| Bond Market Infrastructure and Secondary Market
Development
|
| by
|
| Dr. R. H. Patil, Chairman
|
| The Clearing Corporation of India Ltd.
|
| December 1, 2004
|
| The Clearing Corporation of India Ltd ::
Operations Overview |
| History:-
|
| - Core Group constituted in July 2000 |
| - Members of Core Group : |
|
- Leading
market players |
|
- RBI
Representatives |
|
- Industry
associations - FIMMDA, FEDAI, PDAI & AMFI.
|
| - SBI
Convener and leader of Core Group. |
| - Core promoters - SBI, IDBI, ICICI, LIC, BOB & HDFC
Bank |
|
|
Focus:-
|
| - Establish a safe institutional structure for clearing
and settlement of trades |
|
| - Bring about efficiency in transaction settlement
process |
|
| - Insulate financial system from shocks arising from
operations related issues |
|
| Core Functions:-
|
| Gilts Market |
- All Outright
& Repo Trades |
| Forex
Market Trades |
- All
Inter-bank INR/USD |
|
- FX Clear
Trading and Settlements |
| Money
Market |
- CBLO Trading
and Settlements |
| ATM
Transaction |
- Inter-bank
Settlements for N F S |
| Risk
Mitigation |
- Central
Counter Party (CCP) |
|
| Current Business Levels:- |
|
Securities |
Forex |
| Active
Members |
152 |
72 |
| Daily
Volumes |
Rs. 9114 Crs |
USD 3.5 Bln |
| Daily No. of
Trades |
595 |
3716 |
| Netting Factor –
Funds |
79 % |
90 % |
| Netting Factor -
Securities |
39 % |
--- |
| Settlements thru
CCIL |
99 % |
85 %
| |
| Risk Management Practices at CCIL:-
|
| - Membership
Norms |
| - Settlement Guarantee Fund
(SGF) |
| - Exposure limits |
| - Lines of Credit – INR &
USD |
| - Vetted by E C B
Expert |
| - R B I
Inspection | |
|
| Securities Settlement Process:- |
| - Check Exposure
Limits |
| - Trades < Exposure
Limits-guaranteed |
| - Compilation of trades for
settlement date |
| - Novation – Central Counterparty |
| - Securities/Funds - Final Member
Obligation | |
| Exception Handling:- |
| Funds Shortage
|
|
- SGF Cash Balances |
| - Lines of Credit |
| - Blockage of Securities due to
Defaulting Member |
| - Penalties |
| Securities Shortage
|
| - Securities
Lending/Borrowing |
| - SGF
Balances |
| - Proprietary Balances
|
| - Blockage of Securities/Funds
|
| -
Penalties | |
| Risk Management
Measures:- |
| Setting up of Settlement
Guarantee Fund |
|
- Cash deposit (10%) |
|
- GOI securities (90%) |
|
OR |
|
- Cash deposit (100%) |
| Arrangements for meeting
shortages |
|
- Stand by LoC |
|
- Creation of Securities Pool from
SGF Contribution |
|
- Securities Borrowing & Lending
| |
| Settlement Guarantee Fund:- |
| - Cash contribution received in
RBI current account |
| - Securities held in CSGL Account
with RBI |
| - Securities marked to market on
daily basis |
| - Hair-cut applicable at the time
of contribution |
| - Members free to
deposit/withdraw/substitute SGF |
| - Contribution to SGF do not
qualify for SLR |
| - Corporate action passed on to
Members via
EFT | |
| Money Market - CBLO
|
| - Repo Variant – Alternative to
Call Money |
| - Borrowing against Government
Securities as Collateral |
| - Tradability and Exit Options to
both Parties |
| - Approved as Money Market
Instrument by RBI |
| - Anonymous Screen based Matching
on best yield :time priority |
| - Membership – NDS & Non-NDS
Members |
| - Security – Held by CCIL in its
CCIL A/c. with RBI |
| - Funds Settlement - RBI for NDS
Members & Settlement Bank for Non-NDS
Members | |
| CBLO
Settlement Process:- |
|
-
Dealing Platform |
| CCIL |
|
|
-
Guaranteed Settlement |
| -
Limits fixed based on Securities/Cash Collaterals |
| -
Members intending to borrow/lend to use trading platform
|
| -
Accounting system to generate obligations for CBLOs/funds
|
| -
Funds pay-in/pay-out sent to RBI for settlement |
| -
CBLO transfers to take place after fund settlement
|
|
| CBLO Risk Management:- |
| - Borrowing
limit based on securities in CSGL account after mark-to-market
and hair-cut to address market risk
