A* s!eme.
Tis %a!ility 8oul0 el# in a0e9uate li9ui0ity.
Te interim A*6 intro0u!e0 in A#ril 1///6 #ro(i0e0 a
me!anism %or li9ui0ity manaement trou a !om7ination
o% re#os6 e@#ort !re0it re%inan!e6 su##orte0 7y OMO at setrates o% interest.
Te interim A* 8as ra0ually !on(erte0 into a %ull>%le0e0
A* s!eme.
It 8as im#lemente0 in tree #ases6 in te %irst #ase6 teAC* %or 7anks an0 #rimary 0ealers6 in te se!on0 stae te
C" %or 7anks an0 #rimary 0ealer 8as re#la!e0 7y (aria7le
re(erse re#o 9uestionsF an0 in te %inal stae6 te A* 8ill 7e
o#erate0 at 0i%%erent timins on te same 0ay in ne!essary.prof. Nandini Katti
Liquidity Adjustment Facility:
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Te ma5or %un!tion o% te money market is to #ro(i0e
li9ui0ity.
To a!ie(e tis %un!tion an0 to e(en out li9ui0ity !anes6 te
Re(erse Bank uses re#os.
Re#o is a use%ul money market instrument ena7lin te
smoot a05ustment o% sort>term li9ui0ity amon (arie0
market #arti!i#ants su! as 7anks an0 %inan!ial institutions. Re#o re%ers to a transa!tion in 8i! a #arti!i#ant a!9uires
imme0iate %un0s 7y sellin se!urities an0 simultaneously
arees to te re#ur!ase o% te same or similar se!urities a%ter
a s#e!i%ie0 time at a s#e!i%ie0 #ri!e. Re#o is also re%erre0 to as a rea0y %or8ar0 transa!tion as it is
a means o% %un0in 7y sellin a se!urity el0 on a s#ot 7asis
an0 re#ur!asin te same on a %or8ar0 7asis.
prof. Nandini Katti
Reos& *
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te o##osite o% re#o> a #arty 7uys a se!urity %rom
anoter #arty 8it a !ommitment to sell it 7a!k to telatter at a s#e!i%ie0 time an0 #ri!e.
In oter 8or0s6 8ile %or one #arty te transa!tion is
re#o6 %or anoter #arty it is re(erse re#o.
A re(erse re#o is un0ertaken to earn a00itional in!ome
on i0le !as. In In0ia6 re#o transa!tions are 7asi!ally
%un0 manaementSR manaement 0e(i!es use0 7y
7anks
prof. Nandini Katti
Re,erse reo
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Te !learin !or#oration o% In0ia imite0 :CCI;
laun!e0 a ne8 #ro0u!t !ollateralie0 Borro8in an0
len0in o7liation :CBO; on anuary 236 233 to
#ro(i0e li9ui0ity to non>7ank entities it 7y
restri!tions on a!!ess to te !all money market.
Te minimum or0er lot %or au!tion market is
Re.&lak an0 in multi#les o% Rs.& lak tereo%. Te
minimum or0er lot %or normal market is %i@e0 at Rs &lak an0 in multi#le o% Rs. &lak tereo%
prof. Nandini Katti
Collateralized Borrowin andLendin !"liation #CBL!$:
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Dic1otomy Str"ct"re
E2istence o$ t1e Unor(ani3e! Money Market
A%sence o$ Inte(ration
Di,ersity in Money Rates o$ Interests Seasonal Strin(ency o$ Money
A%sence o$ t1e Bill Market
4ess n"m%er o$ Dealers
A,aila%ility o$ cre!it instr"ments
A%sence o$ a 5ell* or(ani3e! Bankin( System
prof. Nandini Katti
Features and Deects o t%e &ndian money market'
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It is a sini%i!ant as#e!t o% te In0ian money
market. It as a simultaneous e@isten!e o% 7ot te
oranie0 money market as 8ell as unoranie0
money markets. Te oranie0 money market !onsists o% RBI6 all
s!e0ule0 !ommer!ial 7anks an0 oter
re!onie0 %inan!ial institutions. ,o8e(er6 te unoranie0 #art o% te money
market !om#rises 0omesti! money len0ers6
in0ienous 7ankers6 tra0er6 et!.
prof. Nandini Katti
Dic%otomy (tructure
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Te oranie0 money market is in %ull !ontrol o% te
RBI.
,o8e(er6 unoranie0 money market remains outsi0e
te RBI !ontrol.
Tus 7ot te oranie0 an0 unoranie0 money
market e@ists simultaneously.
prof. Nandini Katti
Dic%otomy (tructure
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Te ma5or 0e%e!t o% te In0ian money market as
al8ays 7een te e@isten!e o% te in0ienous 7ankers8o 0o not 0istinuis 7et8een sort>term an0 lon>
term %inan!e nor e(en 7et8een te #ur#ose o% %inan!e
:as te ,un0i 0oes not in0i!ate 8eter it is a
enuine tra0e Bill or a %inan!ial #a#er.; Many attem#ts 8ere ma0e 7y RBI to 7rin te
in0ienous 7ankers un0er its 0ire!t in%luen!e an0
!ontrol.
Durin te last &3 years6 tere are a 8ole lot o% non>
7ankin %inan!ial !om#anies :NB*C; 8o raise %un0s
o% %rom te eneral #u7li! 7ut 8o are enerally
outsi0e te !ontrol an0 su#er(ision o% RBI.prof. Nandini Katti
)*istence o t%e +noranized Money Market
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An im#ortant 0e%e!t o% te In0ian money market at
one time 8as te 0i(ision o% te money market in tose(eral sements or se!tions6 loosely !onne!te0 to
ea! oter.
Ea! se!tion o% te money market su! as te State
Bank o% In0ia an0 its su7si0iaries te %oreine@!ane 7anks6 te ur7an !o>o#erati(e 7anks an0
in0ienous 7ankers limite0 itsel% 7roa0ly to a
#arti!ular !lass o% 7usiness an0 remaine0 in0e#en0ent
in its o8n s#ere. Moreo(er6 te relations 7et8een te (arious se!tions
o% te Money market 8ere not !or0ial
prof. Nandini Katti
A"sence o &nteration
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Tis is so e(en no8 7et8een In0ian 7anks an0 %orein
7anks. ?it te #assae o% te Bankin Reulation A!t1/$/6 all 7anks a(e 7een treate0 e9ually 7y RBI as
rear0s li!ensin6 o#enin o% 7ran!es6 sare !a#ital6
te ty#es o% loans an0 a0(an!es to 7e i(en6 et!.
A!!or0inly6 te In0ian money market is ettin !loseinterate0. Besi0es RBI ui0es an0 0ire!t tem in teir
len0in #oli!ies an0 reularly ins#e!ts te 7ooks o%
s!e0ule0 !ommer!ial 7anks.
