Presentation on theme: "Collateralized Borrowing and Lending Obligation"— Presentation transcript:
1 Collateralized Borrowing and Lending Obligation CBLOCollateralized Borrowing and Lending Obligation
2 Indian Money Market Call/ Notice/ Term Money Repo Commercial Paper Certificate of DepositTreasury BillsCBLO
3 Why Money Markets? Money Market (under 1 year) Fixed Income Market (over 1 year)For borrowing long termFor investing long termFor meeting reserve requirements (eg: SLR)For trading interest rates along the yield curveMoney Market (under 1 year)For borrowing/ lending short term fundsBridging liquidity mismatches(mostly intra-day)For meeting reserve requirements (CRR & SLR)
4 Indian Money Market T-Bill, CP, CD Call Money, Repo, CBLO Used by Govt., Corporates, Banks, FIs for short term borrowingCall Money, Repo, CBLOUsed by Banks, MFs, FIs, Corporates to manage short term liquidity mismatchesPredominantly over night money marketOver 90% of activity in Call, Repo & CBLO in overnight segment
6 Call/ Notice/ Term Money Market Uncollateralized marketTypically overnight marketHistorically, most depended market for short term fundsEarlier consisted of both banks and non-bank entities (eg: MFs, Corporates etc.)Historically, very volatile marketMost expensive due to uncollateralized natureHighest counterparty risk in money marketGradual phasing out of non-bank entitiesNow, participants: Banks & Primary Dealers only
7 Repo 100% collateralized dealing Typically overnight market More stable market less expensive than Call moneyCollateral fussinessProblems in collateral managementNo early close out of positionNo substitution of collateral
8 What is CBLO ?CBLO was conceived and developed by CCIL for facilitating deployment in a collateralized environment.It is a tripartite Repo transaction involving CCIL as third party and as central counterparty to borrower and lenderCBLO is an RBI approved money market instrument which can be issued for a maximum tenor of one year.• Is an instrument backed by Gilts as Collaterals• Creates an Obligation on the borrower to repay the money borrowed along with interest on a predetermined future date;• A Right and Authority to the lender to receive money lent along with interest on a predetermined future date or has the privilege to transfer the authority to anther person• Creates a charge on the Collaterals deposited by the Borrower with CCIL for the purpose.
9 Why CBLO?to address the concerns of entities phased out of call money market or are subjected to borrowing/ lending restrictionsMFs, NBFCs, FIs, Corporates, Insurance Comp, Coop-Banksto address the tenor ‘lock-in’ issues related to RepoBuying/Selling CBLOsto bring in better transparencyreal time dissemination of quotes and dealt rates and market depthto bring in better level playing fieldaccess to wider member base, anonymity, guaranteed settlementto have better price discovery in money marketpricing a function of demand & supply
10 How does CBLO operate?A member deposits a set of eligible securities as collateral with CCILBorrowing limit: based on mark-to-market value and hair-cut applicable on securities depositedBased on borrowing limit, CBLOs are issued to a member.CBLO is an instrument that can be bought and sold.Borrowing/ Lending is done by selling/ buying CBLOsA borrower sells CBLOs to raise funds; a lender buys CBLOs to deploy funds
11 How does CBLO operate?Trading in CBLOs is facilitated on a dealing system called CBLOCBLO dealing system is:an electronic dealing systemfor collateralized borrowing/ lendingin an anonymous environmentOn any day, CBLO instrument for the next seven business days and three month end dates are made available\Dealing allwed for settlement types: T+0 and T+1CBLO is a discounted instrument traded on Yield:Time priority
12 SettlementMatched deals are novated and CCIL assumes the role of central counterpartySettlement of deals guaranteed by CCILObligation of members determined through multilateral netting of tradesFirst, net CBLO deliverable are debited from members account, securities underlying as collateral are blockedSecond, net funds deliverable by members is receivedAfter funds received, CBLO credited to lender’s account and funds credited to borrower’s accountShortage handing – LOC, creation of CBLO, blocking of funds receivable, blocking of CBLO receivable
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