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CBLOCBLO

DR.S.C.BIHARIDR.S.C.BIHARI

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What is CBLO? It is a money market instrumentIt is a money market instrument

approved by RBI.approved by RBI.

It is a product developed by CCIL.It is a product developed by CCIL. CBLO is a discounted instrumentCBLO is a discounted instrument

available in electronic book entryavailable in electronic book entryform for the maturity period rangingform for the maturity period ranging

from one day to ninety Days (can befrom one day to ninety Days (can bemade available up to one year as permade available up to one year as perRBI guidelines).RBI guidelines).

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PURPOSE

It aims to benefit three entities,It aims to benefit three entities,

particularly,particularly,

who have been phased out of interwho have been phased out of inter--

bank call money marketbank call money market

who have been given restrictedwho have been given restricted

participation in terms of ceiling on callparticipation in terms of ceiling on call

borrowing and lending transactionsborrowing and lending transactions who do not have access to the callwho do not have access to the call

money marketmoney market

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SERVICE PLATFORM SERVICE PLATFORM In order to enable the market participantsIn order to enable the market participantsto borrow and lend funds, CCIL providesto borrow and lend funds, CCIL provides

the Dealing System through:the Dealing System through:- Indian Financial Network (INFINET), aIndian Financial Network (INFINET), aclosed user group to the Members of theclosed user group to the Members of theNegotiated Dealing System (NDS) whoNegotiated Dealing System (NDS) who

maintain Current account with RBI.maintain Current account with RBI.-- Internet gateway for other entities who doInternet gateway for other entities who donot maintain Current account with RBI.not maintain Current account with RBI.

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MECHANISM MECHANISM

It is a money market instrument,It is a money market instrument,

introduced in Janintroduced in Jan--2003, backed by Gilts as2003, backed by Gilts as

collateralscollaterals

Creates a charge on the CollateralsCreates a charge on the Collaterals

deposited by the Borrower with CCIL fordeposited by the Borrower with CCIL for

the purposethe purpose

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MECHANISM MECHANISM

Creates an Obligation on the borrower toCreates an Obligation on the borrower to

repay the money borrowed along withrepay the money borrowed along with

interest on a specified future dateinterest on a specified future date

A Right and Authority to the lender to receiveA Right and Authority to the lender to receive

money lent along with interest on a specifiedmoney lent along with interest on a specified

future with an option/privilege to transfer thefuture with an option/privilege to transfer the

authority to another person for value receivedauthority to another person for value received

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CBLO explained CBLO explained

An obligation by the borrower to returnAn obligation by the borrower to returnthe money borrowed, at a specified futurethe money borrowed, at a specified future

date;date;

•• An authority to the lender to receiveAn authority to the lender to receive

money lent, at a specified future datemoney lent, at a specified future date

with an option/privilege to transfer thewith an option/privilege to transfer the

authority to another person for valueauthority to another person for value

received;received;•• An underlying charge on securities heldAn underlying charge on securities held

in custody (with CCIL) for the amountin custody (with CCIL) for the amount

borrowed/lent.borrowed/lent.

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Membership Membership

Membership is granted based on their NDSMembership is granted based on their NDS

(Negotiated Dealing System) membership(Negotiated Dealing System) membership

CBLO Members (who are also NDS members)CBLO Members (who are also NDS members)

CBLO Associate Members (Non NDS members)CBLO Associate Members (Non NDS members)

The entity type eligible for CBLO Membership areThe entity type eligible for CBLO Membership are

Nationalized Banks, Private Banks, Foreign Banks,Nationalized Banks, Private Banks, Foreign Banks,

CoCo

--operative Banks, Financial Institutions,operative Banks, Financial Institutions,

Insurance Companies, Mutual Funds, PrimaryInsurance Companies, Mutual Funds, Primary

Dealers, Bank cum Primary Dealers, NBFC,Dealers, Bank cum Primary Dealers, NBFC,

Corporate, Provident/ Pension Funds etc.,Corporate, Provident/ Pension Funds etc.,

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PLAYERS PLAYERS

Banks, financial institutions, primaryBanks, financial institutions, primarydealers, mutual funds and codealers, mutual funds and co--operativeoperativebanks, who are members of NDS, arebanks, who are members of NDS, areallowed to participate in CBLOallowed to participate in CBLOtransactions.transactions.