,o8e(er6 RBI=s !ontrol an0 monitorin o% te
!ommer!ial 7ankin se!tors are not %ully e%%e!ti(e. Tis
is !lear %rom ,arsa0 Meta s!an in 1//2 an0 etan
"arek s!an in 2331 prof. Nandini Katti
A"sence o &nteration
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Anoter 0e%e!t o% te In0ian money market relate0 to
te e@isten!e o% too many rest o% interest. Te 7orro8in rate o% te Go(ernment6 te 0e#osit an0
len0in rates o% !ommer!ial 7anks6 0e#osit an0 len0in
rates o% !oo#erati(e 7anks6 te len0in rates are
0i%%erent. Te 7asi! reason %or te e@isten!e o% so many rates o%
interest simultaneously is te immo7ility o% %un0s %rom
one se!tion o% te money market to anoter.
In re!ent years te 0i%%erent money rates o% interest a(e
7een #rom#tly a05ustin to !anes in te 7ank rate.
prof. Nandini Katti
Di,ersity in Money -ates o &nterests
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A (ery strikin !ara!teristi! o% te In0ian money 8as
te seasonal monetary strinen!y an0 i rates o%interest 0urin a #art o% te year 0urin te 7usy
season %rom No(em7er to une 8en %un0s are re9uire0
to mo(e te !ro#s %rom te (illaes an0 u#>!ountry
0istri!ts to te !ities an0 #orts. Durin te o%% season :uly to O!to7er; or sla!k season6
7anks a(e lare sur#lus %un0s an0 te rates o% interest
rea! lo8 le(els.
Tere are e(en no8 8i0e %lu!tuations in te money rates
o% interest %rom one #erio0 o% te year to anoter.
prof. Nandini Katti
(easonal (trinency o Money
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RBI attem#t to lessen te seasonal %lu!tuations in temoney market6 7y #um#in money into te money
market 0urin 7usy seasons an0 8it0ra8in te same
0urin o%% seasons.
Tis %eature o% money market seasonal strinen!y or
lut is #resent e(en no8.
prof. Nandini Katti
(easonal (trinency oMoney
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Anoter 0e%e!t o% te In0ian money market 8as te
a7sen!e o% a !ommer!ial Bill market or a 0is!ount
market %or sort term !ommer!ial 7ills.
A 8ell oranie0 7ill market is ne!essary %or linkin u#
te (arious !re0it aen!ies ultimately an0 e%%e!ti(ely toRBI. 7ill market 8as not mu! 0e(elo#e0 in In0ia 0ue to
reasons su! as te #ra!ti!e o% 7anks kee#in a lare amount o% !as %or
li9ui0ity #ur#oses6 #re%eren!e o% in0ustry an0 tra0e %or 7orro8in rater tan
re0is!ountin 7ills
te im#ro#er 0ra%tin o% te 7aaar un0i
prof. Nandini Katti
A"sence o t%e Bill Market
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te system o% !as !re0it as6 te main %orm o% 7orro8in %rom 7anks6
te #re%eren!e o% !as transitions in !ertain lines o%
a!ti(ity6 te a7sen!e o% 8areousin %a!ilities %or storin
ari!ultural #ro0u!e an0
te i stam# 0uty on eusan!e 7ills.
prof. Nandini Katti
A"sence o t%e Bill Market
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Anoter ma5or 0e%e!t o% te In0ian money market 8as te
a7sen!e o% a 8ell> oranie0 7ankin system. Bran! 7ankin 8as e@tremely slo8 7e%ore 7ank
nationaliation in 1/)/. Tere 8ere only a %e8 7i 7anks
in te !ountry an0 tey !on!entrate0 temsel(es in lare
to8ns an0 man0i to8ns.
Te e@treme sluisness in te mo(ement o% %un0s an0
te e@isten!e o% slo8 7ran! 7ankin in te !ountry.
In s#ite te (arious ste#s taken to strenten te In0ian 7ankin system RBI as %aile0 to really !entral an0 ui0e
it. In tis !onne!tion6 8e may re%er to tree instan!es.
prof. Nandini Katti
A"sence o a .ell/ oranized Bankin (ystem
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,arsa0 Meta enineere0 se!urities s!an in 1//2 7y
usin %un0s %rom 8ell kno8n 7anks6 7ot %orein an0
In0ian.
etan "arek use0 te %un0s o% ur7an !oo#erati(e 7anksan0 tese o% Bank o% In0ia an0 HTI to mani#ulate te
#ri!es o% sares o% a %e8 !om#anies in 8i! e 8as
intereste0. Tis le0 to a (irtual !ras o% te In0ian sto!k
market as a 8ole in 2331F an0 C.M. Aar8al o% ,ome Tra0e use0 te %un0s o% ur7an
!o> o#erati(e 7anks an0 o% #ension %un0s to #lay in te
ilt e0e0 market in Mar! 2332.prof. Nandini Katti
A"sence o a .ell/ oranizedBankin (ystem
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Till 1/-&>-)6 te In0ian money market 0i0 not a(e
a0e9uate sort term #a#er instruments.
A#art %rom te !all money market6 tere 8ere no
s#e!ialist 0ealers an0 7rokers 0ealin in 0i%%erentsements o% te In0ian money market an0 in 0i%%erent
kin0s o% #a#er instruments.
It 8as only a%ter 1/-&>-) tat RBI store0 intro0u!in
ne8 #a#er instruments su! as 1-2 0ays treasury 7ills6 later !on(erte0 to )$ 0ays treasury 7ills6
!erti%i!ates o% 0e#osits :CDs; an0 !ommer!ial #a#er
:C"s;.prof. Nandini Katti
A,aila"ility o creditinstruments
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Tere are #oor num7er o% 0ealers in te sort>termassets 8o !an a!t as me0iators 7et8een te
o(ernment an0 te 7ankin system.
Te less num7er o% 0ealers lea0s to te slo8 !onta!t
7et8een te en0 len0er an0 en0 7orro8ers
prof. Nandini Katti
Less num"er o Dealers
Re$orms o$ t1e In!ian Money Market
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Te In0ian money market as no8 7een !losely knittoeter6 at least in te oranie0 se!tor.
RBI as !onsi0era7ly re0u!e0 te 0i%%eren!es in te
rates o% interest 8i! e@iste0 in 0i%%erent #la!es an0 at
0i%%erent times6 RBI as 7een a7le to re0u!e !onsi0era7ly monetary
strinen!y trou o#en market o#erations an0 te 7ill
market s!eme.
Te In0ian money market is still !entere0 on te !all
money market 7ut a 7einnin as 7een ma0e to
0e(elo# a se!on0ary money market.
prof. Nandini Katti
Re$orms o$ t1e In!ian Money Market
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A ma5or #ro7lem in te !all money market is its i(olatility. In re!ent years6 te 9uantum o% !all money
transition as 7een in!reasin an0 te a(erae !all
money rates a(e 7een risin.
