Description
The document highlights different types of markets like call money market, treasury bill market, commercial bill market, certificate of deposit market, commercial paper market, foreign exchange market, government securities market. mortgage market, industrial securities market, derivatives market
Markets
1. Call Money Market: The money market is a market for short-term financial assets that are close substitutes of money. The most important feature of a money market instrument is that it is liquid and can be turned over quickly at low cost and provides an avenue for equilibrating the short-term surplus funds of lenders and the requirements of borrowers. The call/notice money market forms an important segment of the Indian money market. Under call money market, funds are transacted on overnight basis and under notice money market; funds are transacted for the period between 2 days and 14 days. Banks borrow in this money market for the following propose. • To fill the gaps or temporary mismatches in funds • To meet the CRR & SLR Mandatory requirements as stipulated by the Central bank • To meet sudden demand for funds arising out of large outflows Thus call money usually serves the role of equilibrating the short-term liquidity position of banks
Participants Participants in call/notice money market currently include banks, Primary Dealers (PDs), development finance institutions, insurance companies and select mutual funds. Of these, banks and PDs can operate both as borrowers and lenders in the market. But non-bank institutions (such as all-India FIs, select Insurance Companies or Mutual Funds), which have been given specific permission to operate in call/notice money market can, however, operate as lenders only. No new non-bank institutions are permitted to operate (i.e., lend) in the call/notice money market with effect from May 5, 2001. In case any eligible institution has genuine difficulty in deploying its excess liquidity, RBI may consider providing temporary permission to lend a higher amount in call/notice money market for a specific period on a case-by-case basis. Effective from Aug 06, 2005 non-bank participants except Primary Dealers are to discontinue participate, to make the call money market pure inter-bank market.
Prudential norms of RBI Lending of scheduled commercial banks, on a fortnightly average basis, should not exceed 25 per cent of their capital fund. However, banks are allowed to lend a maximum of 50% on any day, during a fortnight. Borrowings by scheduled commercial banks should not exceed 100 per cent of their capital fund or 2 per cent of aggregate deposits, whichever is higher. However, banks are allowed to borrow a maximum of 125 per cent of their capital fund on any day, during a fortnight. Interest Rate Eligible participants are free to decide on interest rates in call/notice money market.
2. Treasury Bill Market T-bills are short-term securities that mature in one year or less from their issue date. They are issued with three-month, six-month and one-year maturities. T-bills are purchased for a price that is less than their par (face) value; when they mature, the government pays the holder the full par value. Effectively, your interest is the difference between the purchase price of the security and what you get at maturity. For example, if you bought a 90-day T-bill at $9,800 and held it until maturity, you would earn $200 on your investment. This differs from coupon bonds, which pay interest semi-annually. Treasury bills (as well as notes and bonds) are issued through a competitive bidding process at auctions. If you want to buy a T-bill, you submit a bid that is prepared either non-competitively or competitively. In non-competitive bidding, you'll receive the full amount of the security you want at the return determined at the auction. With competitive bidding, you have to specify the return that you would like to receive. If the return you specify is too high, you might not receive any securities, or just a portion of what you bid for. (More information on auctions is available at the Treasury Direct website.) The biggest reasons that T-Bills are so popular are that they are one of the few money market instruments that are affordable to the individual investors. T-bills are usually issued in denominations of $1,000, $5,000, $10,000, $25,000, $50,000, $100,000 and $1 million. Other positives are that T-bills (and all Treasuries) are considered to be the safest investments in the world because the U.S. government backs them. In fact, they are considered risk-free. Furthermore, they are exempt from state and local taxes. (For more on this, see why do commercial bills have higher yields than T-bills?) The only downside to T-bills is that you won't get a great return because Treasuries are exceptionally safe. Corporate bonds, certificates of deposit and money market funds will often give higher rates of interest. What's more, you might not get back all of your investment if you cash out before the maturity date.
Types of Treasury Bills There are different types of Treasury bills based on the maturity period and utility of the issuance like, ad-hoc Treasury bills, 3 months, 12months Treasury bills etc. In India, at present, the Treasury Bills are the 91-days and 364-days Treasury bills. Benefits of Investment in Treasury Bills ? ? ? ? ? ? ? No tax deducted at source Zero default risk being sovereign paper Highly liquid money market instrument Better returns especially in the short term Transparency Simplified settlement High degree of tradability and active secondary market facilitates meeting unplanned fund requirements.
Features a. Form The treasury bills are issued in the form of promissory note in physical form or by credit to Subsidiary General Ledger (SGL) account or Gilt account in dematerialized form. Minimum Amount of Bids for treasury bills are to be made for a minimum amount of Rs 25000/- only and in multiples thereof. b. Eligibility: All entities registered in India like banks, financial institutions, Primary Dealers, firms, companies, corporate bodies, partnership firms, institutions, mutual funds, Foreign Institutional Investors, State Governments, Provident Funds, trusts, research organizations, Nepal Rashtra bank and even individuals are eligible to bid and purchase Treasury bills. c. Repayment The treasury bills are repaid at par on the expiry of their tenor at the office of the Reserve Bank of India, Mumbai. d. Availability The entire treasury Bills are highly liquid instruments available both in the primary and secondary market. e. Day Count For treasury bills the day count is taken as 365 days for a year. f. Yield Calculation
The yield of a Treasury bill is calculated as per the following formula: (100-P)*365*100 -----------------P*D
Y=
Wherein Y = discounted yield P= Price D= Days to maturity Example
A cooperative bank wishes to buy 91 Days Treasury bill Maturing on Dec. 6, 2002 on Oct. 12, 2002. The rate quoted by seller is Rs. 99.1489 per Rs. 100 face values. The YTM can be calculated as following: The days to maturity of Treasury bill are 55 (October – 20 days, November – 30 days and December – 5 days) YTM = (100-99.1489) x 365 x 100/ (99.1489*55) = 5.70% Similarly if the YTM is quoted by the seller price can be calculated by inputting the price in above formula.
Secondary Market & Players The major participants in the secondary market are scheduled banks, financial Institutions, Primary dealers, mutual funds, insurance companies and corporate treasuries. Other entities like cooperative and regional rural banks, educational and religious trusts etc. have also begun investing their short term funds in treasury bills. Advantages ? ? ? ? ? Market related yields Ideal matching for funds management particularly for short term tenors of less than 15 days. Transparency in operations as the transactions would be put through Reserve Bank of India’s SGL or Client’s Gilt account only Two way quotes offered by primary dealers for purchase and sale of treasury bills. Certainty in terms of availability, entry & exit
Treasury Bills - An Effective Cash Management Product Treasury Bills are very useful instruments to deploy short term surpluses depending upon the availability and requirement. Even funds which are kept in current accounts can be deployed in treasury bills to maximize returns Banks do not pay any interest on fixed deposits of less than 15 days, or balances maintained in current accounts, whereas treasury bills can be purchased for any number of days depending on the requirements. This helps in deployment of idle funds for very short periods as well. Further, since every week there is a 91 days treasury bills maturing and every fortnight a 364 days treasury bills maturing, one can purchase treasury bills of different maturities as per requirements so as to match with the respective outflow of funds. At times when the liquidity in the economy is tight, the returns on treasury bills are much higher as compared to bank deposits even for longer term. Besides, better yields and availability for very short tenors, another important advantage of treasury bills over bank deposits is that the surplus cash can be invested depending upon the staggered requirements. Example: Suppose party A has a surplus cash of Rs 200 crore to be deployed in a project. However, it does not require the funds at one go but requires them at different points of time as detailed below:
Funds Available as on 1.1.2000 Rs. 200 crore Deployment in a project Rs. 200 crore As per the requirements 6.1.2000 Rs. 50 crore 13.1.2000 Rs. 20 crore 02.2.2000 Rs. 30 crore 08.2.2000 Rs. 100 crore Out of the above funds and the requirement schedule, the party has following two options for effective cash management of funds: Option I Invest the cash not required within 15 days in bank deposits The party can invest a total of Rs 130 crore only, since the balance Rs 70 crores is required within the first 15 days. Assuming a rate of return of 6% paid on bank deposits for a period of 31 to 45 days, the interest earned by the company works out to Rs 76 lacs approximately. Option II Invest in Treasury Bills of various maturities depending on the funds requirements The party can invest the entire Rs 200 crore in treasury bills as treasury bills of even less than 15 days maturity are also available. The return to the party by this deal works out to around Rs 125 lacs, assuming returns on Treasury Bills in the range of 8% to 9% for the above periods. Portfolio Management Strategies Strategies for managing a portfolio can broadly be classified as active or passive strategies. Buy And Hold a buy and hold strategy can be described as a passive strategy since the Treasury bills once purchased, would be held till its maturity. The salient features of this strategy are: * Return is fixed or locked in at the time of investment itself. * The exposure to price variations due to secondary market fluctuations is eliminated. * There is no risk of default on maturity. Buy and Trade This strategy can also be described as an active market strategy. The returns on this strategy are higher than the buy and hold strategy as the yield can be optimized by actively trading the treasury bills in the secondary market before maturity. 3. Commercial Bill Market The commercial bill market is the sub-market in which the trade bill or commercial bills are handled. The Commercial Bills is the bill drawn by one merchant firm on the other. Generally commercial bills arise
out of domestic transactions. The legitimate purpose of a commercial bill to reimburse the seller while the buyer delays payment. In India the commercial bill market is highly undeveloped the two main factors which have arrested the growth of the bill market are: a. popularity of the cash credit system in bank lending b. The unwillingness of the larger buyer to bind himself to payment discipline associated with the commercial bill. Among other factors which have prevented growth of genuine bill market are lack of uniformity in drawing bills, high stamp duty on usance of time bills and practice of sales on credit without specific time limit. Commercial bills as instruments of credit are useful to both business firms and banks. In addition since drawees of bill generally manage to recover the cost of goods from their resale or processing and sale during the time it matures, the bill acquires a self liquidating character. Finally it is easy for the central bank to regulate the bill finance.