NonNon--NDS members like corporates, coNDS members like corporates, co--operative banks, NBFCs,operative banks, NBFCs,

Pension/Provident Funds, Trusts etc. arePension/Provident Funds, Trusts etc. areallowed to participate by obtainingallowed to participate by obtainingAssociate Membership to CBLOAssociate Membership to CBLOSegment.Segment.

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OPERATIONAL FEATURESOPERATIONAL FEATURES

Follows an anonymous, order-driven andonline trading system

On the lenders side main participants aremutual funds, insurance companies.

Major borrowers are nationalized banks,PDs and non-financial companies

The Members are required to open ConstituentThe Members are required to open Constituent

Subsidiary General Ledger (CSGL) AccountSubsidiary General Ledger (CSGL) Account

with CCIL for depositing securitieswith CCIL for depositing securities Associate Members are required to open aAssociate Members are required to open a

current account with a Settlement Bankcurrent account with a Settlement Bank

designated by CCIL for settlements of fundsdesignated by CCIL for settlements of funds

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OPERATIONAL FEATURESOPERATIONAL FEATURES

CCLIL fixes borrowing limitsCCLIL fixes borrowing limits

CCIL becomes counterparty to eachCCIL becomes counterparty to each

CBLO transactionCBLO transaction

Eligible securities are CentralEligible securities are Central

Government securities including TreasuryGovernment securities including Treasury

Bills as specified by CCIL from time toBills as specified by CCIL from time to

timetime

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Borrowing Limit and Initial Margin Borrowing Limit and Initial Margin

Borrowing limit is determined based onBorrowing limit is determined based onmark to market values and hairmark to market values and hair--cuts oncuts on

securities depositedsecurities deposited

Members are required to deposit initialMembers are required to deposit initialmargin in the form of Cash (minimum Rs.1margin in the form of Cash (minimum Rs.1

lac) only and over and above Governmentlac) only and over and above Government

Securities can be depositedSecurities can be deposited

Initial margin is computed at the rate ofInitial margin is computed at the rate of0.50% on the total amount borrowed/lent0.50% on the total amount borrowed/lent

by the members.by the members.

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Borrowing Limit and Initial Margin Borrowing Limit and Initial Margin

Intraday enhancement of BL/IL isIntraday enhancement of BL/IL is

permitted by depositing additionalpermitted by depositing additional

collaterals/ cashcollaterals/ cash

Intraday withdraw of securities areIntraday withdraw of securities are

permitted provided they arepermitted provided they are

unencumbered (for cash one day priorunencumbered (for cash one day prior

notice is required)notice is required)

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Nature, Form and Period Nature, Form and Period

CBLO is issued at par for a particularCBLO is issued at par for a particular

maturitymaturity

It is traded at a discount to par value ,It is traded at a discount to par value ,

i.e., discounted instrumenti.e., discounted instrument Available in electronic book entry formAvailable in electronic book entry form

For the maturity period ranging from 1For the maturity period ranging from 1

day to 90 days (It can be issued for aday to 90 days (It can be issued for amaximum tenor of 1 year as per RBImaximum tenor of 1 year as per RBI

guidelines)guidelines)

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CHARACTERISTICSCHARACTERISTICS LIQUIDITYLIQUIDITY

ACCEPTABILITYACCEPTABILITY

ACCESSIBILITYACCESSIBILITY

AVAILABILITY OFAVAILABILITY OF

DIFFERENT TENORSDIFFERENT TENORS

CREDIT RISK MITIGATIONCREDIT RISK MITIGATION

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Minimum and Multiple order lot size Minimum and Multiple order lot size