On te re(ie8 o% te 8orkin o% te Monetary System6
an0 te Narasiman Committee Re#ort on te ?orkin
o% te *inan!ial System in In0ia6 1//16 RBI as
initiate0 a series o% money market re%orms
prof. Nandini Katti
Re$orms o$ t1e In!ian Money Market
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As #art o% its anti>in%lationary #oli!y6 RBI a0 %ollo8e0 a stri!t
#oli!y o% interest rate !ontrol an0 reulatin 0e#osit rates o%
7anks6 len0in rates o% 7anks an0 %inan!ial institutions>all kin0s o% interest rates 8ere su75e!t to stri!t !ontrol an0
reulation 7y RBI.,o8e(er %rom 1/--6 RBI took ste#s to re0u!e te !eilin rate
on 7ank a0(an!es on inter7ank !all an0 sort noti!e money. *ollo8in te re!ommen0ations as te Narasimam
Committee in No(em7er 1//16 interest rates 8ere %urter
0ereulate0 an0 7ankin an0 %inan!ial institutes 8ere tol0 to
0etermine an0 a0o#t market relate0 rates o% interest.
prof. Nandini Katti
Rela2ation o$ Interest Rate Re("lations
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Te minimum len0in rate o% !ommer!ial
7anks an0 #u7li! se!tor 0e(elo#ment
%inan!ial institution :D*Is; 0e!line0 stee#ly
%rom 1- #er!ent in 1//3>/1 to 13.& #er!ent
in 233&>3).Te #resent #osition o% interest rate
reulations are
prof. Nandini Katti
Rela2ation o$ Interest Rate Re("lations
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RBI as !ontinue0 to re0u!e te 7ank rate %rom 13 #er!ent in 1//3>/1 to ) #er!ent in 233$>3& 7e!ause o%
im#ro(e0 li9ui0ity #osition 8it te 7ankin system
an0 also 7e!ause o% te nee0 to stimulate te e!onomy.
Interest rates on 0omesti! term 0e#osits a(e 7een
7roa0ly 0e!ontrolle0.
ike8ise rate o% interest on 7ank loans as 7een
0e!ontrolle0 an0 is 0etermine0 7y market %or!es. Inoter 8or0s6 te system o% a0ministere0 interest rates in
In0ia as 7een 0ismantle0.
prof. Nandini Katti
Rela2ation o$ Interest Rate Re("lations
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Te In0ian money market a0 su%%ere0 %romina0e9uately o% sort>term !re0it instruments.
In te #ast6 tere 8ere only /1 0ays 7ills 8i! 8ere
tra0e0 in te In0ian money market.
On te re!ommen0ation o% Haul 8orkin Grou#6 RBI
as intro0u!e0 many ne8 instruments on te money
market
prof. Nandini Katti
Intro!"ction o$ ne= instr"ments in t1e
money market
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68: !ays treas"ry %ills&
Tese 7ills 8it (aria7le interest 7ills an0 8ere sol0
trou %ortnitly au!tions.
Te yiel0 o% tis lon 0ate0 #a#er a0 7e!omeattra!ti(e as a ily li9ui0 instrument.
Tese 8ere re#la!e0 7y )$ 0ays Treasury 7ills.
Tey a(e 7een re>intro0u!e0 0urin 1///>2333.
prof. Nandini Katti
Intro!"ction o$ ne= instr"ments in t1e
money market
>9? !ays Treas"ry Bills@ Tere 8as !onsi0era7le s!o#e %or
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>9? !ays Treas"ry Bills@ Tere 8as !onsi0era7le s!o#e %or
7anks an0 %inan!ial institutions to 7e intereste0 in lon
0ate0 7ills6 as tey 8ere %ar su#erior to teir loan assets an0
in(estments 8i! !oul0 not 7e easily li9ui0ate0 in times o%nee06 8itout in!urrin ea(y losses.
Te )$ 0ays treasury Bills a(e tus 7e!ome an im#ortant
instrument o% o(ernment 7orro8in %rom te market an0
also lea0in money market instrument in te sense tat teiryiel0 is most re%le!ti(e o% market !on0itions.
*inan!ial institutions re!onie te yiel0 rate on )$ 0ay
Treasury Bills as te an!or rate %or %loatin interest rate
instruments.
prof. Nandini Katti
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1$ 0ays interme0iate Treasury Bills %rom A#ril61//+
at a 0is!ount rate e9ui#ment to te rate o% interest on
8ays an0 means a0(an!es to te Go(ernment o% In0ia
tese 7ills !ater to te nee0s o% state o(ernments%orein6 !entral 7anks an0 oter s#e!i%ie0 7o0ies
:tese a(e sur#lus %un0s 8i! !an 7e in(este0 %or
(ery sort #erio0s;
A ne8 !ateory o% 1$ 0ays Treasury Bills6 sol0trou au!tion %or te %irst time in une6 1//+ is
meetin te !as manaement re9uirements o%
(arious a!tions o% te e!onomy.prof. Nandini Katti
-B& introduced two moretreasury "ills in 0112
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Date0 Go(ernment se!urities Te Go(ernment o%In0ia as also 0e!i0e0 to sel% 0ate0 se!urities :o% &
years maturity an0 13 years maturity; on an au!tion
7asis. Te #ur#ose o% tis Go(ernment 0e!ision is To 0e(elo# 0ate0 se!urities as a monetary instrument
8it %le@i7le yiel0s. To #ro(i0e %inan!ial instruments to suit in(estors
e@#e!tations. To meet Go(ernment nee0s 0ire!tly %rom te market.
prof. Nandini Katti
two more treasury "ills in01123'
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Sin!e De!em7er6 1//2 in res#e!t o% !entral Go(ernment 0ate0se!urities6 Re#os are ne8 a reular %eature o% RBIs market
o#erations.I% te 7ankin system e@#erien!es li9ui0ity sortae an0
!onse9uently6 te rate interest are risin6 RBI !omes to assist te
7ankin se!urities 7y re#ur!asin Go(ernment se!urities.?en Go(ernment se!urities are re#ur!ase0 %rom te market6
#ayment is ma0e 7y RBI to !ommer!ial 7anks6 an0 tis a00s to
teir li9ui0ity an0 ena7les tem to e@#an0 teir !re0it to in0ustry
an0 tra0e.Re#os are 0e(elo#in into instruments use%ul %or le(elin out
sar# %lu!tuations in li9ui0ity an0 rate o% interest in te money
market.
prof. Nandini Katti
Reos an! Re,erse Reos&
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Sin!e No(em7er6 1//)6 RBI as intro0u!e0. Re(erseRe#osJ i.e. to sell 0ate0 o(ernment se!urities trou
au!tion at %i@e0 !uto%% rate o% interest.
Te o75e!ti(e is to #ro(i0e sort term re(enue to 7anks
to #ark teir sur#lus %un0s ten tere is !onsi0era7le
li9ui0ity in te money market an0 te !all rate as a
ten0en!y to 0e!line.
prof. Nandini Katti
Reos an! Re,erse Reos&
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Collateralie0 len0in %a!ility :C*; u# to 3.2& #er!ent o% te %ortnitly a(erae outstan0in
areate 0e#osits in 1//+>/-.
C* a(aila7le %or t8o 8eeks at te Bank Rate.
A00itional !ollateralie0 len0in %a!ility :AC*; %or
an e9ui(alent amount o% C* a(aila7le at Bank Rate
#lus 2 #er!entae #oints.
