CMR( Money Market

Instruments)
7th Sem.
Rajdip Bhadra Chaudhuri
Assistant Professor,
School of Law,
KIIT Deemed to be University.
 Commercial Papers
 Unsecured MM Instrument
 Issued in form of promissory notes
 Privately placed
 Introduced in 1990
 High rated corporate borrowers can diversify their short term borrowings
 Provide additional instrument to investors
 Primary Dealers, All India Fin. Inst, also permitted to issue CP
 Directives of RBI act as guidelines
 Maturity - 7 days to 1 yr from date of issue
 Credit rating required
 Maturity period cannot be more than credit rating period
 Issued in denomination of Rs. 5 lakhs & multiple thereof
 Issuing & Paying agent – only Scheduled Bank
 Total amount of CP to be within limits approved by BOD or quantum
indicated by CRA
 Issuing & holding allowed in DMAT and Physical form.
 Certificates of Deposits
 Negotiable MM Inst.
 Issued in DMAT form or usance prom. Notes
 Given against funds deposited at bank or eligible FI for
specific time period
 Governed by directives of RBI
 Issued by SCBs excluding RRBs & LABs
 Selected AIFIs permitted to raise short term resources
 Maturity – 7 days to 1 yr (Bank)
 Maturity – 1 yr to 3 yrs (FI)
 Banks to maintain appropriate reserve (CRR & SLR)
 Physical CDs freely transferable by endorsement &
delivery
 Demat CDs transferred as per procedure
 Treasury Bills
 Issued by RBI
 Finance short term requirements of GOI
 Discounted securities (issued at a discount to face value)
 Return to investors = Mat. Value - Issue price
 Short term surpluses in current a/c deployed to max.
return
 Deployment for very short term
 No TDS
 Zero default risk as sovereign paper
 Issued in form of Prom. Notes in physical form or
 Credit to Subsidiary General Ledger Account of Gilt a/c in
Demat form
 Min. amount Rs. 10,000 & multiple thereof
 Participatory Notes
 Offshore financing instruments
 Allows foreign HNWI, Hedge Funds & other investors to invest in
Ind. Stock market without being registered with SEBI
 Saves time & cost of registration
 Investor identity is not known
 Underlying assets - Indian shares
 Used outside India for making investments in Indian stock
market
 Issued by brokers & FIIs registered with SEBI
 Dividend or C.G. collected from underlying securities go back to
investors
 Mandatory reporting to SEBI in each quarter.
 P notes easily traded overseas through endorsement & delivery
 Regulating P Notes

 White paper on Black money (2012) – considerable portion of

P Notes used by wealthy individuals to channelize black
money kept in foreign countries.
 Special Investigation Team (SIT) – recommended phasing out
of PNs
 2014 – SEBI banned unregulated entities in foreign countries
(Category III FPIs) from subscribing P Notes
 SEBI (FPI) Regulations, 2014 - Category III - all others
not eligible under Category I and II foreign portfolio
investors such as endowments, charitable societies,
charitable trusts, foundations, corporate bodies,
trusts, individuals and family offices.
 2016 – SEBI extends KYC norms & anti money laundering
norms to PN subscribers
 2017 – SEBI bans FPIs from issuing PNs from investing in
equity derivatives
 SEBI instructs ODI – issuing FPIs to liquidate such ODI
 Notional Value of ODIs/P Notes
(in crores) – SEBI data

Dec., Dec., Dec., Jan., Dec., Dec., Dec., Dec., Dec., July,
2003 2004 2005 2008 2008 2009 2014 2016 2017 2018
29,030 67,886 104,179 330,704 71,320 168, 233,67 157,3 124,81 80,341
632 7 06 0
Equity, Equity, Equity, Equity, Equity, Equity, Equity, Equity, Equity, Equity,
Debt Debt & Debt & Debt & Debt Debt Debt Debt Debt Debt
& Deriv. Deriv. Deriv. & & & & & &
Deriv. Deriv. Deriv. Deriv. Deriv. Deriv. Deriv.

Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity

23,230 63,791 92,700 298,965 62,267 118,14 164,78 100,92 91,755 60,550
2 5 7
 P Notes mechanism
Hedge Fund
Sell
Infosys PROFIT
Buy SBI
Foreign Broking House
Sell
REPATRIATI
Infosys
ON
Buy SBI
Foreign Broking House
(India)

Sell Buy

Infosys SBI

Profit
 Banker’s Acceptance
 Used in USA & Europe
 Primarily financing international trade – helps in export & import
 Origin – London – 18th century
 USA 1913 – Federal Reserve System – BA introduced
 India – after 2000 – as growing economy
 A time draft or bill of Exchange
  Drawn on & 'accepted' by a bank as its commitment to pay a 3rd party
 BA is accepted when Bank writes on the draft its agreement to pay it on
maturity
 Bill or draft contains an order to pay a specified amount of money at a
specified time, and may be accepted by the bank
 BA substitutes bank’s creditworthiness for that of a borrower

 UK – Bank of England discounts BA upto 187 days

 USA – max. usance of 180 days
 Germany – Bundes Bank – discounts upto 90 days
 Japan – usance period range from 30 – 270 days
 Parties involved
Drawer
Acceptor
(bank’s
(Bank or
customer –
Acceptance
importer or
Discounter house)
exporter) Re-discounter
(may be (another
existing Bank/Discount
bank/diff. ing
bank/Discount House/Central
House) Bank)
 T - Bonds
 A debt instrument in which an investor loans money
 Funds borrowed for defined period of time at a variable
or fixed interest rate. 
 Helps in raising money to finance a variety of projects
and activities
 Owners of bonds are debt holders, or creditors, of the
issuer.
 Maturity period is more than 1 yr
 Provides a return in the form of coupons (interest)
 Can be held in DEMAT form
 Can be sold easily in secondary market to meet cash
requirements
 Can be used as collateral to borrow funds
 Types
Fixed Floating Zero
rate rate coupon
bonds bonds bonds
Bonds
Capital Inflation
with
indexed indexed
call/put
bonds bonds
options
Special Soverei
securiti gn Gold
es Bond