4. The Certificate of Deposit Market A Certificate of Deposit (CD) is a certificate issued by a bank to depositors of funds that remain on deposit at a bank for a period. Thus CDs are similar to traditional term deposits but are negotiable and tradable in short term money market. In the mid eighties, the short term bank deposit rates were much lower than the other comparable interest rates. The Vaghul committee thus felt that CD as a money market instrument could not be developed in this country until the situation remains unchanged. The committee stressed that it was necessary for the introduction of the CD that the short term bank deposit rates were aligned with the other interest rates. A certificate of deposit (CD) is a time deposit with a bank. CDs are generally issued by commercial banks but they can be bought through brokerages. They bear a specific maturity date (from three months to five years), a specified interest rate, and can be issued in any denomination, much like bonds. Like all time deposits, the funds may not be withdrawn on demand like those in a checking account. CDs offer a slightly higher yield than T-Bills because of the slightly higher default risk for a bank but, overall, the likelihood that a large bank will go broke is pretty slim. Of course, the amount of interest you earn depends on a number of other factors such as the current interest rate environment, how much money you invest, the length of time and the particular bank you choose. While nearly every bank offers CDs, the rates are rarely competitive, so it's important to shop around. A fundamental concept to understand when buying a CD is the difference between annual percentage yield (APY) and annual percentage rate (APR). APY is the total amount of interest you earn in one year, taking compound interest into account. APR is simply the stated interest you earn in one year, without taking compounding into account. (To learn more, read APR vs. APY: How the Distinction Affects You.) The difference results from when interest is paid. The more frequently interest is calculated, the greater the yield will be. When an investment pays interest annually, its rate and yield are the same. But when interest is paid more frequently, the yield gets higher. For example, say you purchase a one-year, $1,000 CD that pays 5% semi-annually. After six months, you'll receive an interest payment of $25 ($1,000 x 5 %
x .5 years). Here's where the magic of compounding starts. The $25 payment starts earning interest of its own, which over the next six months amounts to $ 0.625 ($25 x 5% x .5 years). As a result, the rate on the CD is 5%, but its yield is 5.06. It may not sound like a lot, but compounding ads up over time. The main advantage of CDs is their relative safety and the ability to know your return ahead of time. You'll generally earn more than in a savings account, and you won't be at the mercy of the stock market. Plus, in the U.S. the Federal Deposit Insurance Corporation guarantees your investment up to $100,000. Despite the benefits, there are two main disadvantages to CDs. First of all, the returns are paltry compared to many other investments. Furthermore, your money is tied up for the length of the CD and you won't be able to get it out without paying a harsh penalty. 5. The Comercial Paper Market (CP) The Commercial paper is a short term instrument to raising funds by the corporate. It is essentially a sort of unsecured promissory note sold by the issuer to a banker or a security house. The issuance of CP is not related to any underlying self liquidating trade. Therefore, the maturity of this instrument is flexible. Usually borrowers and lenders. For many corporations, borrowing short-term money from banks is often a laborious and annoying task. The desire to avoid banks as much as possible has led to the widespread popularity of commercial paper. Commercial paper is an unsecured, short-term loan issued by a corporation, typically for financing accounts receivable and inventories. It is usually issued at a discount, reflecting current market interest rates. Maturities on commercial paper are usually no longer than nine months, with maturities of between one and two months being the average. For the most part, commercial paper is a very safe investment because the financial situation of a company can easily be predicted over a few months. Furthermore, typically only companies with high credit ratings and credit worthiness issue commercial paper. Over the past 40 years, there have only been a handful of cases where corporations have defaulted on their commercial paper repayment. Commercial paper is usually issued in denominations of $100,000 or more. Therefore, smaller investors can only invest in commercial paper indirectly through money market funds. 6. The Foreign Exchange Market The foreign exchange market in India started in earnest less than three decades ago when in 1978 the government allowed banks to trade foreign exchange with one another. Today over 70% of the trading in foreign exchange continues to take place in the inter-bank market. The market consists of over 90 Authorized Dealers (mostly banks) who transact currency among themselves and come out “square” or without exposure at the end of the trading day. Trading is regulated by the Foreign Exchange Dealers Association of India (FEDAI), a self regulatory association of dealers. Since 2001, clearing and settlement functions in the foreign exchange market are largely carried out by the Clearing Corporation of India Limited (CCIL) that handles transactions of approximately 3.5 billion US dollars a day, about 80% of the total transactions.
The liberalization process has significantly boosted the foreign exchange market in the country by allowing both banks and corporations greater flexibility in holding and trading foreign currencies. The Sodhani Committee set up in 1994 recommended greater freedom to participating banks, allowing them to fix their own trading limits, interest rates on FCNR deposits and the use of derivative products. The two main functions of the foreign exchange market are to determine the price of the different currencies in terms of one another and to transfer currency risk from more risk-averse participants to those more willing to bear it. As in any market essentially the demand and supply for a particular currency at any specific point in time determines its price (exchange rate) at that point. However, since the value of a country’s currency has significant bearing on its economy, foreign exchange markets frequently witness government intervention in one form or another, to maintain the value of a currency at or near its “desired” level. Interventions can range from quantitative restrictions on trade and crossborder transfer of capital to periodic trades by the central bank of the country or its allies and agents so as to move the exchange rate in the desired direction.
During the early years of liberalization, the Rangarajan committee recommended that India’s exchange rate be flexible. Officially speaking, India moved from a fixed exchange rate regime to “market determined” exchange rate system in 1993. The overt objective of India’s exchange rate policy, according to various policy pronouncements, has been to manage “volatility” in exchange rates without targeting any specific levels. This has been hard to do in practice. The Reserve Bank of India has used a varied mix of techniques in intervening in the foreign exchange market – indirect measures such as press statements (sometimes called “open mouth operations” in central bank speak) and, in more extreme situations, monetary measures to affect the value of the rupee as well as direct purchase and sale in the foreign exchange market using spot, forward and swap transactions (see Ghosh (2002)). Till around 2002, the measures were mostly in the nature of crisis management of saving-the-rupee kind and sometimes the direct deals would be repeated over several days till the desired outcome was accomplished. Other public sector banks, particularly the SBI often aided or veiled the intervention process. 7. Government Securities Market The government securities (G-secs) market is the largest segments of the long term debt market in India, accounting for nearly two-thirds of the issues in the primary market and more than four-fifths of the turnover in the secondary market. From 1990 onwards, the G-secs market in India has witnessed significant developments such as: a. Introduction of auction based price determination b. Development of the RBI’s yield curve for marking to market the G-secs portfolios of the banks c. Introduction of the system of primary dealers d. Creation of Wholesalers Debt Market segment on the National Stock Exchange the first formal mechanism for the G-secs. e. Introduction of DVP (delivery versus payment) for settlement f. Increase in the number of players in the G-secs market with the facility for non-competitive bidding in auctions
g. h. i. j.
Establishments of gilt-oriented mutual funds Re-emergence of repos as an instruments of short term liquidity management Phenomenal growth in the volume of secondary market transactions in G-secs. Emergence of self regulating bodies such as the primary Dealers Association of India (PDAI) and Fixed Income and Money Market Dealers association (FIMMDA).