C* an0 AC* %or 7eyon0 t8o 8eeks su75e!t to ana00itional rate o% 2 #er!ent.
prof. Nandini Katti
Interim 4i+"i!ity A!"stment #acility
.I4A#0
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Coolin #erio0 o% t8o 8eeks a%ter C*AC* at #enal rate
:sin!e 0is#ense0 8it 7ase0 on %ee07a!k %rom market
#arti!i#ants;.To %a!ilitate systemati! a05ustment in li9ui0ity6 restri!tion on
#arti!i#ation in money market :0urin te #erio0 o% a(ailinli9ui0ity; 8it0ra8n.S!e0ule0 !ommer!ial 7anks elii7le %or e@#ort !re0it
re%inan!e %a!ility at te Bank Rate 8it e%%e!t %rom A#ril 16
1///.i9ui0ity su##ort aainst te !ollateral o% Go(ernment
se!urities6 7ase0 on 7i00in !ommitment an0 oter #arameters
a(aila7le to "Ds at Bank Rate %or a #erio0 o% /3 0ays.
prof. Nandini Katti
Interim 4i+"i!ity A!"stment #acility
.I4A#0
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A00itional li9ui0ity su##ort aainstGo(ernment se!urities to "Ds %or t8o 8eeks
at te Bank Rate #lus 2 #er!entae #oints.
A7sor#tion o% li9ui0ity in te market 8oul0!ontinue to 7e in te %orm o% %i@e0 rate re#os.Te a7o(e mentione0 %a!ilities to 7e
su##lemente0 7y OMOs 7y te RBI. e@#ort !re0it re%inan!e.
prof. Nandini Katti
Interim 4i+"i!ity A!"stment #acility
.I4A#0
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Liquidity Adjustment Facility #LAF$: nthe last one decade, $B has been using$epos and $e%erse $epos as a deliberatepolicy to,
nuence the %olume of li-uidity in themoney market and through it.
tabiles the short term rate of interest or
the call rates.
prof. Nandini Katti
4i+"i!ity A!"stment #acility .4A#0&
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Tis #oli!y o% usin Re#os an0 Re(erse Re#os is no8
!alle0 te i9ui0ity A05ustment *a!ility :A*;.
RBI as a0o#te0 A* as on im#ortant tool %or
a05ustin li9ui0ity trou Re#os an0 Re(erse Re#oson a 0ay to 0ay 7asis.
Sin!e 2333>316 A* as emere0 as a ma5or
instrument o% monetary #oli!y.
prof. Nandini Katti
4i+"i!ity A!"stment #acility .4A#0&
C tif t d it
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CDs are anoter im#ortant money marketinstrument.
Tey 8ere issue0 7y 7anks in multi#le o% Rs.2& laks
to e@#an0 te in(estor 7ase %or CDs te minimum
(alue 8as re0u!e0 an0 is #resently Rs.1 lak.
Te maturity is 7et8een monts an0 one year.
Tey are issue0 at a 0is!ount to te %a!e (alue an0 te
0is!ount rate is %reely 0etermine0 a!!or0in tomarket !on0itions CDs are %reely trans%era7le a%ter $&
0ays a%ter te 0ate o% issue.
prof. Nandini Katti
Certifcates o deposit#CDs$:
C tif t d it
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Te CDs 7e!ame imme0iately #o#ular 8it 7anks %orraisin resour!es at !om#etiti(e rates o% interest.
T=o imortant olicy !ecisions =ere taken %y RBI
re(ar!in( t1e iss"e o$ CDs@ *irst6 RBI raise06 %rom
May6 1//26 te limit %or issue o% CDs 7y s!e0ule0
!ommer!ial 7anks %rom & to + #er!ent o% teir a(erae
areate 0e#osits.
As a 0ire!t result te areate limits %or te 7ankinsystem %or issue o% CDs in!rease0 %rom Rs. +&$3 !rores
to Rs. 236)33 !rores.
prof. Nandini Katti
Certifcates o deposit#CDs$:
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Te C" is issue0 in multi#le o% Rs. & laks su75e!t to aminimum issue o% Rs. 1 !rore maturity o% C" is
7et8een to ) monts.
Te C"s is issue0 at a 0is!ount to %a!e (alue an0 te
0is!ount rate is %reely 0etermine0.
Te ma@imum amount o% C" tat a !om#any !an raise
8as limite0 23 #er!ent :no8 raise0 to 3 #er!ent; o%
te ma@imum #ermissi7le 7ank %inan!e.
prof. Nandini Katti
Commercial )aer .C)0&
Certifcates o deposit
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Se!on0 RBI #ermitte0 IDBI6 ICICI6 an0 I*CI as0e(elo#ment %inan!ial institutions to issue CDs 8it a
maturity #erio0 o% more tan one year an0 u# to
years.
Te aim o% te ste# 8as to #ro(i0e %le@i7ility to
0e(elo#ment %inan!ial institutions to raise resour!es
%rom te market.
Des#ite tese ste#s tere 8as la!k o% interest amon 7anks in issuin %res CDs.
prof. Nandini Katti
Certifcates o deposit#CDs$:
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In or0er to im#art trans#aren!y an0 e%%i!ien!y in temoney market transa!tion te ele!troni! 0ealin system
as 7een starte0.
It !o(ers all 0eals in te money market.
it is use%ul %or te RBI to 8at! te money market.
prof. Nandini Katti
Electronic Transactions&
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Te Clearin Cor#oration o% In0ia limite0 :CCI; 8asset u# in A#ril 2331.
Te CCI !lears all transa!tions in o(ernment
se!urities6 an0 re#ose re#orte0 on te Neotiate0
Dealin System.
prof. Nandini Katti
Esta%lis1ment o$ t1e CCI4&
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Ca#ital Market is te market %or lon>term %un0s6 5ust as te
money market is te market %or sort>term %un0.
It is a market tat %a!ilities an0 el#s te institutional
manaements %or 7orro8in an0 len0in term %un0s :me0ium>
term an0 lon>term %un0s.; It 0oes not 0eal in !a#ital oo0s 7ut it !on!erne0 8it te
raisin o% money !a#ital %or #ur#ose o% in(estment.
lon>term money !a#ital is 0eman0e0 #re0ominantly 7y
#ri(ate se!tor 6manu%a!turin in0ustries6 ari!ulture an0 7y teGo(ernment 6 larely %or te #ur#ose o% e!onomi!
0e(elo#ment.
prof. Nandini Katti
comosition o$ t1e In!ian Caital Market
iti $ t1 I !i C it l
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te Central an0 State Go(ernments are in(estin notonly on e!onomi! o(erea0 as trans#ortF irriation an0
#o8er 0e(elo#ment 7ut also in 7asi! in0ustries an0
e(en in !onsumer oo0s in0ustries6 tey re9uire
su7stantial amount o% %un0s %rom te !a#ital market. Te su##ly o% %un0s %or te !a#ital market !omes
larely %rom in0i(i0ual sa(ers6 !or#orate sa(ins6
7anks6 insuran!e !om#anies6 s#e!ialie0 %inan!in
aen!ies an0 te o(ernment. Amon institutions6 8e
may re%er to te %ollo8in
prof. Nandini Katti
comosition o$ t1e In!ian Caital
Market@@
iti $ t1 I !i C it l
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Commercial %anks are imortant in,estors %"tt1ey are lar(ely intereste! in (o,ernment
sec"rities an! to a small e2tent in !e%ent"res o$
comanies
4IC an! 'IC are o$ (ro=in( imortance in t1e
In!ian Caital market t1o"(1 t1eir maor
interest is still in (o,ernment sec"rities
)ro,i!ent $"n!s constit"te a maor me!i"m o$sa,in(s %"t t1eir in,estments too are mostly in
(o,ernment sec"rities
prof. Nandini Katti
comosition o$ t1e In!ian Caital
Market@
iti $ t1 I !i C it l
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Secial instit"tions set " since In!een!ence ,i3*I#CI ICICI IDBI UTI etc – (enerally calle!
