Description
It explains various money market instruments, players in the primary market, players in the secondary market and players in the derivative market.
Financial Markets, Instruments and Participants
Financial Markets
• Traditionally segmented into:
– Money Markets – Capital Markets
Money Market
• Short term instruments. Maturity less than one year • Wholesale market dominated by institutional investors. High Volume. • Regulated by Central Bank (RBI)
Capital Market
• Long-term instruments • Significant presence of retail investors.
• Regulated by capital market regulator (SEBI) exept for Government Bonds
Money Market
Money Market Instruments
• Generally short-term cash equivalents • Include
– – – – Treasury Bills (91 days, 364 days) Certificates of Deposits(CDs) Commercial papers (CPs) Call/ Notice Money Market (Overnight/up to 14 days, banks, PDs and
mutual fund can participate)
– Repos and Reverse Repos – Liquidity Adjustment Facility (LAF) – CBLO (CCIL)
Treasury Bills
• Issued by RBI to meet out short term funds requirements of GoI. • Maturity 91, 182 and 364 days • Issued at discount • No Coupon
Commercial Papers (CPs)
• • • • • Issued by Corporate Sector /PD/FI Maturity 7 days to 1 years Minimum rating P2 (CRISIL) or equivalent Denomination 5 lakh or multiple Role of Banks:
– Issuing and Paying Agent – Stand by Facility
Certificate of Deposits (CDs)
• • • • Issued by the banks/FIs Investors: Individuals, corporate, trusts etc. Minimum amount Rs 1 lakh or multiples Maturity:
– Bank 7 Days to 12 months – FI 1 year to 3 years
• Issued at discount
Repo, Reverse-Repo Transactions
• Repo: Selling security with a promise to repurchase it after
given time period (Equivalent to short-term borrowings against collaterals ?)
• Reverse Repo: A repo for one party is reverse repo for
other party. (Equivalent to selling short?)
Repo Transactions of RBI
• Part of the Liquidity Adjustment Facility (LAF) • Note the terminology: When RBI purchase the security with re-sell obligation, it is called repo transaction. Selling securities by RBI is called reverse -repo. – Repo: to supply liquidity – Reverse repo: to mop-up liquidity • Reverse Repo Rates are always lower than the Repo Rates, why?
Call/Notice Money Market
• Banks and Primary dealers (PDs) borrow and lend to each other on unsecured basis. • Overnight market is called Call money market • Notice Market: 1-14 days. • Call money rates are referred as MIBOR.
CBLO
• Collateralized Borrowing and Lending Obligation (CBLO): a money market instrument as approved by RBI, is a product developed by CCIL. • CBLO is a discounted instrument available in electronic book entry form for the maturity period ranging 1-90 Days. • Refer to www.ccilindia.com.
Capital Market
Please refer Indian Security Market Report (ISMR) to understand Capital market in India.
It can be downloaded from http://www.nseindia.com/ >Research> Publications > ISMR 2009
Segments of Capital Market
• It has three major segments
– Bond (Fixed Income) Market – Equity Market – Derivative Market
Bond Market
• It has following Segments
– G-Secs Market (maturity 1 year to 30years) – PSU Bonds – State Government/ Municipal Bonds – Corporate Bonds – Mortgage-Backed Securities
Equity Market
• Preference Stocks • Equity Shares
Capital Market: Alternative Classification
• Primary Market • Secondary Market
Primary Market
• Security is first time issued by the company
• It may be through
– A Public Offer
– IPO, FPO
– Private Placement – Right Issues – Bonus Issues
Players in the Primary Market
• Investment bankers/ Merchant Bankers play the role of :
– Lead/ Issue Managers – Underwriters – Registrar of the Issue – Banker of the Issue
Secondary Market
• Shares and Bonds are traded through Stock Exchanges • In India there are 19 Exchanges, majority transitions take place in NSE and BSE.
• Market Share 92.7% NSE; 7.3% BSE (CM+F&O+WDM) • 4 exchanges have been derecognized
• Exchange provide platform for trading in listed securities. • Exchanges may be order-driven (broker market) and quote driven. In India stock exchanges are order driven. • Now in India settlement takes place on T+2 basis.