Some others developments on the anvil are to establish a Clearing Corporation with State Bank of India as the chief promoters, to introduce an order driven screen based trading system in G-secs to promote retail access, and to replace the Public Debt Act with the Government Securities Act. Primary Issue: The issue of G-secs is regulated by the Reserve Bank of India under the Public Debt Act (which is to be replaced by the Government Securities Act). G secs are issued through an auction mechanism. The Reserve Bank of India (RBI),which essentially serves as the mechanism banker to the central and state governments announces the auction of G-secs through a press notification and invites sealed bids from prospective investors like banks, insurance companies, mutual funds, and so on. The RBI opens the sealed bids at an appointed time and makes allotment on the basis of the cutoff price. Two systems of treasury auctions are widely used all over the world: (1) French auction (or discriminatory price action); (2) Dutch auction (or uniform price auction). In a French auction, successful bidders pay the actual price (yield) the bid for whereas in a Dutch auction successful bidders pay a uniform price which is usually the cut off price (yield). Till recently, the RBI was following the French auction. The credit policy of 2001-2002 announced that the government would experiment with the Dutch auction. The auction notice would specify whether the auction will be a Dutch auction or a French auction. Certain categories of prospective investors can submit non-competitive bids. Those who submit such bids receive allotment (from a small portion reserved of them) at the weighted average price of all successful bids. Participants in the G-secs Market: Banks are the largest holders of G-secs. About one-third of the net demand and time liabilities of the banks are invested in G-secs mainly to meet statutory liquidity requirements and partly for investment purposes. Apart from banks, insurance companies and provident funds have substantial holdings of Gsecs almost one fifth of the outstanding G-secs are held by these institutions. Other investors in G-secs include mutual funds, primary and satellite dealers and trusts. SGL Account: The RBI provides the facility of Subsidiary General Ledger (SGL) account to large banks and financial institutions so that it can hold their investment in G-secs and treasury bills in the electronic book entry form. These institutions can settle their trade in securities through a DVP (delivery versus payment) mechanism, which ensures a simultaneous transfer of funds and securities. Investors who do not have
access to the SGL account system can open a constituent SGL account with entities authorized by the RBI for this purpose. 8. Over the counter exchange A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange. It also refers to debt securities and other financial instruments such as derivatives, which are traded through a dealer network. In general, the reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet exchange listing requirements. Also known as "unlisted stock", these securities are traded by broker-dealers who negotiate directly with one another over computer networks and by phone. Although NASDAQ operates as a dealer network, NASDAQ stocks are generally not classified as OTC because the NASDAQ is considered a stock exchange. As such, OTC stocks are generally unlisted stocks which trade on the Over the Counter Bulletin Board (OTCBB) or on the pink sheets. Be very wary of some OTC stocks, however; the OTCBB stocks are either penny stocks or are offered by companies with bad credit records. Instruments such as bonds do not trade on a formal exchange and are, therefore, also considered OTC securities. Most debt instruments are traded by investment banks making markets for specific issues. If an investor wants to buy or sell a bond, he or she must call the bank that makes the market in that bond and asks for quotes.
Over the counter Exchange of India (OTCEI) OTCEI was incorporated in 1990 as a Section 25 company under the Companies Act 1956 and is recognized as a stock exchange under Section 4 of the Securities Contracts Regulation Act, 1956. The Exchange was set up to aid enterprising promoters in raising finance for new projects in a cost effective manner and to provide investors with a transparent & efficient mode of trading. Modeled along the lines of the NASDAQ market of USA, OTCEI introduced many novel concepts to the Indian capital markets such as screen-based nationwide trading, sponsorship of companies, market making and scrip less trading. As a measure of success of these efforts, the Exchange today has 115 listings and has assisted in providing capital for enterprises that have gone on to build successful brands for themselves like VIP Advanta, Sonora Tiles & Brilliant mineral water, etc. 9. Mortgage Market The market where borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transaction. Mortgage brokers, mortgage bankers, credit unions and banks are all part of the primary mortgage market. After being originated in the primary mortgage market, most mortgages are sold into the secondary mortgage market. Unknown too many borrowers is that their mortgages usually end up as part of a
package of mortgages that comprise a mortgage-backed security (MBS), asset-backed security (ABS) or collateralized debt obligation (CDO). India Mortgage industry until recently was an unorganized sector. But today organized mortgage sector is witnessing steady growth. It is estimated to be US $ 18 billion industry. Huge real estate requirements and its subsequent development have fueled its growth. The predominant market leaders in organized 'India Mortgage' sector are housing finance companies like LIC Housing Finance, HDFC, and ICICI Home Finance etc. Although, size of organized sector account only for 25% of the total housing investment in India (Source: LIC Housing finance). But commercial banks both National and Foreign Banks along with Cooperative banks and other non-banking financial companies (NBFCs) are also catching them up at a very fast pace. Mortgage rates in India industry are consistently registering 20-50 % growth (YoY) from the year 2000 onwards. Low income group’s communities are still ignorant and skeptical of about it, the bottlenecks are ? ? Affordability and Accessibility.
'India Mortgage' industry is heating up and there is a mad rush for credit. The 'Mortgage India' market is estimated to grow at a lightening pace in few years to come. Although, investment in housing has grown steadily over the past years as the proportion of outstanding housing loans as percentage of GDP increased from 3.4 per cent in 2001 to 7.25 per cent by 2005. Housing finance gives a measure of the socio–economic status of people. It is regarded as a critical sector in terms of policy initiatives and interventions. Financial allocations in the 5 Year Plans and fiscal measures related to housing has been taken and implemented successfully.
The primary market constitutes housing loan companies (HFCs) and the borrower. The (HFCs) hold the mortgages of a borrower in their books. The participants in the secondary market are specialised institution, to whom housing loan mortgages are sold by (HFCs) at a market determined interest rate. These loans are sold in the market to interested buyers in the form of mortgage backed securities (MBS). These interested buyers could be insurance companies, pension funds, mutual funds and even individuals. By this process, the avenues for funds are increased, there is a greater participation of individuals and the housing finance company is able to raise the long-term funds from the secondary market.
10. Bombay Stock Exchange (BSE) Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning three centuries in its 133 years of existence. What is now popularly known as BSE was established as "The Native Share & Stock Brokers' Association" in 1875. BSE is the first stock exchange in the country which obtained permanent recognition (in 1956) from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE's pivotal and preeminent role in the development of the Indian capital market is widely recognized. It migrated from the open outcry system to an online screen-based order driven trading system in 1995. Earlier an Association of Persons (AOP), BSE is now a corporatized and demutualised entity incorporated under the
provisions of the Companies Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualization, BSE has two of world's best exchanges, Deutsche Börse and Singapore Exchange, as its strategic partners. Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient access to resources. There is perhaps no major corporate in India which has not sourced BSE's services in raising resources from the capital market. Today, BSE is the world's number 1 exchange in terms of the number of listed companies and the world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion. An investor can choose from more than 4,700 listed companies, which for easy reference, are classified into A, B, S, T and Z groups. The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature, and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX is constructed on a 'free-float' methodology, and is sensitive to market sentiments and market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices. BSE has entered into an index cooperation agreement with Deutsche Börse. This agreement has made SENSEX and other BSE indices available to investors in Europe and America. Moreover, Barclays Global Investors (BGI), the global leader in ETFs through its iShares® brand, has created the 'iShares® BSE SENSEX India Tracker' which tracks the SENSEX. The ETF enables investors in Hong Kong to take an exposure to the Indian equity market. BSE has tied up with U.S. Futures Exchange (USFE) for U.S. dollar-denominated futures trading of SENSEX in the U.S. The tie-up enables eligible U.S. investors to directly participate in India's equity markets for the first time, without requiring American Depository Receipt (ADR) authorization. The first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on BSE. It brings to the investors a trading tool that can be easily used for the purposes of investment, trading, hedging and arbitrage. SPIcE allows small investors to take a long-term view of the market. BSE provides an efficient and transparent market for trading in equity, debt instruments and derivatives. It has a nation-wide reach with a presence in more than 450 cities and towns of India. BSE has always been at par with the international standards. The systems and processes are designed to safeguard market integrity and enhance transparency in operations. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certifications. It is also the first exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-line Trading System (BOLT). 11. National Stock Exchange (NSE) The National Stock Exchange (NSE) is India's leading stock exchange covering various cities and towns across the country. NSE was set up by leading institutions to provide a modern, fully automated screenbased trading system with national reach. The Exchange has brought about unparalleled transparency, speed & efficiency, safety and market integrity. It has set up facilities that serve as a model for the securities industry in terms of systems, practices and procedures. NSE has played a catalytic role in reforming the Indian securities market in terms of microstructure, market practices and trading volumes. The market today uses state-of-art information technology to provide an efficient and transparent trading, clearing and settlement mechanism, and has witnessed
several innovations in products & services viz. demutualization of stock exchange governance, screen based trading, compression of settlement cycles, dematerialization and electronic transfer of securities, securities lending and borrowing, professionalization of trading members, fine-tuned risk management systems, emergence of clearing corporations to assume counterparty risks, market of debt and derivative instruments and intensive use of information technology. The National Stock Exchange of India was promoted by leading financial institutions at the behest of the Government of India, and was incorporated in November 1992 as a tax-paying company. In April 1993, it was recognized as a stock exchange under the Securities Contracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment of the NSE commenced operations in November 1994, while operations in the Derivatives segment commenced in June 2000.