!e,eloment $inancial instit"tions .D#Is0 – aim at
s"lyin( $"n!s to in,estors@
ike all markets6 te !a#ital market is also !om#ose0
o% tose 8o 0eman0 %un0s :7orro8ers; an0 tose
8o su##ly %un0s :len0ers;
prof. Nandini Katti
comosition o$ t1e In!ian Caital
Market@
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prof. Nandini Katti
In!ian caital market
In!ianCaitalMarket
'ilt*E!(eMkt
)rimary Secon!ary
In!"strialSec"rities
Mkt
rimarySecon!ary
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T1e (ilt*e!(e! market re%ers to te market %oro(ernment an0 semi>o(ernment se!urities6 7a!ke0 7y
te Re(erse Bank o% In0ia.
Te se!urities tra0e0 in tis market are sta7le in (alue
an0 area mu! sout a%ter 7y 7anks an0 oter
institutions.
prof. Nandini Katti
T1e (ilt*e!(e! market
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t1e in!"strial sec"rities market re%ers to te market %or
sares an0 0e7entures o% ol0 issues an0 ne8 issues te ne8 issue market>o%ten re%erre0 to as rimary market
re%ers to te raisin o% ne8 !a#ital in te %orm o% sares
an0 0e7entures te ol0 issues market !ommonly kno8n as sto!k
e@!ane as sto!k market 0eals 8it se!urities alrea0y
issue0 7y !om#anies.
te ol0 issues market o% te sto!k e@!ane is also kno8n
as secon!ary market. 7ot markets are e9ually im#ortant
prof. Nandini Katti
T1e in!"strial sec"rities
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D#Is s"ly $"n!s $or in,estment& * *inan!ialInterme0iaries like mer!ant 7ankers el# te !or#orate
se!tor to raise %un0s in te !a#ital market.
E In0ustrial *inan!e Cor#oration o% In0ia :I*CI;6
State *inan!e Cor#orations :S*Cs;6 In0ustrial
De(elo#ment *inan!e Cor#oration :ID*C;.
prof. Nandini Katti
D#Is
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#inancial interme!iation !onsists o% !annelin%un0s 7et8een sur#lus an0 0e%i!it aentsJ.
A $inancial interme!iary is a %inan!ial institution tat
!onne!ts sur#lus an0 0e%i!it aents.
E Mer!ant Banks6 Mutual *un0s6 easin
Com#anies6 Henture Ca#ital Com#anies
prof. Nandini Katti
#inancial Interme!iaries
T1e 'o,ernment Sec"rities .' – SEC0 market S
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. 0
In!"strial Sec"rities Market
Te Go(ernment Se!urities market6 also kno8n as te ilt e0e0 market 0i%%ers %rom te in0ustrial se!urities market in
many im#ortant res#e!ts• Tere are un!ertainties rear0in yiel0 manaements6
a00itions to !a#ital6 et!. an06 tere%ore6 tere is mu! lesss#e!ulation in tis market.•Te in(estors in o(ernment se!urities are #re0ominantly
institutions 8i! are o%ten !om#elle0 7y la8 to in(est a
!ertain #ortion o% teir %un0s in tese se!urity. Te !ommer!ial
7anks te IC te GIC an0 te #ro(i0ent %un0s !ome un0er
tis !ateory tese are o%ten re%erre0 to as te !a#ti(e market
%or o(ernment se!urities.prof. Nandini Katti
T1 ' t S iti .' SEC0 k t S
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prof. Nandini Katti
T1e 'o,ernment Sec"rities .' – SEC0 market S
In!"strial Sec"rities Market@
•Te a(erae (alue o% te transa!tions in te
o(ernment se!urities market is (ery mu! larer tan
in te !ase o% sares an0 0e7entures o% !om#anies
•o%ten a sinle transa!tion in o(ernment se!urities
many may run into se(eral !rores or e(en un0re0s o%
!rores o% ru#ees.
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prof. Nandini Katti
)rimary market
)rimaryiss"e
)"%licIss"e
I)O #)O
Ri(1tIss"e
)T)lacement
),t )lacement
)re$erential Iss"e
FI)Gs
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It is te market %or ne8 issues. It is te market %or %res !a#ital.
*un0s are mo7ilie0 trou #ros#e!tus6 rit issue6
an0 te #ri(ate #la!ement.
prof. Nandini Katti
)rimary market
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I)O .Initial )"%lic O$$erin(0 It is a o%%erin eiter o%se!urities or an o%%er %or sale o% e@istin se!urities or
7ot 7y an unliste0 !om#any %or te %irst time to te
#u7li!.
#)O It is an o%%erin o% eiter a %res issue o%
se!urities or an o%%er %or sale to te #u7li! 7y an alrea0y
liste0 !om#any trou o%%er 0o!uments
In(estors #arti!i#atin in tese o%%erins take in%orme0
0e!isions 7ase0 on its tra!k re!or0 an0 #er%orman!e.
prof. Nandini Katti
)"%lic Iss"e
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It is te issue o% ne8 sares in 8i! e@istinsareol0ers are i(en #reem#ti(e rits to su7s!ri7e
to te ne8 issue
Te rit is i(en in te %orm o% an o%%er to e@istin
sareol0ers to su7s!ri7e to a #ro#ortionate num7er o%%res issues6 at a #re>0etermine0 #ri!e.
prof. Nandini Katti
Ri(1t Iss"e
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A !om#any !an raise money 7y issuin 0e7tinstruments like 0e7enturesnon !on(erti7le 0e7entures
:NCD; 7y a #u7li! o%%er.
De#en0in on teir nee0 %or money in a sort time
%rame or on 7asis o% !re0it ratin or lo8er !ost6 tey!an also o %or K#ri(ate #la!ementK o% te 7on0NCD
%or raisin money.
prof. Nandini Katti
4ri,ate placements
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It re%ers to te 0ire!t sale o% ne8ly issue0 se!urities 7yte issuer to a small num7er o% in(estors trou>
mer!ant 7ankers.
In(estors
*inan!ial Institutions
Cor#orate
Banks an0 i net 8ort in0i(i0uals.
prof. Nandini Katti
4ri,ate placements
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A #u7li! rits is !um7ersome an0 re9uires!om#lian!e 8it statutory #ro(isions.
,en!e6 many !om#anies o#t %or #re%erential allotment
o% sares %or raisin %un0s.
Su! allotments are ma0e to (arious stratei! rou#s
in!lu0in #romoters6 %orein #artners6 te!ni!al
!olla7orators an0 #ri(ate %un0s.
prof. Nandini Katti
)re$erential Iss"e
5ualifed &nstitutional
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It as emere0 as a ne8 %un0 raisin in(estment %orliste0 !om#anies in In0ia.