• To understand how stock exchanges work world over: refer
–Trading and Exchanges: Market Microstructure for Participants
- Larry Harris
Players in Secondary Market
• • • • • Retail Investors Mutual Funds Institutional Investors FIIs Hedge Funds, Private Equity (PE)
Players with different Objectives
• Investors • Speculators • Arbitrageurs
Assignment
Find out the meaning of these terms:
• • • • • • • • • Participatory Notes (PN) Margin Trading Rolling Settlement Impact Cost Circuit breaker SPAN Stop Loss Order Insider Trading Market Capitalization
Derivative Markets
• A derivative security derives its value from other underlying Asset. • These mainly include:
– Futures – Options
Derivative products Traded at NSE
• • • • • • Index Futures Index Options Individual Security Futures Individual Security Options Currency Derivatives( August 2008) Interest Rate Derivatives (August, 2009)
Market Regulators
• DCA, GOI • RBI • SEBI
Market Indices
Stock Market Indices
• These may be :
– Price weighted Index (e.g. DJIA) – Market Value Weighted Index.
• In India both BSE Sensex and S&P CNX Nifty are Market value Weighted (based on floating shares).
• BSE Sensex represents 30 largest and most actively traded stocks, representative of various sectors, on the Bombay Stock Exchange. These companies account for around fifty per cent of the market capitalization of the BSE. • S&P CNX Nifty represent 50 large and liquid stocks traded at NSE selected on the basis of their impact cost.
Bond Market Indices
• NSE Government Security Index
– http://www.nse-india.com/marketinfo/eod_information/gsec_index.jsp.
• CCIL Bond Index
– Total Return Index – Principal Return Index
– http://www.ccilindia.com/ -Research - Bond Index
Investment Environment
On Going Trend in Investment Environment
• Fast Information Dissemination • More Competitive and Efficient Market
– Algorithm Trading
• Globalization and Integration • Securitization • Increasing Financial Intermediation and Institutional Investors (Investment Banks, Hedge Funds etc.) • Financial Innovations and Engineering
doc_662267908.pptx
It explains various money market instruments, players in the primary market, players in the secondary market and players in the derivative market.
Financial Markets, Instruments and Participants
Financial Markets
• Traditionally segmented into:
– Money Markets – Capital Markets
Money Market
• Short term instruments. Maturity less than one year • Wholesale market dominated by institutional investors. High Volume. • Regulated by Central Bank (RBI)
Capital Market
• Long-term instruments • Significant presence of retail investors.
• Regulated by capital market regulator (SEBI) exept for Government Bonds
Money Market
Money Market Instruments
• Generally short-term cash equivalents • Include
– – – – Treasury Bills (91 days, 364 days) Certificates of Deposits(CDs) Commercial papers (CPs) Call/ Notice Money Market (Overnight/up to 14 days, banks, PDs and
mutual fund can participate)
– Repos and Reverse Repos – Liquidity Adjustment Facility (LAF) – CBLO (CCIL)
Treasury Bills
• Issued by RBI to meet out short term funds requirements of GoI. • Maturity 91, 182 and 364 days • Issued at discount • No Coupon
Commercial Papers (CPs)
• • • • • Issued by Corporate Sector /PD/FI Maturity 7 days to 1 years Minimum rating P2 (CRISIL) or equivalent Denomination 5 lakh or multiple Role of Banks:
– Issuing and Paying Agent – Stand by Facility
Certificate of Deposits (CDs)
• • • • Issued by the banks/FIs Investors: Individuals, corporate, trusts etc. Minimum amount Rs 1 lakh or multiples Maturity:
– Bank 7 Days to 12 months – FI 1 year to 3 years
• Issued at discount
Repo, Reverse-Repo Transactions
• Repo: Selling security with a promise to repurchase it after
given time period (Equivalent to short-term borrowings against collaterals ?)
• Reverse Repo: A repo for one party is reverse repo for
other party. (Equivalent to selling short?)
Repo Transactions of RBI
• Part of the Liquidity Adjustment Facility (LAF) • Note the terminology: When RBI purchase the security with re-sell obligation, it is called repo transaction. Selling securities by RBI is called reverse -repo. – Repo: to supply liquidity – Reverse repo: to mop-up liquidity • Reverse Repo Rates are always lower than the Repo Rates, why?