12. National Commodity & Derivatives Exchange Ltd(NCDEX) National Commodity & Derivatives Exchange Limited (NCDEX) is a professionally managed on-line multi commodity exchange. The shareholders are: Promoter shareholders: Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE). Other shareholders: Canara Bank, CRISIL Limited (formerly the Credit Rating Information Services of India Limited), Goldman Sachs, Intercontinental Exchange (ICE), Indian Farmers Fertilizer Cooperative Limited (IFFCO) and Punjab National Bank (PNB). NCDEX is the only commodity exchange in the country promoted by national level institutions. This unique parentage enables it to offer a bouquet of benefits, which are currently in short supply in the commodity markets. The institutional promoters and shareholders of NCDEX are prominent players in their respective fields and bring with them institutional building experience, trust, nationwide reach, technology and risk management skills. NCDEX is a public limited company incorporated on April 23, 2003 under the Companies Act, 1956. It obtained its Certificate for Commencement of Business on May 9, 2003. It commenced its operations on December 15, 2003. NCDEX is a nation-level, technology driven de-mutualised on-line commodity exchange with an independent Board of Directors and professional management - both not having any vested interest in commodity markets. It is committed to provide a world-class commodity exchange platform for market participants to trade in a wide spectrum of commodity derivatives driven by best global practices, professionalism and transparency. NCDEX is regulated by Forward Markets Commission. NCDEX is subjected to various laws of the land like the Forward Contracts (Regulation) Act, Companies Act, Stamp Act, Contract Act and various other legislations. NCDEX is located in Mumbai and offers facilities to its members about 550 centers throughout India. The reach will gradually be expanded to more centers.
NCDEX currently facilitates trading of 57 commodities Agriculture Barley, Cashew, Castor Seed, Chana, Chili, Coffee - Arabica, Coffee - Robusta, Crude Palm Oil, Cotton Seed Oilcake, Expeller Mustard Oil, Groundnut (in shell), Groundnut Expeller Oil, Guar gum, Guar Seeds, Gur, Jeera, Jute sacking bags, Indian Parboiled Rice, Indian Pusa Basmati Rice, Indian Traditional Basmati Rice, Indian Raw Rice, Indian 28.5 mm Cotton, Indian 31 mm Cotton, Masoor Grain Bold, Medium Staple Cotton, Mentha Oil, Mulberry Green Cocoons, Mulberry Raw Silk, Mustard Seed, Pepper, Potato, Raw Jute, Rapeseed-Mustard Seed Oilcake, RBD Palmolein, Refined Soy Oil, Rubber, Sesame Seeds, Soyabean, Sugar, Yellow Soybean Meal, Tur, Turmeric, Urad, V-797 Kapas, Wheat, Yellow Peas, Yellow Red Maize. Metals Aluminum Ingot, Electrolytic Copper Cathode, Gold, Mild Steel Ingots, Nickel Cathode, Silver, Sponge Iron, Zinc Ingot. Energy Brent Crude Oil, Furnace Oil. At subsequent phases trading in more commodities would be facilitated. 13. Industrial Securities market Industrial Securities market, stock market, or equity market, is a private or public market for the trading of company stock and derivatives of company stock at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The stock market has two parts: a. The New Issue Market (NIM) or Primary Market (PM) b. Secondary Market (SM) While the NIM supplies fresh or additional capital to the companies, the securities already floated on the NIM are traded on the SM. The SM does not play any direct role in making funds available to the corporate sector; its role in this respect is only indirect i.e. it helps to encourage investors to invest in industrial securities by making them liquid i.e. by providing facilities for continuous, regular and ready buying and selling of those securities. NIM deals in new securities, the SM deals in already existing or old securities which have been listed on it. The investors acquire or buy securities directly from the companies on the NIM, while they trade securities so acquired among them on the SM. Business concerns raise capital through three major type of security. They are a. Ordinary shares or variable dividend securities or common stock b. Preference shares c. Debentures or bonds Ordinary shares and preference shares are also known as “equities”. Unlike bank deposits and units, these securities are the major primary securities in the financial markets of any country. They differ in
their investment characteristics and as such satisfy different preferences of various investors and enjoy different degree of popularity.
14. Discount market Discounting describes all the borrowings by bank from the central bank regardless of the technical details of how it is accomplished. In different countries, banks of various sizes, specialized dealers in bonds, bills and papers, and financial institutions discounts, rediscount, and refinance money market instruments and smoothen the liquidity flows in the primary and secondary markets. In India institutions such as IDBI, NABARD, SIDBI, EXIM Bank and NHB play an important role in the discount market. The question of setting up discount houses in India was considered by the Banking Commission in the early 1970s. It was thought that the need for a discount house in India can arise when the bill market develops sufficiently. Till then, the merchant banking institutions could be set up to take up acceptance and discount business along with other activities. The Discount and Finance House of India Ltd was set up by the RBI with the objective to deepening that activating of the money market. It became operative with effect from 25th April 1988. It is a joint stock company in form and is jointly owned by the RBI, the public sector banks, and all-India financial institutions which have contributed its paid up capital of Rs 200 crore in the proportion of 5:3:2. The Role of DFHI is both developmental and stabilizing. It facilitates the smoothening of short term liquidity imbalances by developing active primary and secondary money markets. In other words, it works as a specialized money market intermediary for stimulating activity in the money market instruments and developing secondary markets in those instruments. It discounts or deals in not only commercial bills but also treasury bills and other money market instruments. It undertakes short term, buyback operations in government and approved dated securities also. 15. Market for Guarantees In financial markets, suppliers of funds face what is called lender’s risk i.e. the eventuality that debtors may not honor their commitments arising out of loan transactions. The interest of depositors, as a special category of lenders, is protected in many countries, including India by Deposit Insurance. Guarantee is thus a form of security demanded by the creditor. It is, however not always a substitute for tangible security. It is well known that creditors secure their advances against various types of tangible securities. In addition they may also ask for guarantees from borrowers. This is because the recovery of their money by liquidating security may not be adequate. In certain cases, however, guarantee may be sufficient to reinforce a clean advance. There are three major sources of guarantees: a. Personal b. Governmental c. Institutional Institutional sources can be subdivided into: a. Specialized private guarantee institutions b. Financial institutions like banks, insurance companies, and statutory financial organizations c. Specialized public guarantee institutions
Credit guarantees are available in India for loan maturities, except those beyond 15 yeas. But the tendency is towards providing short-term and medium-term guarantees. It is normally not possible in India to obtain guarantee cover to the extent of 100 per cent of loss. The cover usually is available to the extent of 75 per cent. The rate of institutional guarantee fee in vogue varies between 0.1 per cent and 5 per cent. While specialized institutions charge fee below 2 per cent, other financial institutions charge a fee of 1 per cent or more. Commercial banks appear to be the most expensive source of guarantee service. 16. Derivatives market The term "Derivative" indicates that it has no independent value, i.e. its value is entirely "derived" from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. In other words, Derivative means a forward, future, option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities. With Securities Laws (Second Amendment) Act,1999, Derivatives has been included in the definition of Securities. The term Derivative has been defined in Securities Contracts (Regulations) Act, as:A Derivative includes: a. a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; b. a contract which derives its value from the prices, or index of prices, of underlying securities; The various types of membership in the derivatives market are as follows: ? Trading Member (TM) – A TM is a member of the derivatives exchange and can trade on his own behalf and on behalf of his clients. ? Clearing Member (CM) –These members are permitted to settle their own trades as well as the trades of the other non-clearing members known as Trading Members who have agreed to settle the trades through them. ? Self-clearing Member (SCM) – A SCM are those clearing members who can clear and settle their own trades only. It has been prescribed that the notional value of gross open positions at any point in time in the case of Index Futures and all Short Index Option Contracts shall not exceed 33 1/3 (thirty three one by three) times the available liquid net worth of a member, and in the case of Stock Option and Stock Futures Contracts, the exposure limit shall be higher of 5% or 1.5 sigma of the notional value of gross open position. In the case of interest rate futures, the following exposure limit is specified: ? The notional value of gross open positions at any point in time in futures contracts on the notional 10 year bond should not exceed 100 times the available liquid net worth of a member. ? The notional value of gross open positions at any point in time in futures contracts on the notional T-Bill should not exceed 1000 times the available liquid net worth of a member. Summary of Position Limits
Index Options Index Futures Stock Options Stock Futures Interest Rate Futures
Client level
Disclosure requirement for any person or persons acting in concert holding 15% or more of the open interest of all derivative contracts on a particular underlying index 15% of the total Open Interest of the market or Rs. 250 crores, whichever is higher
Disclosure requirement for any person or persons acting in concert holding 15% or more of the open interest of all derivative contracts on a particular underlying index 15% of the total Open Interest of the market or Rs. 250 crores, whichever is higher
1% of free float or 5% of open interest whichever is higher
1% of free float or 5% of open interest whichever is higher
Rs.100 crore or 15% of the open interest, whichever is higher.
Trading Member level
20% of Market Wide Limit subject to a ceiling of Rs.50 cr.
20% of Market Wide Limit subject to a ceiling of Rs.50 cr.
Rs. 500 Cr or 15% of open interest whichever is higher.