Trou LI"=s issue %un0s !an 7e raise0 %rom %orein
as 8ell as 0omesti! institutional in(estors 8itout
ettin liste0 on a %orein sto!k e@!ane6 8i! islenty an0 !um7ersome.
prof. Nandini Katti
5ualifed &nstitutionalplacements #5&46s$
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'DRs ADRs
ECBs #CCBs
prof. Nandini Katti
International Caital market
7lo"al Depositories -eceipts
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GDRs are essentially e9uity instruments issue0a7roa0 7y autorie0 o(erseas !or#orate 7o0ies
aainst sares7on0s o% In0ian !om#anies el0 8it
nominate0 !usto0ian 7anks
Te issue o% GDR !reates e9uity sares o% te
issuin !om#any 8i! is ke#t 8it a 0esinate0
7ank
GDRs are %reely trans%era7le outsi0e In0ia 0i(i0en0 in res#e!t o% te sares re#resente0 7y
GDRs is #ai0 in In0ian ru#ees.
prof. Nandini Katti
7lo"al Depositories -eceipts#7D-s$
#orei(n C"rrency Con,erti%le Bon!s .#CCBs0
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*CCBs are 7on0s issue0 7y In0ian !om#anies an0 su7s!ri7e0
7y a non>resi0ent in %orein !urren!y.
Tey !arry a %i@e0 interest or !ou#on rate an0 are !on(erti7leinto a !ertain num7er o% or0inary sares at a #re%erre0 #ri!e.
Tey are !on(erti7le into or0inary sares o% te issuin
!om#any eiter in 8ole or a #art on te 7asis o% any e9uity>
relate0 8arrants atta!e0 to te 0e7t instruments.
Tese 7on0s are liste0 an0 tra0e0 a7roa0 till !on(ersion6 te
interest is #ai0 in 0ollars.
i% !on(ersion o#tion is not e@er!ise0 ten te re0em#tion is
also ma0e in 0ollars.
Tus %oreiners #re%er *CCBs an0 In0ian !om#anies #re%er to
issue GDRs.
Te rate o% interest is less 7ut te e@!ane risk is more in
*CCBs as interest is #aya7le in %orein !urren!y.prof. Nandini Katti
American Depositor receipts
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ADRs are neotia7le instruments 0enominate0 in 0ollarsan0 issue0 7y te US 0e#ository 7ank.
A Non>US !om#any tat seeks to list in te US 0e#osits
8it a 7ank an0 re!ei(e a re!ei#t 8i! ena7les te
!om#any to issue te Ameri!an 0e#ository sares. Tese ADS ser(e as sto!k !erti%i!ates an0 are use0
inter!anea7ly 8it te ADR 8i! re#resents
o8nersi# o% 0e#osite0 sares.
Tere is no leal or te!ni!al 0i%%eren!e 7et8een a GDR
an0 ADR.
prof. Nandini Katti
American Depository receipts
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In0ian !or#orate is allo8e0 to raise %orein loans %or%inan!in in%rastru!ture #ro5e!ts.
Te In0ian !om#anies are %ree to raise ECBs %rom any
internationally re!onie0 sour!e6 su! as 7ank6 e@#ort
!re0it aen!ies6 su##liers o% e9ui#ments6 %orein!olla7orators6 %orein e9uity ol0ers6 an0 international
!a#ital markets .
ECBs are linke0 to %e0eral reser(e 7oar0 rate 8i! is
4 sin!e A#ril 233&.
prof. Nandini Katti
E2ternal Commercial Borro=in(s
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Te se!on0ary market is a market in 8i! e@istinse!urities are resol0 or tra0e0.
Tis market is also kno8n as te Sto!k market.
In In0ia se!on0ary market !onsist o% re!onie0
Sto!k e@!anes o#eratin un0er rules6 7y>la8s an0
reulation 0uly a##ro(e0 7y te o(ernment.
Tese sto!k e@!anes !onstitute an oranie Sto!k
market 8ere se!urities are issue0 7y te !entral an0State o(ernment6 #u7li! 7o0ies an0 5oint sto!k
!om#anies are tra0e0.
prof. Nandini Katti
8%e secondary market
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A Sto!k e@!ane is 0e%ine0 un0er se!tion 2 :; o% tese!urities !ontra!t :Reulation; A!t6 I/&)6 as any7o0y
o% in0i(i0uals 8eter in!or#orate0 or not6 !onstitute0
to te #ur#ose or assistin6 reulatin or !ontrollin te
7usiness o% 7uyin sellin6 or 0ealin in se!urities
prof. Nandini Katti
T1e secon!ary market
T1 ! k
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T1e In!ian secon!ary market can %e se(re(ate! into t=o&1. Te se!on0ary market %or !or#orate an0 %inan!ial interme0iaries.
*or tra0in in issues o% !or#orate an0 %inan!ial interme0iaries6
tese are te %ollo8in entities>
.re!onise0 sto!k e@!anes
. National Sto!k E@!ane o% In0ia imite0:NSE;
. O(er te Counter E@!ane o% In0ia :OTCEI;
.Te Inter!onne!te0 Sto!k E@!ane o% In0ia :ISE;
.Te #arti!i#ants on tis market are reistere0 7rokers> 7ot
in0i(i0uals an0 institutions. Tey o#erate trou a net8ork o%
su7>7rokers an0 su7>0ealers an0 are !onne!te0 trou an
ele!troni! net8orkin system.
prof. Nandini Katti
T1e secon!ary market
R l / i i$i $ i l k
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"ro!ess o% !a#ital %ormation in(ol(es ste#s1. SAHINGS
2. MOBIISATION O* SAHINGS
. INHESTMENTS
. A soun0 an0 e%%i!ient !a#ital mkt. %a!ilitates te
#ro!ess o% !a#ital %ormation 8i! !ontri7utes to
e!onomi! 0e(elo#ment
prof. Nandini Katti
Role/si(ni$icance o$ caital market
M %ili ti $ i
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It mo7ilises sa(ins trou (arious instruments '!annelises tem into #ro0u!ti(e areas
Resour!es are 0i(erte0 %rom !onsumtion #ur#ose to
#ro0u!ti(e #ur#oses
Harious a(aila7ility o% %inan!ial assets en!ouraes
sa(ins in !a#ital mkt.
*inan!ial nee0s o% in0ustry6 tra0e ' 7usiness are
%ul%ille0 7y te !a#ital mkt.
prof. Nandini Katti
Mo%ilisation o$ sa,in(s
C1 li i $ $ ! i i
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It raises e%%i!ien!y in te %ollo8in manner 1. Allo!ates resour!es to te most (ia7le #ro5e!ts6 8i!
im#ro(es allo!ation o% resour!es
2. Re0u!es te !ost o% resour!es6 %rom len0ers to
7orro8ers6 relate0 to !ontra!t6 risk o% 0e%ault6 et!.