The minimum and multiple lot sizeThe minimum and multiple lot size

for CBLO Normal market is Rs.5for CBLO Normal market is Rs.5

lakhslakhs

The minimum lot size for CBLOThe minimum lot size for CBLO

Auction market is Rs.50 lakhs andAuction market is Rs.50 lakhs and

multiple lot size is Rs.5 lakhsmultiple lot size is Rs.5 lakhs

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CBLO DealingCBLO Dealing

CBLO Dealing System is maintained byCBLO Dealing System is maintained by

Clearcorp Dealing Systems (India) LtdClearcorp Dealing Systems (India) Ltd

(CCDS), a fully owned subsidiary of CCIL(CCDS), a fully owned subsidiary of CCIL

The Dealing System is provided throughThe Dealing System is provided through

Indian Financial Network (INFINET) forIndian Financial Network (INFINET) for

those who maintain Current account with RBIthose who maintain Current account with RBI

(NDS Members) and through Internet for(NDS Members) and through Internet for

other entities who do not maintain Currentother entities who do not maintain Current

account with RBI (Non NDS Members)account with RBI (Non NDS Members)

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Auction Market:Auction Market: only to NDS Membersonly to NDS Members

for overnight borrowing and settlement onfor overnight borrowing and settlement onT+0 basisT+0 basis

Members submit their borrowing requestsMembers submit their borrowing requestsclearly indicating the amount, maturity andclearly indicating the amount, maturity and

the cap rate before commencement of thethe cap rate before commencement of theauction sessionauction session

Currently the permissible caps are (linked to):Currently the permissible caps are (linked to):

(a)(a)CCBOR (CCIL Collateralised BenchmarkCCBOR (CCIL Collateralised Benchmark

Offer Rate)Offer Rate)(b)(b)(b) CCBOR + 10 bps;(b) CCBOR + 10 bps;

(c)(c) (c) CCBOR(c) CCBOR –– 10 bps;10 bps;

(d)(d)(d) No cap specified(d) No cap specified

CBLO is issued in two marketsCBLO is issued in two markets

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Normal Market:Normal Market: to both CBLOto both CBLO

members and Associate membersmembers and Associate members Members deposit cash and /or securitiesMembers deposit cash and /or securities

prior to starting Dealingprior to starting Dealing

Members can place their borrow/Members can place their borrow/lending orders till the closure of marketlending orders till the closure of market

hours for both T+0 and T+1 settlementhours for both T+0 and T+1 settlement

typetype

Orders get matched in CBLO NormalOrders get matched in CBLO Normal

market on Yield Time priority amongmarket on Yield Time priority among

the orders present at that point in timethe orders present at that point in time

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In a CBLO deal there areIn a CBLO deal there are two benchmark ratestwo benchmark rates--

Bid rate:Bid rate: CCIL Collateralized BenchmarkCCIL Collateralized BenchmarkRate (CCBID)Rate (CCBID)

Offer rate:Offer rate: CCIL Collateralised BenchmarkCCIL Collateralised Benchmark

Offer Rate (CCBOR)Offer Rate (CCBOR)

The rates to be arrived and disseminated at twoThe rates to be arrived and disseminated at twotimes in a day on the basis of orders receivedtimes in a day on the basis of orders received

Weighted average rate would be the cut off rateWeighted average rate would be the cut off rate

for bothfor both

If the difference between weighted average BIDIf the difference between weighted average BIDand Offer rates are more than 100 bps weightedand Offer rates are more than 100 bps weighted

average of traded rate would be the rate foraverage of traded rate would be the rate for

bothboth

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Source: CCIL

CCIL Benchmark Reference RatesCCIL Benchmark Reference Rates

Date Time CCBOR CCBOR (σ) CCBID CCBID (σ)

01/12/2010 1st Fixing 10:00 AM 6.2331 0.0096 6.2296 0.0110

01/12/2010 2nd Fixing 01:00 PM 6.2317 0.0107 6.2301 0.0118

30/11/2010 1st Fixing 10:00 AM 6.2543 0.0075 6.2505 0.0055

30/11/2010 2nd Fixing 01:00 PM 6.2427 0.0143 6.2425 0.0157

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TradingTrading

CBLO is a discounted instrumentCBLO is a discounted instrument

traded on Yield Time prioritytraded on Yield Time priority

The instrument which are availableThe instrument which are available

for trading are those with maturityfor trading are those with maturity

of next seven business days andof next seven business days and

three month end datesthree month end dates

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Clearing and SettlementClearing and Settlement