Marketwide
30 times the average number of shares traded daily, during the previous calendar month, in the relevant underlying security in the underlying segment or, - 20% of the number of shares held by nonpromoters in the relevant underlying security, whichever is lower
30 times the average number of shares traded daily, during the previous calendar month, in the relevant underlying security in the underlying segment or, - 20% of the number of shares held by non-promoters in the relevant underlying security, whichever is lower
doc_151665280.docx
The document highlights different types of markets like call money market, treasury bill market, commercial bill market, certificate of deposit market, commercial paper market, foreign exchange market, government securities market. mortgage market, industrial securities market, derivatives market
Markets
1. Call Money Market: The money market is a market for short-term financial assets that are close substitutes of money. The most important feature of a money market instrument is that it is liquid and can be turned over quickly at low cost and provides an avenue for equilibrating the short-term surplus funds of lenders and the requirements of borrowers. The call/notice money market forms an important segment of the Indian money market. Under call money market, funds are transacted on overnight basis and under notice money market; funds are transacted for the period between 2 days and 14 days. Banks borrow in this money market for the following propose. • To fill the gaps or temporary mismatches in funds • To meet the CRR & SLR Mandatory requirements as stipulated by the Central bank • To meet sudden demand for funds arising out of large outflows Thus call money usually serves the role of equilibrating the short-term liquidity position of banks
Participants Participants in call/notice money market currently include banks, Primary Dealers (PDs), development finance institutions, insurance companies and select mutual funds. Of these, banks and PDs can operate both as borrowers and lenders in the market. But non-bank institutions (such as all-India FIs, select Insurance Companies or Mutual Funds), which have been given specific permission to operate in call/notice money market can, however, operate as lenders only. No new non-bank institutions are permitted to operate (i.e., lend) in the call/notice money market with effect from May 5, 2001. In case any eligible institution has genuine difficulty in deploying its excess liquidity, RBI may consider providing temporary permission to lend a higher amount in call/notice money market for a specific period on a case-by-case basis. Effective from Aug 06, 2005 non-bank participants except Primary Dealers are to discontinue participate, to make the call money market pure inter-bank market.
Prudential norms of RBI Lending of scheduled commercial banks, on a fortnightly average basis, should not exceed 25 per cent of their capital fund. However, banks are allowed to lend a maximum of 50% on any day, during a fortnight. Borrowings by scheduled commercial banks should not exceed 100 per cent of their capital fund or 2 per cent of aggregate deposits, whichever is higher. However, banks are allowed to borrow a maximum of 125 per cent of their capital fund on any day, during a fortnight. Interest Rate Eligible participants are free to decide on interest rates in call/notice money market.
2. Treasury Bill Market T-bills are short-term securities that mature in one year or less from their issue date. They are issued with three-month, six-month and one-year maturities. T-bills are purchased for a price that is less than their par (face) value; when they mature, the government pays the holder the full par value. Effectively, your interest is the difference between the purchase price of the security and what you get at maturity. For example, if you bought a 90-day T-bill at $9,800 and held it until maturity, you would earn $200 on your investment. This differs from coupon bonds, which pay interest semi-annually. Treasury bills (as well as notes and bonds) are issued through a competitive bidding process at auctions. If you want to buy a T-bill, you submit a bid that is prepared either non-competitively or competitively. In non-competitive bidding, you'll receive the full amount of the security you want at the return determined at the auction. With competitive bidding, you have to specify the return that you would like to receive. If the return you specify is too high, you might not receive any securities, or just a portion of what you bid for. (More information on auctions is available at the Treasury Direct website.) The biggest reasons that T-Bills are so popular are that they are one of the few money market instruments that are affordable to the individual investors. T-bills are usually issued in denominations of $1,000, $5,000, $10,000, $25,000, $50,000, $100,000 and $1 million. Other positives are that T-bills (and all Treasuries) are considered to be the safest investments in the world because the U.S. government backs them. In fact, they are considered risk-free. Furthermore, they are exempt from state and local taxes. (For more on this, see why do commercial bills have higher yields than T-bills?) The only downside to T-bills is that you won't get a great return because Treasuries are exceptionally safe. Corporate bonds, certificates of deposit and money market funds will often give higher rates of interest. What's more, you might not get back all of your investment if you cash out before the maturity date.
Types of Treasury Bills There are different types of Treasury bills based on the maturity period and utility of the issuance like, ad-hoc Treasury bills, 3 months, 12months Treasury bills etc. In India, at present, the Treasury Bills are the 91-days and 364-days Treasury bills. Benefits of Investment in Treasury Bills ? ? ? ? ? ? ? No tax deducted at source Zero default risk being sovereign paper Highly liquid money market instrument Better returns especially in the short term Transparency Simplified settlement High degree of tradability and active secondary market facilitates meeting unplanned fund requirements.
Features a. Form The treasury bills are issued in the form of promissory note in physical form or by credit to Subsidiary General Ledger (SGL) account or Gilt account in dematerialized form. Minimum Amount of Bids for treasury bills are to be made for a minimum amount of Rs 25000/- only and in multiples thereof. b. Eligibility: All entities registered in India like banks, financial institutions, Primary Dealers, firms, companies, corporate bodies, partnership firms, institutions, mutual funds, Foreign Institutional Investors, State Governments, Provident Funds, trusts, research organizations, Nepal Rashtra bank and even individuals are eligible to bid and purchase Treasury bills. c. Repayment The treasury bills are repaid at par on the expiry of their tenor at the office of the Reserve Bank of India, Mumbai. d. Availability The entire treasury Bills are highly liquid instruments available both in the primary and secondary market. e. Day Count For treasury bills the day count is taken as 365 days for a year. f. Yield Calculation
The yield of a Treasury bill is calculated as per the following formula: (100-P)*365*100 -----------------P*D
Y=
Wherein Y = discounted yield P= Price D= Days to maturity Example
A cooperative bank wishes to buy 91 Days Treasury bill Maturing on Dec. 6, 2002 on Oct. 12, 2002. The rate quoted by seller is Rs. 99.1489 per Rs. 100 face values. The YTM can be calculated as following: The days to maturity of Treasury bill are 55 (October – 20 days, November – 30 days and December – 5 days) YTM = (100-99.1489) x 365 x 100/ (99.1489*55) = 5.70% Similarly if the YTM is quoted by the seller price can be calculated by inputting the price in above formula.
Secondary Market & Players The major participants in the secondary market are scheduled banks, financial Institutions, Primary dealers, mutual funds, insurance companies and corporate treasuries. Other entities like cooperative and regional rural banks, educational and religious trusts etc. have also begun investing their short term funds in treasury bills. Advantages ? ? ? ? ? Market related yields Ideal matching for funds management particularly for short term tenors of less than 15 days. Transparency in operations as the transactions would be put through Reserve Bank of India’s SGL or Client’s Gilt account only Two way quotes offered by primary dealers for purchase and sale of treasury bills. Certainty in terms of availability, entry & exit
Treasury Bills - An Effective Cash Management Product Treasury Bills are very useful instruments to deploy short term surpluses depending upon the availability and requirement. Even funds which are kept in current accounts can be deployed in treasury bills to maximize returns Banks do not pay any interest on fixed deposits of less than 15 days, or balances maintained in current accounts, whereas treasury bills can be purchased for any number of days depending on the requirements. This helps in deployment of idle funds for very short periods as well. Further, since every week there is a 91 days treasury bills maturing and every fortnight a 364 days treasury bills maturing, one can purchase treasury bills of different maturities as per requirements so as to match with the respective outflow of funds. At times when the liquidity in the economy is tight, the returns on treasury bills are much higher as compared to bank deposits even for longer term. Besides, better yields and availability for very short tenors, another important advantage of treasury bills over bank deposits is that the surplus cash can be invested depending upon the staggered requirements. Example: Suppose party A has a surplus cash of Rs 200 crore to be deployed in a project. However, it does not require the funds at one go but requires them at different points of time as detailed below:
Funds Available as on 1.1.2000 Rs. 200 crore Deployment in a project Rs. 200 crore As per the requirements 6.1.2000 Rs. 50 crore 13.1.2000 Rs. 20 crore 02.2.2000 Rs. 30 crore 08.2.2000 Rs. 100 crore Out of the above funds and the requirement schedule, the party has following two options for effective cash management of funds: Option I Invest the cash not required within 15 days in bank deposits The party can invest a total of Rs 130 crore only, since the balance Rs 70 crores is required within the first 15 days. Assuming a rate of return of 6% paid on bank deposits for a period of 31 to 45 days, the interest earned by the company works out to Rs 76 lacs approximately. Option II Invest in Treasury Bills of various maturities depending on the funds requirements The party can invest the entire Rs 200 crore in treasury bills as treasury bills of even less than 15 days maturity are also available. The return to the party by this deal works out to around Rs 125 lacs, assuming returns on Treasury Bills in the range of 8% to 9% for the above periods. Portfolio Management Strategies Strategies for managing a portfolio can broadly be classified as active or passive strategies. Buy And Hold a buy and hold strategy can be described as a passive strategy since the Treasury bills once purchased, would be held till its maturity. The salient features of this strategy are: * Return is fixed or locked in at the time of investment itself. * The exposure to price variations due to secondary market fluctuations is eliminated. * There is no risk of default on maturity. Buy and Trade This strategy can also be described as an active market strategy. The returns on this strategy are higher than the buy and hold strategy as the yield can be optimized by actively trading the treasury bills in the secondary market before maturity. 3. Commercial Bill Market The commercial bill market is the sub-market in which the trade bill or commercial bills are handled. The Commercial Bills is the bill drawn by one merchant firm on the other. Generally commercial bills arise
out of domestic transactions. The legitimate purpose of a commercial bill to reimburse the seller while the buyer delays payment. In India the commercial bill market is highly undeveloped the two main factors which have arrested the growth of the bill market are: a. popularity of the cash credit system in bank lending b. The unwillingness of the larger buyer to bind himself to payment discipline associated with the commercial bill. Among other factors which have prevented growth of genuine bill market are lack of uniformity in drawing bills, high stamp duty on usance of time bills and practice of sales on credit without specific time limit. Commercial bills as instruments of credit are useful to both business firms and banks. In addition since drawees of bill generally manage to recover the cost of goods from their resale or processing and sale during the time it matures, the bill acquires a self liquidating character. Finally it is easy for the central bank to regulate the bill finance.
