SEBI GR A 2019

Finance and Management

Guidelines and FAQs on
Money Market Instruments

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 What is money market?

Debt

Short term Debt –

Long Term Debt
Money Market

Less than 1 year

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 What is money market?

NCD’s

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 Many Guidelines Revisited

Many Guidelines we discussed are already part of the Debt Markets Chapter in your Course

New would be NCDs and Borrowing and Lending Limitations in Call Notice Money Market

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 Important Feature of Money Market

Liquidity – Funds can be quickly converted into cash if the need be

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 Call Notice Money Market

When banks borrow from one-another it is called Call Money/Notice market. Call money is required mostly by
banks. Commercial banks borrow money without collateral from other banks to maintain a minimum cash
balance known as the cash reserve requirement (CRR). This interbank borrowing has led to the development of
the call money market.

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 Participants in Call Notice Market

Payment and Small Finance Banks – Borrowing and lending Conditions same as SCBs
Q.1

Up to What % of their NOF PDs can lend on average daily basis in overnight reporting in the call notice money market?
A) 25%
B) 10%
C) 50%
D) 12%
Q.2

Who all are eligible to participate in Call Notice Market?

A) Scheduled Commercial banks
B) Cooperative Banks
C) Small Finance Banks
D) Payment Banks
E) All the above
Q.3

Scheduled Commercial banks are allowed to borrow a maximum of ________ per cent of their capital funds on any day, during
a fortnight.
A) 100
B) 200
C) 125
D) 225
 Commercial Paper

• Commercial paper is an unsecured, short-term loan issued by a corporation, typically for financing accounts
receivable and inventories

• It is also called unsecured promissory note since in this issuer makes a promise to pay back the face value after the
maturity period but that promise is unsecured in the sense there is no guarantee that your money will come back

• It is usually issued at a discount, reflecting current market interest rates

Commercial paper is an
• CP, as a privately placed instrument, was introduced in India in 1990 with a view to enable highly rated corporate
borrowers to diversify their sources of short-term borrowings but later primary dealers (PDs) and all-India financial
institutions (FIs) were also permitted to issue CP to enable them to meet their short-term funding requirements.

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Who are eligible to Issue Commercial Paper

Commercial paper is an

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Who are eligible to Invest in Commercial Paper

Commercial paper is an

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 Investment Conditions for CP

1. CP shall be issued in denominations of Rs. 5 lakh and multiples thereof. The amount invested by a single investor
should not be less than Rs. 5 lakh (face value).

2. No issuer shall have the issue of CP underwritten or co-accepted.

3. CP shall be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of
issue Commercial paper is an

4. The maturity date of the CP shall not go beyond the date up to which the credit rating of the issuer is valid.

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 Rating Requirement for CP

1. Eligible participants/issuers shall obtain credit rating for issuance of CP from any one of the SEBI registered CRAs.
The minimum credit rating shall be ‘A3’ as per rating symbol and definition prescribed by SEBI. The issuers shall
ensure at the time of issuance of the CP that the rating so obtained is current and has not fallen due for review.

Commercial paper is an

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 Buyback of CP

Commercial paper is an

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Q.4

A Company, PD or a Financial Institution are eligible to issue CP. CP is an Commercial paper is an unsecured, short-term loan
issued at a discount by the issuer. The minimum denomination of CP is ___________
A) 10 Lakh
B) 2 Lakh
C) 5 lakh
D) 15 lakh
Q.5

The Maturity of Commercial paper can be maximum up to how many years?

A) 1 Year
B) 2 Year
C) 3 year
D) 4 year
 Certificate of Deposit

• A certificate of deposit (CD) is a time deposit with a bank. CDs are generally issued by commercial banks

• A certificate of deposit or what is nothing but money market instruments that are issued by banks and select financial
institutions in lieu of the money that is deposited

Commercial paper is an

Difference between CDs and FDs

CDs are Transferrable FDs are not

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 Eligibility for Issuing Certificate of Deposit

In India CDs cannot be issued by everyone. They are specifically issued by:
a) Commercial Banks in India {excluding Regional Rural Banks and Local Area Banks};
b) Financial institutions like IFCI

Commercial paper is an

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 Aggregate Amount for Investment in CD

In India CDs cannot be issued by everyone. They are specifically issued by:
a) Commercial Banks in India {excluding Regional Rural Banks and Local Area Banks};
b) Financial institutions like IFCI

Commercial paper is an
1. No Limit for Commercial banks
2. For Financial Institutions , also no limit as per say for CD but they must not raise more money than
overall limits prescribed by RBI

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 Minimum Size of Issue and Denominations in CD

Minimum amount of a CD should be Rs.1 lakh, i.e., the minimum deposit that could be accepted from a single
subscriber should not be less than Rs.1 lakh, and in multiples of Rs. 1 lakh thereafter.