. It #ro(i0es i returns to sa(ers ' re0u!es te
!ares to 7orro8ers
prof. Nandini Katti
C1annelisation o$ $"n!s into in,estments
I ! t i l ! l t
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It #ro(i0es a0e9uate6 !ea# ' 0i(ersi%ie0 %inan!e to tein0ustrial se!tor %or (arious #ur#oses
"ro(i0es %un0s %or mo0ernisation6 u#ra0ation o% te!.
esta7lisment o% ne8 units
"ro(i0es (ariety o% ser(i!es to entre#reneurs like
un0er8ritin6 #arti!i#ation in e9uity !a#ital6 !re0it
ratin6 !onsultan!y ser(i!es et!. tis stimulates
in0ustrial entre#reneursi#
prof. Nandini Katti
In!"strial !e,eloment
Mo!ernisation - re1a%ilitation o$
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Settin u# o% D*Is in In0ia like I*CI6 IDBI6 ICICI asel#e0 e@istin in0ustries to a0o#t mo0ernisation '
re#la!ement o% o7solete ma!inery
Ena7le0 in0ustrial units to sol(e #ro7lems o% %ore@ 7y
!annelisin %rom I*C
prof. Nandini Katti
Mo!ernisation - re1a%ilitation o$
in!"stries
T 1 i l i t
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Ca#ital mkt. #lays an im#. role in stimulatinin0ustrial entre#reneursi# 7y o%%erin
1. a0(isory ser(i!es
2. I0enti%yin ro8t #otential
. Trainin entre#reneurs in #ro5e!t m=mt
prof. Nandini Katti
Tec1nical assistance
E i t
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Se!on0ary mkt. en!ourae in(estors to in(est inin0ustrial se!urities 7y makin tem li9ui0
It #ro(i0es %a!ilities %or !ontinuous6 reular ' rea0y
7uyin n sellin o% se!urities
In0ustries are a7le to raise su7stantial amount o% %un0s
%rom (arious sements o% te e!onomy
prof. Nandini Katti
Enco"ra(e in,estors
C it l k t $
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)RIMARY MKT RE#ORMS A7olition o% Com#troller o% Ca#ital Issues:CCI;
SEBI
Dis!losure st0.s
*ree0om to 0etermine #ar (alue o% sares
Un0er8ritin o#tional
*IIs #ermitte0
A!!essin lo7al %un0s mkt
prof. Nandini Katti
Caital market re$orms
C it l k t $
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Interme0iaries un0er #ur(ie8 o% SEBI Mer!ant 7ankers #roi7ite0 %rom !arryin %un0 7ase0
a!ti(ities
Cre0it ratin aen!ies
Dis!losure ' in(estor #rote!tion ui0elines %or ne8
issues
prof. Nandini Katti
Caital market re$orms@
A%olition o$ Comtroller o$ Caital
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Com#anies are allo8e0 to a##roa! te !a#ital mkt.8itout #rior o(t. #ermission su75e!t to ettin o%%er
0o!uments !leare0 7y SEBI
Narsiman !omm. Re!ommen0e0 te a7olition o% CCI
an0 8ante0 SEBI to take o(er
prof. Nandini Katti
Iss"es.CCI0
S iti - E 1 B ! $ I !i
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SEBI 8as set u# in 1/--6 it 8as ma0e a statutory 7o0yin 1//2
It as intro0u!e0 (arious ui0elines %or !a#ital issues in
#rimary mkt.
prof. Nandini Katti
Sec"rities - E2c1an(e Boar! o$ In!ia
Disclos"re stan!ar!s
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Com#anies are re9uire0 to 0is!lose all material %a!ts 's#e!i%i! risk %a!tors asso!iate0 8it teir #ro5e!ts
SEBI as intro0u!e0 a !o0e o% a0(ertisement %or #u7.
Issues in or0er to ensure %air ' trut%ul 0is!losures
prof. Nandini Katti
Disclos"re stan!ar!s
)ar ,al"e o$ s1ares
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Te re9uirement to issue sares at a #ar (alue o% Rs 13an0 Rs133 8as 8it0ra8n.
Tis a(e !om#anies te %ree0om to 0etermine a %i@e0
(alue #er sare.
Moreo(er6 te sares !annot 7e issue0 in te 0e!imal o%
a ru#ee.
Te !om#anies 8i! a(e alrea0y issue0 sares at
Rs13 or Rs133 (alue are also elii7le %or s#littin an0
!onsoli0atin te sare (alues.
prof. Nandini Katti
)ar ,al"e o$ s1ares
Un!er=ritin( otional
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To re0u!e te !ost o% issue6 un0er8ritin is ma0eo#tional
It is su75e!t to te !on0ition tat i% an issue 8as not
un0er8ritten ' 8as not a7le to !olle!t /34 o% te
amount o%%ere0 to te #u7li!6 te entire amt. !olle!te08oul0 7e re%un0e0 to te in(estors
prof. Nandini Katti
Un!er=ritin( otional
)ermittin( #IIs
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*IIs su! as mutual %un0s ' #ension %un0s are allo8e0to in(est in e9uity sares ' in 0e7t mkt. as 8ell 8i!
in!lu0es 0ate0 o(t. se!urities ' TBs
prof. Nandini Katti
)ermittin( #IIs
Accessin( (lo%al $"n!s mkt
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In0ian !os. are #ermitte0 to raise resour!es trouissue o% ADRs6 GDRs6 *CCBs ' ECBs
In0ian !os. Can list teir se!urities on %orein sto!k
e@!anes trou ADRGDR issues
In0ian %inan!ial sys. Is o#ene0 u# %or in(estments o%%orein %un0s trou NRIs6 *IIs ' OCBs
prof. Nandini Katti
Accessin( (lo%al $"n!s mkt@
Interme!iaries "n!er "r,ie= o$ SEBI
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Te %ollo8in are un0er te #ur(ie8 o% SEBI1. M*s
2. UTI
. "ort%olio manaers
$. Reistrars to an issue&. Sare trans%er aents
). Un0er8riters
+. De7enture trustees
-. Bankers to an issue/. Custo0ian o% se!urities
13. Henture !a#ital %un0s
prof. Nandini Katti
Interme!iaries "n!er "r,ie= o$ SEBI
)ro1i%itin( merc1ant %ankers
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Mer!ant 7ankers are #roi7ite0 %rom !arryin out%un0 7ase0 a!ti(ities oter tan tose relate0
e@!lusi(ely to !a#ital mkt.
NB*Cs a!ti(ities like a!!e#tin 0e#osits6 leasin6 7ill
0is!ountin et!. are not un0ertaken 7y mer!ant 7ankers
prof. Nandini Katti
)ro1i%itin( merc1ant %ankers
Cre!it ratin( a(encies
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CRISI :1//-;6 ICRA :1//1;6 CARE :1//; 8ere setu# to meet emerin nee0s o% te !a#. mkt.