4. The Certificate of Deposit Market A Certificate of Deposit (CD) is a certificate issued by a bank to depositors of funds that remain on deposit at a bank for a period. Thus CDs are similar to traditional term deposits but are negotiable and tradable in short term money market. In the mid eighties, the short term bank deposit rates were much lower than the other comparable interest rates. The Vaghul committee thus felt that CD as a money market instrument could not be developed in this country until the situation remains unchanged. The committee stressed that it was necessary for the introduction of the CD that the short term bank deposit rates were aligned with the other interest rates. A certificate of deposit (CD) is a time deposit with a bank. CDs are generally issued by commercial banks but they can be bought through brokerages. They bear a specific maturity date (from three months to five years), a specified interest rate, and can be issued in any denomination, much like bonds. Like all time deposits, the funds may not be withdrawn on demand like those in a checking account. CDs offer a slightly higher yield than T-Bills because of the slightly higher default risk for a bank but, overall, the likelihood that a large bank will go broke is pretty slim. Of course, the amount of interest you earn depends on a number of other factors such as the current interest rate environment, how much money you invest, the length of time and the particular bank you choose. While nearly every bank offers CDs, the rates are rarely competitive, so it's important to shop around. A fundamental concept to understand when buying a CD is the difference between annual percentage yield (APY) and annual percentage rate (APR). APY is the total amount of interest you earn in one year, taking compound interest into account. APR is simply the stated interest you earn in one year, without taking compounding into account. (To learn more, read APR vs. APY: How the Distinction Affects You.) The difference results from when interest is paid. The more frequently interest is calculated, the greater the yield will be. When an investment pays interest annually, its rate and yield are the same. But when interest is paid more frequently, the yield gets higher. For example, say you purchase a one-year, $1,000 CD that pays 5% semi-annually. After six months, you'll receive an interest payment of $25 ($1,000 x 5 %
x .5 years). Here's where the magic of compounding starts. The $25 payment starts earning interest of its own, which over the next six months amounts to $ 0.625 ($25 x 5% x .5 years). As a result, the rate on the CD is 5%, but its yield is 5.06. It may not sound like a lot, but compounding ads up over time. The main advantage of CDs is their relative safety and the ability to know your return ahead of time. You'll generally earn more than in a savings account, and you won't be at the mercy of the stock market. Plus, in the U.S. the Federal Deposit Insurance Corporation guarantees your investment up to $100,000. Despite the benefits, there are two main disadvantages to CDs. First of all, the returns are paltry compared to many other investments. Furthermore, your money is tied up for the length of the CD and you won't be able to get it out without paying a harsh penalty. 5. The Comercial Paper Market (CP) The Commercial paper is a short term instrument to raising funds by the corporate. It is essentially a sort of unsecured promissory note sold by the issuer to a banker or a security house. The issuance of CP is not related to any underlying self liquidating trade. Therefore, the maturity of this instrument is flexible. Usually borrowers and lenders. For many corporations, borrowing short-term money from banks is often a laborious and annoying task. The desire to avoid banks as much as possible has led to the widespread popularity of commercial paper. Commercial paper is an unsecured, short-term loan issued by a corporation, typically for financing accounts receivable and inventories. It is usually issued at a discount, reflecting current market interest rates. Maturities on commercial paper are usually no longer than nine months, with maturities of between one and two months being the average. For the most part, commercial paper is a very safe investment because the financial situation of a company can easily be predicted over a few months. Furthermore, typically only companies with high credit ratings and credit worthiness issue commercial paper. Over the past 40 years, there have only been a handful of cases where corporations have defaulted on their commercial paper repayment. Commercial paper is usually issued in denominations of $100,000 or more. Therefore, smaller investors can only invest in commercial paper indirectly through money market funds. 6. The Foreign Exchange Market The foreign exchange market in India started in earnest less than three decades ago when in 1978 the government allowed banks to trade foreign exchange with one another. Today over 70% of the trading in foreign exchange continues to take place in the inter-bank market. The market consists of over 90 Authorized Dealers (mostly banks) who transact currency among themselves and come out “square” or without exposure at the end of the trading day. Trading is regulated by the Foreign Exchange Dealers Association of India (FEDAI), a self regulatory association of dealers. Since 2001, clearing and settlement functions in the foreign exchange market are largely carried out by the Clearing Corporation of India Limited (CCIL) that handles transactions of approximately 3.5 billion US dollars a day, about 80% of the total transactions.
The liberalization process has significantly boosted the foreign exchange market in the country by allowing both banks and corporations greater flexibility in holding and trading foreign currencies. The Sodhani Committee set up in 1994 recommended greater freedom to participating banks, allowing them to fix their own trading limits, interest rates on FCNR deposits and the use of derivative products. The two main functions of the foreign exchange market are to determine the price of the different currencies in terms of one another and to transfer currency risk from more risk-averse participants to those more willing to bear it. As in any market essentially the demand and supply for a particular currency at any specific point in time determines its price (exchange rate) at that point. However, since the value of a country’s currency has significant bearing on its economy, foreign exchange markets frequently witness government intervention in one form or another, to maintain the value of a currency at or near its “desired” level. Interventions can range from quantitative restrictions on trade and crossborder transfer of capital to periodic trades by the central bank of the country or its allies and agents so as to move the exchange rate in the desired direction.
During the early years of liberalization, the Rangarajan committee recommended that India’s exchange rate be flexible. Officially speaking, India moved from a fixed exchange rate regime to “market determined” exchange rate system in 1993. The overt objective of India’s exchange rate policy, according to various policy pronouncements, has been to manage “volatility” in exchange rates without targeting any specific levels. This has been hard to do in practice. The Reserve Bank of India has used a varied mix of techniques in intervening in the foreign exchange market – indirect measures such as press statements (sometimes called “open mouth operations” in central bank speak) and, in more extreme situations, monetary measures to affect the value of the rupee as well as direct purchase and sale in the foreign exchange market using spot, forward and swap transactions (see Ghosh (2002)). Till around 2002, the measures were mostly in the nature of crisis management of saving-the-rupee kind and sometimes the direct deals would be repeated over several days till the desired outcome was accomplished. Other public sector banks, particularly the SBI often aided or veiled the intervention process. 7. Government Securities Market The government securities (G-secs) market is the largest segments of the long term debt market in India, accounting for nearly two-thirds of the issues in the primary market and more than four-fifths of the turnover in the secondary market. From 1990 onwards, the G-secs market in India has witnessed significant developments such as: a. Introduction of auction based price determination b. Development of the RBI’s yield curve for marking to market the G-secs portfolios of the banks c. Introduction of the system of primary dealers d. Creation of Wholesalers Debt Market segment on the National Stock Exchange the first formal mechanism for the G-secs. e. Introduction of DVP (delivery versus payment) for settlement f. Increase in the number of players in the G-secs market with the facility for non-competitive bidding in auctions
g. h. i. j.
Establishments of gilt-oriented mutual funds Re-emergence of repos as an instruments of short term liquidity management Phenomenal growth in the volume of secondary market transactions in G-secs. Emergence of self regulating bodies such as the primary Dealers Association of India (PDAI) and Fixed Income and Money Market Dealers association (FIMMDA).