Commercial paper is an

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 Eligible Investors in CD

1. Individuals
2. Corporations
3. Companies (including banks and PDs)
4. Trusts
5. Non-Resident Indians (NRIs) – NRI’s cannot sell in secondary market

Commercial paper is an

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 Maturity in CD

The maturity period of CDs issued by banks should not be less than 7 days and not more than one year, from the
date of issue.

FIs can issue CDs for a period not less than 1 year and not exceeding 3 years from the date of issue.

Commercial paper is an

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 Loans or Buyback on CDs

Banks / FIs cannot grant loans against CDs

Banks cannot buyback their CDs except on relaxation by RBI

Commercial paper is an

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Q.5

Which of the following statement is true?

A) Commercial paper is primarily issued by Companies where as COD is primarily issued by banks
B) Commercial paper is primarily issued by Banks where as COD is primarily issued by Companies
C) Both A and B
D) None of the above
Q.6

Minimum demonization for Commercial paper is greater by ________lakh as compared to minimum denomination of COD
A) 2 lakh
B) 3 lakh
C) 4 lakh
D) 5 lakh
Q.7

The COD’s issued by FI’s can have maximum maturity period of ___________years
A) 2
B) 3
C) 4
D) 5
 Non-Convertible Debentures (NCDs)

NCDs Corporate ( including NBFCs)

Commercial paper is an

Using Private Placement

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 Eligibility to Issue NCDs

Commercial paper is an

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 Ratings for Issuing NCDs

1. Ratings shall be obtained from one of the entities registered with SEBI

2. The minimum credit rating shall be ‘A2’ as per rating symbol and definition prescribed by SEBI.

Commercial paper is an

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 Conditions for Issuing of NCDs

NCDs shall not be issued for maturities of less than 90 days from the date of issue.

The tenor of the NCDs shall not exceed the validity period of the credit rating of the instrument

NCDs may be issued in denominations with a Commercial

minimum ofpaper is an(face value) and in multiples of Rs.1 lakh
Rs.5 lakh

NCDs may be issued at face value carrying a coupon rate or at a discount to face value as zero coupon
instruments as determined by the corporate.

Every corporate issuing NCDs shall appoint a Debenture Trustee (DT) for each issuance of the NCDs. Any entity
that is registered as a DT with the SEBI under SEBI (Debenture Trustees) Regulations, 1993, shall be eligible to act
as DT for issue of the NCDs

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 Who All can invest in NCD

1. Individuals, banks

2. Primary Dealers (PDs)

Commercial
3. Other corporate bodies including insurance companiespaper is an funds registered or incorporated in India
and mutual
and unincorporated bodies

4. Non-Resident Indians (NRIs)

5. Foreign Institutional Investors (FIIs).

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Q.8

Minimum rating required for CP is _________ and for NCD is _________

A) A1, A2
B) A3, A2
C) A2, A3
D) A2,A2
Q.9

NCDS are __________instruments issued using _____________mode

A) Debt, public offer
B) Preferred Stock, public offer
C) Debt, Private placement
D) Preferred Stock, Private Placement mode
Q.10

Company which wants to issue NCDs or Commercial Paper should have tangible worth not less than ________crores?
A) 400
B) 40
C) 4
D) 0.4
Q.11

Which of the following instrument must be issued in a minimum denomination of 5 lakh?

1. Commercial paper
2. NCDs
3. CODs

A) 1 and 2
B) 2 and 3
C) 1 and 3
D) 1,2 and 3
Q.11

Which of the following can have minimum maturity period and how much?
1. Commercial paper
2. NCDs
3. CODs

A) 1 and 2 (7 days)
B) 2 and 3 (90 days)
C) 1 and 3 (7 days)
D) 1,2 and 3 ( 7 days)
Thanks