CBLO operates on a Straight throughCBLO operates on a Straight through

Process (STP)Process (STP)

The trades received are novated andThe trades received are novated and

netted for settlementnetted for settlement

Current Account with RBICurrent Account with RBI Current Account with Settlement BankCurrent Account with Settlement Bank

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Funds ShortageFunds Shortage: when members fail to: when members fail to

meet funds obligation on the day ofmeet funds obligation on the day of

settlementsettlement

CBLO Shortage:CBLO Shortage: when the memberswhen the members

borrow/sell CBLO without havingborrow/sell CBLO without having

sufficient borrowing limit or concernedsufficient borrowing limit or concerned

CBLO in their accountCBLO in their account

Default handling Default handling

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Transaction Charges (Clear Corp):Transaction Charges (Clear Corp):

Rs.5/ Rs.5/ --per crore ofper crore of

face value per tradeface value per trade

per member subjectper member subject

to min 5/ to min 5/ --,max,max

Rs.500/ Rs.500/ --per tradeper trade

NORMALNORMAL

MARKET(TOMARKET(TO

BE CHARGEDBE CHARGED

ON THE VALUEON THE VALUE

DATE OF EACHDATE OF EACH

TRADETRADE

22

Rs.5/ Rs.5/ --per crore ofper crore of

face value per tradeface value per trade

per member subjectper member subject

to min 5/ to min 5/ --,max,max

Rs.500/ Rs.500/ --per tradeper trade

AUCTIONAUCTION

MARKETMARKET

11

CHARGESCHARGESPARTICULARSPARTICULARSSL.NO.SL.NO.

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B. Settlement Charges (CCIL): B. Settlement Charges (CCIL):

Rs.10/ Rs.10/ --per crore of faceper crore of face

value per trade per membervalue per trade per member

subject to min 10/ subject to min 10/ --,max,maxRs.1000/ Rs.1000/ --per tradeper trade

NORMALNORMAL

MARKETMARKET

22

Rs.10/ Rs.10/ --per crore of faceper crore of face

value per trade per membervalue per trade per member

subject to min 10/ subject to min 10/ --,max,max

Rs.1000/ Rs.1000/ --per trade plus S/Tper trade plus S/T

a/a to be charged at thea/a to be charged at the

time of initial borrowingtime of initial borrowing

AUCTIONAUCTION

MARKETMARKET

11CHARGESCHARGESPARTICULARSPARTICULARSSL.NO.SL.NO.

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Default Charges Default Charges

5 basis points per day on5 basis points per day on

the amount ofthe amount of

shortfall/default till theshortfall/default till the

shortfall/default is met ofshortfall/default is met of

which 3 basis points willwhich 3 basis points willbe paid to the nonbe paid to the non--

defaulting member ondefaulting member on

the shortfall, min 100/ the shortfall, min 100/ --

DefaultDefault22

5 basis points per day on5 basis points per day on

the amount of default tillthe amount of default till

the shortfall is metthe shortfall is met

Delayed DepositDelayed Deposit

of Marginof Margin

11

CHARGESCHARGESPARTICULARSPARTICULARSSL.NO.SL.NO.

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ADVANTAGES ADVANTAGES

CanCan bebe tradedtraded inin secondarysecondary marketmarket tilltill maturitmaturityy inin thethe dealingdealing platformplatform providedprovided byby CCIL.CCIL.

Settlement of CBLO transactions fullySettlement of CBLO transactions fully

guaranteed by CCIL.guaranteed by CCIL.

CBLO in electronic DEMAT form notCBLO in electronic DEMAT form not

subjected to stamp duty.subjected to stamp duty.

Traded at Discount to Face value.Traded at Discount to Face value.

CBLO transactions do not attract TDS, as theCBLO transactions do not attract TDS, as thedifference between face value/sale price anddifference between face value/sale price and

cost price is not in the nature ofcost price is not in the nature of ‘‘interestinterest’’ asas

per CBDT clarification.per CBDT clarification.

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