Some others developments on the anvil are to establish a Clearing Corporation with State Bank of India as the chief promoters, to introduce an order driven screen based trading system in G-secs to promote retail access, and to replace the Public Debt Act with the Government Securities Act. Primary Issue: The issue of G-secs is regulated by the Reserve Bank of India under the Public Debt Act (which is to be replaced by the Government Securities Act). G secs are issued through an auction mechanism. The Reserve Bank of India (RBI),which essentially serves as the mechanism banker to the central and state governments announces the auction of G-secs through a press notification and invites sealed bids from prospective investors like banks, insurance companies, mutual funds, and so on. The RBI opens the sealed bids at an appointed time and makes allotment on the basis of the cutoff price. Two systems of treasury auctions are widely used all over the world: (1) French auction (or discriminatory price action); (2) Dutch auction (or uniform price auction). In a French auction, successful bidders pay the actual price (yield) the bid for whereas in a Dutch auction successful bidders pay a uniform price which is usually the cut off price (yield). Till recently, the RBI was following the French auction. The credit policy of 2001-2002 announced that the government would experiment with the Dutch auction. The auction notice would specify whether the auction will be a Dutch auction or a French auction. Certain categories of prospective investors can submit non-competitive bids. Those who submit such bids receive allotment (from a small portion reserved of them) at the weighted average price of all successful bids. Participants in the G-secs Market: Banks are the largest holders of G-secs. About one-third of the net demand and time liabilities of the banks are invested in G-secs mainly to meet statutory liquidity requirements and partly for investment purposes. Apart from banks, insurance companies and provident funds have substantial holdings of Gsecs almost one fifth of the outstanding G-secs are held by these institutions. Other investors in G-secs include mutual funds, primary and satellite dealers and trusts. SGL Account: The RBI provides the facility of Subsidiary General Ledger (SGL) account to large banks and financial institutions so that it can hold their investment in G-secs and treasury bills in the electronic book entry form. These institutions can settle their trade in securities through a DVP (delivery versus payment) mechanism, which ensures a simultaneous transfer of funds and securities. Investors who do not have
access to the SGL account system can open a constituent SGL account with entities authorized by the RBI for this purpose. 8. Over the counter exchange A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange. It also refers to debt securities and other financial instruments such as derivatives, which are traded through a dealer network. In general, the reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet exchange listing requirements. Also known as "unlisted stock", these securities are traded by broker-dealers who negotiate directly with one another over computer networks and by phone. Although NASDAQ operates as a dealer network, NASDAQ stocks are generally not classified as OTC because the NASDAQ is considered a stock exchange. As such, OTC stocks are generally unlisted stocks which trade on the Over the Counter Bulletin Board (OTCBB) or on the pink sheets. Be very wary of some OTC stocks, however; the OTCBB stocks are either penny stocks or are offered by companies with bad credit records. Instruments such as bonds do not trade on a formal exchange and are, therefore, also considered OTC securities. Most debt instruments are traded by investment banks making markets for specific issues. If an investor wants to buy or sell a bond, he or she must call the bank that makes the market in that bond and asks for quotes.
Over the counter Exchange of India (OTCEI) OTCEI was incorporated in 1990 as a Section 25 company under the Companies Act 1956 and is recognized as a stock exchange under Section 4 of the Securities Contracts Regulation Act, 1956. The Exchange was set up to aid enterprising promoters in raising finance for new projects in a cost effective manner and to provide investors with a transparent & efficient mode of trading. Modeled along the lines of the NASDAQ market of USA, OTCEI introduced many novel concepts to the Indian capital markets such as screen-based nationwide trading, sponsorship of companies, market making and scrip less trading. As a measure of success of these efforts, the Exchange today has 115 listings and has assisted in providing capital for enterprises that have gone on to build successful brands for themselves like VIP Advanta, Sonora Tiles & Brilliant mineral water, etc. 9. Mortgage Market The market where borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transaction. Mortgage brokers, mortgage bankers, credit unions and banks are all part of the primary mortgage market. After being originated in the primary mortgage market, most mortgages are sold into the secondary mortgage market. Unknown too many borrowers is that their mortgages usually end up as part of a
package of mortgages that comprise a mortgage-backed security (MBS), asset-backed security (ABS) or collateralized debt obligation (CDO). India Mortgage industry until recently was an unorganized sector. But today organized mortgage sector is witnessing steady growth. It is estimated to be US $ 18 billion industry. Huge real estate requirements and its subsequent development have fueled its growth. The predominant market leaders in organized 'India Mortgage' sector are housing finance companies like LIC Housing Finance, HDFC, and ICICI Home Finance etc. Although, size of organized sector account only for 25% of the total housing investment in India (Source: LIC Housing finance). But commercial banks both National and Foreign Banks along with Cooperative banks and other non-banking financial companies (NBFCs) are also catching them up at a very fast pace. Mortgage rates in India industry are consistently registering 20-50 % growth (YoY) from the year 2000 onwards. Low income group’s communities are still ignorant and skeptical of about it, the bottlenecks are ? ? Affordability and Accessibility.
'India Mortgage' industry is heating up and there is a mad rush for credit. The 'Mortgage India' market is estimated to grow at a lightening pace in few years to come. Although, investment in housing has grown steadily over the past years as the proportion of outstanding housing loans as percentage of GDP increased from 3.4 per cent in 2001 to 7.25 per cent by 2005. Housing finance gives a measure of the socio–economic status of people. It is regarded as a critical sector in terms of policy initiatives and interventions. Financial allocations in the 5 Year Plans and fiscal measures related to housing has been taken and implemented successfully.
The primary market constitutes housing loan companies (HFCs) and the borrower. The (HFCs) hold the mortgages of a borrower in their books. The participants in the secondary market are specialised institution, to whom housing loan mortgages are sold by (HFCs) at a market determined interest rate. These loans are sold in the market to interested buyers in the form of mortgage backed securities (MBS). These interested buyers could be insurance companies, pension funds, mutual funds and even individuals. By this process, the avenues for funds are increased, there is a greater participation of individuals and the housing finance company is able to raise the long-term funds from the secondary market.
10. Bombay Stock Exchange (BSE) Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning three centuries in its 133 years of existence. What is now popularly known as BSE was established as "The Native Share & Stock Brokers' Association" in 1875. BSE is the first stock exchange in the country which obtained permanent recognition (in 1956) from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE's pivotal and preeminent role in the development of the Indian capital market is widely recognized. It migrated from the open outcry system to an online screen-based order driven trading system in 1995. Earlier an Association of Persons (AOP), BSE is now a corporatized and demutualised entity incorporated under the
provisions of the Companies Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualization, BSE has two of world's best exchanges, Deutsche Börse and Singapore Exchange, as its strategic partners. Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient access to resources. There is perhaps no major corporate in India which has not sourced BSE's services in raising resources from the capital market. Today, BSE is the world's number 1 exchange in terms of the number of listed companies and the world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion. An investor can choose from more than 4,700 listed companies, which for easy reference, are classified into A, B, S, T and Z groups. The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature, and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX is constructed on a 'free-float' methodology, and is sensitive to market sentiments and market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices. BSE has entered into an index cooperation agreement with Deutsche Börse. This agreement has made SENSEX and other BSE indices available to investors in Europe and America. Moreover, Barclays Global Investors (BGI), the global leader in ETFs through its iShares® brand, has created the 'iShares® BSE SENSEX India Tracker' which tracks the SENSEX. The ETF enables investors in Hong Kong to take an exposure to the Indian equity market. BSE has tied up with U.S. Futures Exchange (USFE) for U.S. dollar-denominated futures trading of SENSEX in the U.S. The tie-up enables eligible U.S. investors to directly participate in India's equity markets for the first time, without requiring American Depository Receipt (ADR) authorization. The first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on BSE. It brings to the investors a trading tool that can be easily used for the purposes of investment, trading, hedging and arbitrage. SPIcE allows small investors to take a long-term view of the market. BSE provides an efficient and transparent market for trading in equity, debt instruments and derivatives. It has a nation-wide reach with a presence in more than 450 cities and towns of India. BSE has always been at par with the international standards. The systems and processes are designed to safeguard market integrity and enhance transparency in operations. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certifications. It is also the first exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-line Trading System (BOLT). 11. National Stock Exchange (NSE) The National Stock Exchange (NSE) is India's leading stock exchange covering various cities and towns across the country. NSE was set up by leading institutions to provide a modern, fully automated screenbased trading system with national reach. The Exchange has brought about unparalleled transparency, speed & efficiency, safety and market integrity. It has set up facilities that serve as a model for the securities industry in terms of systems, practices and procedures. NSE has played a catalytic role in reforming the Indian securities market in terms of microstructure, market practices and trading volumes. The market today uses state-of-art information technology to provide an efficient and transparent trading, clearing and settlement mechanism, and has witnessed
several innovations in products & services viz. demutualization of stock exchange governance, screen based trading, compression of settlement cycles, dematerialization and electronic transfer of securities, securities lending and borrowing, professionalization of trading members, fine-tuned risk management systems, emergence of clearing corporations to assume counterparty risks, market of debt and derivative instruments and intensive use of information technology. The National Stock Exchange of India was promoted by leading financial institutions at the behest of the Government of India, and was incorporated in November 1992 as a tax-paying company. In April 1993, it was recognized as a stock exchange under the Securities Contracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment of the NSE commenced operations in November 1994, while operations in the Derivatives segment commenced in June 2000.