Call/Notice Money Market
• Banks and Primary dealers (PDs) borrow and lend to each other on unsecured basis. • Overnight market is called Call money market • Notice Market: 1-14 days. • Call money rates are referred as MIBOR.
CBLO
• Collateralized Borrowing and Lending Obligation (CBLO): a money market instrument as approved by RBI, is a product developed by CCIL. • CBLO is a discounted instrument available in electronic book entry form for the maturity period ranging 1-90 Days. • Refer to www.ccilindia.com.
Capital Market
Please refer Indian Security Market Report (ISMR) to understand Capital market in India.
It can be downloaded from http://www.nseindia.com/ >Research> Publications > ISMR 2009
Segments of Capital Market
• It has three major segments
– Bond (Fixed Income) Market – Equity Market – Derivative Market
Bond Market
• It has following Segments
– G-Secs Market (maturity 1 year to 30years) – PSU Bonds – State Government/ Municipal Bonds – Corporate Bonds – Mortgage-Backed Securities
Equity Market
• Preference Stocks • Equity Shares
Capital Market: Alternative Classification
• Primary Market • Secondary Market
Primary Market
• Security is first time issued by the company
• It may be through
– A Public Offer
– IPO, FPO
– Private Placement – Right Issues – Bonus Issues
Players in the Primary Market
• Investment bankers/ Merchant Bankers play the role of :
– Lead/ Issue Managers – Underwriters – Registrar of the Issue – Banker of the Issue
Secondary Market
• Shares and Bonds are traded through Stock Exchanges • In India there are 19 Exchanges, majority transitions take place in NSE and BSE.
• Market Share 92.7% NSE; 7.3% BSE (CM+F&O+WDM) • 4 exchanges have been derecognized
• Exchange provide platform for trading in listed securities. • Exchanges may be order-driven (broker market) and quote driven. In India stock exchanges are order driven. • Now in India settlement takes place on T+2 basis.
• To understand how stock exchanges work world over: refer
–Trading and Exchanges: Market Microstructure for Participants
- Larry Harris
Players in Secondary Market
• • • • • Retail Investors Mutual Funds Institutional Investors FIIs Hedge Funds, Private Equity (PE)
Players with different Objectives
• Investors • Speculators • Arbitrageurs
Assignment
Find out the meaning of these terms:
• • • • • • • • • Participatory Notes (PN) Margin Trading Rolling Settlement Impact Cost Circuit breaker SPAN Stop Loss Order Insider Trading Market Capitalization
Derivative Markets
• A derivative security derives its value from other underlying Asset. • These mainly include:
– Futures – Options
Derivative products Traded at NSE
• • • • • • Index Futures Index Options Individual Security Futures Individual Security Options Currency Derivatives( August 2008) Interest Rate Derivatives (August, 2009)
Market Regulators
• DCA, GOI • RBI • SEBI
Market Indices
Stock Market Indices
• These may be :
– Price weighted Index (e.g. DJIA) – Market Value Weighted Index.
• In India both BSE Sensex and S&P CNX Nifty are Market value Weighted (based on floating shares).
• BSE Sensex represents 30 largest and most actively traded stocks, representative of various sectors, on the Bombay Stock Exchange. These companies account for around fifty per cent of the market capitalization of the BSE. • S&P CNX Nifty represent 50 large and liquid stocks traded at NSE selected on the basis of their impact cost.
Bond Market Indices
• NSE Government Security Index
– http://www.nse-india.com/marketinfo/eod_information/gsec_index.jsp.
• CCIL Bond Index
– Total Return Index – Principal Return Index
– http://www.ccilindia.com/ -Research - Bond Index
Investment Environment
On Going Trend in Investment Environment
• Fast Information Dissemination • More Competitive and Efficient Market
– Algorithm Trading
• Globalization and Integration • Securitization • Increasing Financial Intermediation and Institutional Investors (Investment Banks, Hedge Funds etc.) • Financial Innovations and Engineering
doc_662267908.pptx