Tey #ro(i0e assessment o% in(estment 9uality o%
!re0it instruments issue0 7y 7usiness units
In0ire!tly it el#s in(estors ' mer!ant 7ankers6 7rokers6 reulatory autorities et!. to 0is!are teir
%un!tions relate0 0e7t issues
prof. Nandini Katti
Cre!it ratin( a(encies
Disclos"re - in,estor rotection .DI)0
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In or0er to remo(e ina0e9ua!ies6 0e%i!ien!ies6 to #rote!t in(estors ' %or or0erly ro8t an0
0e(elo#ment o% se!urities mkt. SEBI #ut in ui0elines
to o(ern ne8 issues
Cos. issuin !a#ital in #rimary mkt. are re9uire0 to0is!lose material %a!ts ' s#e!i%y risk %a!tors
Issuer as to 0is!lose te #ri!e6 sie o% issue6 ' no. o%
se!urities o%%ere0 to #u7li!
prof. Nandini Katti
Disclos"re - in,estor rotection .DI)0
Caital market re$orms
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SECONDARY MKT RE#ORMS Settin u# o% NSE
OTCEI
S!reen 7ase0 trainin
Co#oratisation ' 0emutulisation o% sto!k e@ s De#ository system
Rollin statement
In(estor #rote!tion measures NSC
Deri(ati(es
prof. Nandini Katti
Caital market re$orms@
Caital market re$orms
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NSC Deri(ati(es tra0in
Tra0in in !entral o(t. se!urities
"ermittin *IIs
"AN man0atory
Mutual %un0s
"ermitte0 sto!k e@ s to set tra0in ours
prof. Nandini Katti
Caital market re$orms@
Settin( " NSE .677?0
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to #ro(i0e a nation 8i0e tra0in %a!ility %or e9uities60e7t instruments ' y7ri0s
"ro(i0e e9ual a!!ess to in(estors a!ross te !ountry
trou suita7le net8ork
"ro(i0e %or %air6 e%%i!ient ' trans#arent se!uritiestra0in sys. to in(estors
"ro(i0e sorter settlement !y!les ' 7ook entry
settlement
Brin te In0ian sto!k mkt. in line 8it international
mkts.
prof. Nandini Katti
Settin( " NSE .677?0
Settin( " NSE .677?0
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By te en0 o% 1//+ NSE a0 s#rea0 its 7usiness in 233!ities
As #er no. o% tra0es #er !alen0ar year NSE o!!u#ie0
te IIIr0 #osition in 233)
IIn0 #osition 7y NSE ' Ist 7y NASDAL in 233)
prof. Nandini Katti
Settin( " NSE .677?0@@
OTCEI .677:0
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It is an ele!troni! national sto!k e@!ane listin anentirely ne8 set o% !os. 8i! 8ill not 7e liste0 on
oter sto!k e@!anes
OTCEI !an list !os. 8it issue0 !a#ital %rom Rs. 3
la!s to Rs. 2& !r.
Its main o75e!ti(es are
prof. Nandini Katti
OTCEI .677:0
O%ecti,es
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/ro%ide me0ium ' small enter#rises a!!ess to!a#ital mkt.
"ro(i0e in(estors a !on(enient mo0e o% in(estment
Cater to te nee0s o% !os. ?i! !annot 7e liste0 on
oter o%%i!ial sto!k e@!anes Eliminate #ro7lems o% illi9ui0 se!urities6 0elaye0
settlements ' un%air #ri!es %a!e0 7y in(estors
prof. Nandini Katti
O%ecti,es
(creen "ased tradin
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In0ian sto!k e@!anes 8ere mo0ernise0 7ase0 onSBTS
It !uts 0o8n on time6 risk6 !ost6 %rau06 et!
It allo8s a lare no. o% #arti!i#ants lo!ate0 at 0i%%erent
#la!es to tra0e 8it one anoter simultaneously I0entity o% #arties is not re(eale0
It #ro(i0es !om#lete online mkt. in%ormation
It im#ro(es te 0e#t ' li9ui0ity o% te mkt.
prof. Nandini Katti
(creen "ased tradin
Cororatisation - !em"t"lisation o$ stock
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!or#oritasion 8ill lea0 to sereation o% o8nersi#6m=mt ' tra0in rits %rom ea! oter
Demutulisation o% BSE 8ill turn it into a !om#any
Tis !ane 8ill make BSE a mo0ern6 #ro%essionally
manae0 trans#arent6 !om#etiti(e ' e%%i!ient sto!ke@!ane
prof. Nandini Katti
e2c1an(es
Deository system
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Intro. o% 0e#ository sys. ' s!ri#less tra0in me!anismsin!e 1//)
Tis as erase0 te 0elays6 !ounter%eit s!ri#s6 %ore0
!erti%i!ates6 8ron sinatures et!.
It %a!ilitates trans%er o% o8nersi# 8itout an0linse!urities
S!ri#less tra0in is 0emat o% sares i.e. !on(ertin
#ysi!al se!urity ol0ins 8it 0e#ository into
ele!troni! %orms
2 0e#ositories NSD ' CDS a(e 7een est7lise0
prof. Nandini Katti
Deository system
Rollin( statement
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Te !ane o(er to rollin statement %rom tetra0itional a! #erio0 settlement marks an im#. !ane
in ae ol0 #ra!ti!es
Un0er tis meto0 all tra0es e@e!ute0 on tra0in 0ay
:T; are settle0 a%ter !ertain 0ays :N; Tis is !alle0 TN rollin settlement
Sin!e 233 tra0es are settle0 un0er T2
prof. Nandini Katti
Rollin( statement
In,estor rotection meas"res
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Go(t. as esta7lise0 In(estor E0u!ation ' "rote!tion*un0 :IE"*; 8.e.% 2331
IE"* is !re0ite0 8it amount in un#ai0 0i(i0en0
a!!ounts o% !os.6 ' interest a!!rue0 teron6 i% tey a(e
remaine0 un!laime0 ' un#ai0 %or + yrs %rom te 0ateo% #ayment
prof. Nandini Katti
In,estor rotection meas"res
National Sec"rities Clearin( Cor@ 4t!
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NSC starte0 uaranteein all tra0es in NSE sin!e
1//)
Its !entral %un!tions are !learin6 settelment o% tra0es '
risk m=mt
It !lears All tra0es
Determines o7liation o% tra0in mem7ers
Arranes %or #ay in ' #ay out o% %un0s
Colle!ts ' maintains marins!ollaterls7ase !a#ital
prof. Nandini Katti
National Sec"rities Clearin( Cor@ 4t!
Deri,ati,es tra!in(
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Deri(ati(es tra0in ine9uities starte0 in In0ian in une
2333
At #resent tere are $ e9uity 0eri(ati(e #ro0u!ts in
In0ia
Sto!k o#tion Sto!k %utures
In0e@ o#tions
in0e@ %utures
Deri(ati(es tra0in is allo8e0 on 2 sto!k e@!anes
NSE ' BSE
prof. Nandini Katti
Deri,ati,es tra!in(
Tra!in( in Central 'o,t@ sec"rities
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Tra0in in o(t se! as 7een intro0u!e0 sin!e an2336 to en!ourae #arti!i#ation 7y all in(estors
7elonin to all !lasses
It !arrie0 out on te 7asis o% s!reen 7ase0 tra0in on all
sto!k e@!anes "arti!i#ation in retail mkt. is o#ene0 to in0i(i0uals6
%irms6 !os6 !or#. 7o0ies6 institutions6 trusts ' any oter
e9uity a##ro(e0 7y RBI
prof. Nandini Katti
Tra!in( in Central 'o,t@ sec"rities
#IIs
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*IIs like "ension %un0s
M*s
In(estment trusts
"ort%olio m=mt !os.
are allo8e0 to in(est in In0ian !a#ital mkt. i% tey are
reistere0 un0er SEBI
No. o% reistere0 *IIs stoo0 at 16+1- 7y De!.2313
prof. Nandini Katti
#IIs
Tra!in( 1o"rs
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Sto!k mkt=s tra0in in !as ' 0eri(ati(e sements Te timins are %i@e0 7et. /a.m. to .m.
Tra!in( 1o"rs