12. National Commodity & Derivatives Exchange Ltd(NCDEX) National Commodity & Derivatives Exchange Limited (NCDEX) is a professionally managed on-line multi commodity exchange. The shareholders are: Promoter shareholders: Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE). Other shareholders: Canara Bank, CRISIL Limited (formerly the Credit Rating Information Services of India Limited), Goldman Sachs, Intercontinental Exchange (ICE), Indian Farmers Fertilizer Cooperative Limited (IFFCO) and Punjab National Bank (PNB). NCDEX is the only commodity exchange in the country promoted by national level institutions. This unique parentage enables it to offer a bouquet of benefits, which are currently in short supply in the commodity markets. The institutional promoters and shareholders of NCDEX are prominent players in their respective fields and bring with them institutional building experience, trust, nationwide reach, technology and risk management skills. NCDEX is a public limited company incorporated on April 23, 2003 under the Companies Act, 1956. It obtained its Certificate for Commencement of Business on May 9, 2003. It commenced its operations on December 15, 2003. NCDEX is a nation-level, technology driven de-mutualised on-line commodity exchange with an independent Board of Directors and professional management - both not having any vested interest in commodity markets. It is committed to provide a world-class commodity exchange platform for market participants to trade in a wide spectrum of commodity derivatives driven by best global practices, professionalism and transparency. NCDEX is regulated by Forward Markets Commission. NCDEX is subjected to various laws of the land like the Forward Contracts (Regulation) Act, Companies Act, Stamp Act, Contract Act and various other legislations. NCDEX is located in Mumbai and offers facilities to its members about 550 centers throughout India. The reach will gradually be expanded to more centers.
NCDEX currently facilitates trading of 57 commodities Agriculture Barley, Cashew, Castor Seed, Chana, Chili, Coffee - Arabica, Coffee - Robusta, Crude Palm Oil, Cotton Seed Oilcake, Expeller Mustard Oil, Groundnut (in shell), Groundnut Expeller Oil, Guar gum, Guar Seeds, Gur, Jeera, Jute sacking bags, Indian Parboiled Rice, Indian Pusa Basmati Rice, Indian Traditional Basmati Rice, Indian Raw Rice, Indian 28.5 mm Cotton, Indian 31 mm Cotton, Masoor Grain Bold, Medium Staple Cotton, Mentha Oil, Mulberry Green Cocoons, Mulberry Raw Silk, Mustard Seed, Pepper, Potato, Raw Jute, Rapeseed-Mustard Seed Oilcake, RBD Palmolein, Refined Soy Oil, Rubber, Sesame Seeds, Soyabean, Sugar, Yellow Soybean Meal, Tur, Turmeric, Urad, V-797 Kapas, Wheat, Yellow Peas, Yellow Red Maize. Metals Aluminum Ingot, Electrolytic Copper Cathode, Gold, Mild Steel Ingots, Nickel Cathode, Silver, Sponge Iron, Zinc Ingot. Energy Brent Crude Oil, Furnace Oil. At subsequent phases trading in more commodities would be facilitated. 13. Industrial Securities market Industrial Securities market, stock market, or equity market, is a private or public market for the trading of company stock and derivatives of company stock at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The stock market has two parts: a. The New Issue Market (NIM) or Primary Market (PM) b. Secondary Market (SM) While the NIM supplies fresh or additional capital to the companies, the securities already floated on the NIM are traded on the SM. The SM does not play any direct role in making funds available to the corporate sector; its role in this respect is only indirect i.e. it helps to encourage investors to invest in industrial securities by making them liquid i.e. by providing facilities for continuous, regular and ready buying and selling of those securities. NIM deals in new securities, the SM deals in already existing or old securities which have been listed on it. The investors acquire or buy securities directly from the companies on the NIM, while they trade securities so acquired among them on the SM. Business concerns raise capital through three major type of security. They are a. Ordinary shares or variable dividend securities or common stock b. Preference shares c. Debentures or bonds Ordinary shares and preference shares are also known as “equities”. Unlike bank deposits and units, these securities are the major primary securities in the financial markets of any country. They differ in
their investment characteristics and as such satisfy different preferences of various investors and enjoy different degree of popularity.
14. Discount market Discounting describes all the borrowings by bank from the central bank regardless of the technical details of how it is accomplished. In different countries, banks of various sizes, specialized dealers in bonds, bills and papers, and financial institutions discounts, rediscount, and refinance money market instruments and smoothen the liquidity flows in the primary and secondary markets. In India institutions such as IDBI, NABARD, SIDBI, EXIM Bank and NHB play an important role in the discount market. The question of setting up discount houses in India was considered by the Banking Commission in the early 1970s. It was thought that the need for a discount house in India can arise when the bill market develops sufficiently. Till then, the merchant banking institutions could be set up to take up acceptance and discount business along with other activities. The Discount and Finance House of India Ltd was set up by the RBI with the objective to deepening that activating of the money market. It became operative with effect from 25th April 1988. It is a joint stock company in form and is jointly owned by the RBI, the public sector banks, and all-India financial institutions which have contributed its paid up capital of Rs 200 crore in the proportion of 5:3:2. The Role of DFHI is both developmental and stabilizing. It facilitates the smoothening of short term liquidity imbalances by developing active primary and secondary money markets. In other words, it works as a specialized money market intermediary for stimulating activity in the money market instruments and developing secondary markets in those instruments. It discounts or deals in not only commercial bills but also treasury bills and other money market instruments. It undertakes short term, buyback operations in government and approved dated securities also. 15. Market for Guarantees In financial markets, suppliers of funds face what is called lender’s risk i.e. the eventuality that debtors may not honor their commitments arising out of loan transactions. The interest of depositors, as a special category of lenders, is protected in many countries, including India by Deposit Insurance. Guarantee is thus a form of security demanded by the creditor. It is, however not always a substitute for tangible security. It is well known that creditors secure their advances against various types of tangible securities. In addition they may also ask for guarantees from borrowers. This is because the recovery of their money by liquidating security may not be adequate. In certain cases, however, guarantee may be sufficient to reinforce a clean advance. There are three major sources of guarantees: a. Personal b. Governmental c. Institutional Institutional sources can be subdivided into: a. Specialized private guarantee institutions b. Financial institutions like banks, insurance companies, and statutory financial organizations c. Specialized public guarantee institutions
Credit guarantees are available in India for loan maturities, except those beyond 15 yeas. But the tendency is towards providing short-term and medium-term guarantees. It is normally not possible in India to obtain guarantee cover to the extent of 100 per cent of loss. The cover usually is available to the extent of 75 per cent. The rate of institutional guarantee fee in vogue varies between 0.1 per cent and 5 per cent. While specialized institutions charge fee below 2 per cent, other financial institutions charge a fee of 1 per cent or more. Commercial banks appear to be the most expensive source of guarantee service. 16. Derivatives market The term "Derivative" indicates that it has no independent value, i.e. its value is entirely "derived" from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. In other words, Derivative means a forward, future, option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities. With Securities Laws (Second Amendment) Act,1999, Derivatives has been included in the definition of Securities. The term Derivative has been defined in Securities Contracts (Regulations) Act, as:A Derivative includes: a. a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; b. a contract which derives its value from the prices, or index of prices, of underlying securities; The various types of membership in the derivatives market are as follows: ? Trading Member (TM) – A TM is a member of the derivatives exchange and can trade on his own behalf and on behalf of his clients. ? Clearing Member (CM) –These members are permitted to settle their own trades as well as the trades of the other non-clearing members known as Trading Members who have agreed to settle the trades through them. ? Self-clearing Member (SCM) – A SCM are those clearing members who can clear and settle their own trades only. It has been prescribed that the notional value of gross open positions at any point in time in the case of Index Futures and all Short Index Option Contracts shall not exceed 33 1/3 (thirty three one by three) times the available liquid net worth of a member, and in the case of Stock Option and Stock Futures Contracts, the exposure limit shall be higher of 5% or 1.5 sigma of the notional value of gross open position. In the case of interest rate futures, the following exposure limit is specified: ? The notional value of gross open positions at any point in time in futures contracts on the notional 10 year bond should not exceed 100 times the available liquid net worth of a member. ? The notional value of gross open positions at any point in time in futures contracts on the notional T-Bill should not exceed 1000 times the available liquid net worth of a member. Summary of Position Limits
Index Options Index Futures Stock Options Stock Futures Interest Rate Futures
Client level
Disclosure requirement for any person or persons acting in concert holding 15% or more of the open interest of all derivative contracts on a particular underlying index 15% of the total Open Interest of the market or Rs. 250 crores, whichever is higher
Disclosure requirement for any person or persons acting in concert holding 15% or more of the open interest of all derivative contracts on a particular underlying index 15% of the total Open Interest of the market or Rs. 250 crores, whichever is higher
1% of free float or 5% of open interest whichever is higher
1% of free float or 5% of open interest whichever is higher
Rs.100 crore or 15% of the open interest, whichever is higher.
Trading Member level
20% of Market Wide Limit subject to a ceiling of Rs.50 cr.
20% of Market Wide Limit subject to a ceiling of Rs.50 cr.
Rs. 500 Cr or 15% of open interest whichever is higher.
Marketwide
30 times the average number of shares traded daily, during the previous calendar month, in the relevant underlying security in the underlying segment or, - 20% of the number of shares held by nonpromoters in the relevant underlying security, whichever is lower
30 times the average number of shares traded daily, during the previous calendar month, in the relevant underlying security in the underlying segment or, - 20% of the number of shares held by non-promoters in the relevant underlying security, whichever is lower
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