CBLO
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CBLO. Collateralized Borrowing and Lending Obligation. Indian Money Market. Call/ Notice/ Term Money Repo Commercial Paper Certificate of Deposit Treasury Bills CBLO. Why Money Markets?. Fixed Income Market (over 1 year) For borrowing long term For investing long term

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CBLO

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CBLO

Collateralized Borrowing and Lending Obligation


Indian Money Market

  • Call/ Notice/ Term Money

  • Repo

  • Commercial Paper

  • Certificate of Deposit

  • Treasury Bills

  • CBLO


Why Money Markets?

  • Fixed Income Market (over 1 year)

    • For borrowing long term

    • For investing long term

    • For meeting reserve requirements (eg: SLR)

    • For trading interest rates along the yield curve

    • Money Market (under 1 year)

    • For borrowing/ lending short term funds

    • Bridging liquidity mismatches(mostly intra-day)

    • For meeting reserve requirements (CRR & SLR)


Indian Money Market

  • T-Bill, CP, CD

    • Used by Govt., Corporates, Banks, FIs for short term borrowing

  • Call Money, Repo, CBLO

    • Used by Banks, MFs, FIs, Corporates to manage short term liquidity mismatches

  • Predominantly over night money market

    • Over 90% of activity in Call, Repo & CBLO in overnight segment


  • Overnight Money Market

    • Call/ Notice/ Term Money

      • Uncollateralized market

      • Participants: Banks & Primary Dealers only

    • Repo

      • Collateralized market

      • Participants: Banks, Primary Dealers, FIs, MFs, Corporates, insurance companies, NBFCs

    • CBLO

      • Collateralized market

      • Participants: Banks, Primary Dealers, FIs, MFs, Corporates, insurance companies, NBFCs


    Call/ Notice/ Term Money Market

    • Uncollateralized market

  • Typically overnight market

  • Historically, most depended market for short term funds

  • Earlier consisted of both banks and non-bank entities (eg: MFs, Corporates etc.)

  • Historically, very volatile market

  • Most expensive due to uncollateralized nature

  • Highest counterparty risk in money market

  • Gradual phasing out of non-bank entities

    • Now, participants: Banks & Primary Dealers only


  • Repo

    • 100% collateralized dealing

    • Typically overnight market

    • More stable market less expensive than Call money

    • Collateral fussiness

    • Problems in collateral management

    • No early close out of position

    • No substitution of collateral


    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 lender

    • CBLO 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.


    Why CBLO?

    • to address the concerns of entities phased out of call money market or are subjected to borrowing/ lending restrictions

      • MFs, NBFCs, FIs, Corporates, Insurance Comp, Coop-Banks

    • to address the tenor ‘lock-in’ issues related to Repo

      • Buying/Selling CBLOs

    • to bring in better transparency

      • real time dissemination of quotes and dealt rates and market depth

    • to bring in better level playing field

      • access to wider member base, anonymity, guaranteed settlement

    • to have better price discovery in money market

      • pricing a function of demand & supply


    How does CBLO operate?

    • A member deposits a set of eligible securities as collateral with CCIL

    • Borrowing limit: based on mark-to-market value and hair-cut applicable on securities deposited

    • Based 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 CBLOs

    • A borrower sells CBLOs to raise funds; a lender buys CBLOs to deploy funds


    How does CBLO operate?

    • Trading in CBLOs is facilitated on a dealing system called CBLO

    • CBLO dealing system is:

      • an electronic dealing system

      • for collateralized borrowing/ lending

      • in an anonymous environment

    • On 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+1

    • CBLO is a discounted instrument traded on Yield:Time priority


    Settlement

    • Matched deals are novated and CCIL assumes the role of central counterparty

    • Settlement of deals guaranteed by CCIL

    • Obligation of members determined through multilateral netting of trades

    • First, net CBLO deliverable are debited from members account, securities underlying as collateral are blocked

    • Second, net funds deliverable by members is received

    • After funds received, CBLO credited to lender’s account and funds credited to borrower’s account

    • Shortage handing – LOC, creation of CBLO, blocking of funds receivable, blocking of CBLO receivable


    Lenders in CBLO


    Borrowers in CBLO


    CBLO Daily Avg. Traded Value (Cr.)


    Money Market Share


    Money Market Rates


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