|
| - Initial
margin for lenders to take care of settlement
risk
|
| - Price risk
due to fall in value of collateral covered by mark-to-market
of securities
|
| - Liquidity
Risk by using line of credit and blocked
securities
|
| - Validation
of borrowing limit and checking of initial margin after trades
are matched and before
settlement
|
|
| CBLO Advantages:- |
| - Flexibility to off-load part or
whole of investment |
| - Transparency in dealings and
price discovery |
| - Alternative to call
money |
| - Widening the repo
market |
| - Efficient management of
liquidity |
| - Development of short term yield
curve | |
| IT - Infrastructure:- |
| - State of Art Environment for
reliable and efficient operations |
| - Clustered HP Servers with
adequate redundancies |
| - Databases on Clustered Oracle
Real Application Servers with adequate
redundancies |
| - 24 x 7 manned Data Centre with
stand-by HP/Oracle support |
| - Customized Application Software
developed by TCS |
| - Uninterrupted Power Supply from
two back up power sources |
| - Back Up/ DR Site at IDRBT,
Hyderabad |
| - Alternate User Location at
Mumbai |
| - Back Ups at Primary Location and
DR Site to prevent data loss |
| - Business Continuity Plan in
place | |
| IT - Connectivity:- |
| - Primary Connectivity to INFINET
at RBI Main Hub via Leased Line |
| - Secondary Connectivity to
INFINET at RBI Alternate Hub via Leased
Line | |
| IT - Security:- |
| - Access control policies – roles,
rights, privileges |
| - Active Directory
Service |
| - Firewall check for external
users |
| - Monitoring of unauthorized
external access attempts |
| - Content filtering software for
e-mails |
| - Virus Protection through
Anti-virus
scanning | |
| Business Continuity Planning:- |
| - IT redundancies at Primary
Site |
| - Alternate User Location in
Mumbai |
| - Disaster Recovery Site at
Hyderabad |
| - Continuous back-up and data
replication |
| - Regular BCP
Drills | |
 |
| Corporate Governance:-
|
| - Byelaws, Rules, Regulations on
website |
| - Representation of Market
Participants on Board |
| - Board Committees |
| - Other Operational Committees –
TAC, PAC, RC |
| - Business User
Groups |
| - Data dissemination thru website
/dailies / agencies |
| - Periodical
Publications |
|
| CCIL & Core
Principles :: An Assessment
|
| - Should ensure high degree of
security, operational reliability & contingency
arrangements for timely completion of daily
processing. |
| - Systems / Processes developed in
consultation with User Group comprising of leading market
players |
| - All business rules and processes
approved by Regulator |
| - All operations / processes
undergo comprehensive Systems and UAT prior to
implementation |
| - Business Contingency Plans in
place |
| - Disaster Recovery Sites live and
operational |
| - BCP / DR Plans regularly
tested |
|
| Milestones:- |
| 30 Apr 01 - Company
incorporated |
| 15 Feb 02 - Commenced GILTS
Settlements via NDS |
| 10 Apr 02 - Guaranteed Settlements
for GILTS started |
| 17 Oct 02 - Rakshitra launched
|
| 25 Oct 02 - Weekly Market Update
launched |
| 08 Nov 02 - Forex Settlements
Commenced |
| 20 Jan 03 - CBLO
launched |
| 15 Feb 03 - ZCYC publication
commenced |
| 04 Jun 03 - Clearcorp Dealing
Systems formed |
| 19 Jul 03 - Buy Back Platform for
GILTS launched |
| 07 Aug 03 - FX Clear
launched |
| 18 Oct 03 - Electronic Value Free
Transfer via NDS |
| 05 Feb 04 - Cash & TOM trades
included in Fx Settlements |
| 05 Mar 04 - Non-NDS Members
commence CBLO operations |
| 02 Apr 04 - DVP III settlements in
GILTS commenced |
| 15 Jun 04 - STP enabled for Fx
Clear |
| 27 Aug 04 - Commenced settlement
ATM
transactions | |
| Road Ahead:- |
| - Cross Currencies Settlements
thru CLS |
| - CBLO – Internet
Segment |
| - Value Level
Collateral |
| - Bond Index |
| - Forex Forwards Guaranteed from
Trade Date |
| - OTC Derivative
Settlements | |