debt market, komal walia

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Presented To:- Mr. Swinder Singh Presented By:- Gurjeet Kaur M.Com 3sem

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Page 1: Debt market, komal walia

Presented To:- Mr. Swinder Singh

Presented By:-Gurjeet KaurM.Com 3sem

Page 2: Debt market, komal walia

Meaning of debt securities

The debt market is any market where trading of debt instruments/ securities take place.

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Government Securi

ties Marke

t

Bond Market

CLASSIFIACTION OFINDIA

N DEBT MARK

ET

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Government Securities Market (G-Sec Market): It consists of central and state government securities. It means that, loans are being taken by the central and state government. It is also the most dominant category in the India debt market. 

More than 80% - Debt securities

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Features of Government

Securities

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Players in Government Securities

1. Central & State Government2. Commercial Banks, RBI, SBI, Cooperative

Banks.3. Specialized Financial Institutions Like:- IDBI,

IFCI, SFC etc.4. Joint Stock companies.5. Non Banking Financial Companies.6. Investing institutions like:- LIC, GIC & UTI.7. Provident Funds8. Individuals (w.e.f. Dec., 2001)

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Bond Market: It consists of Financial Institutions bonds, Corporate bonds and debentures and Public Sector Units bonds. These bonds are issued to meet financial requirements at a fixed cost.

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Features of Bond Instruments

1. Higher Risky2. High Rate of Return3. Taxable• Bonds issued by corporations

or government are usually taxable

• Bonds issued by state governments or municipalities are usually exempt from tax

4. Maturity5. INTEREST RATES

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Structure of Indian Debt Market

SEBI, RBI

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PARTICIPANTS IN THE

DEBT MARKET

Central Government

RBI

Primary Dealers

Public Sector

Charitable Institutions

Provident Funds Foreign

Institutional Investors

Mutual Funds

Banks

Financial Institutions

Corporate treasuries

State Government

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PRIMARY ISSUANCE PROCESS

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PRIMARY MARKET

• It is that market in which shares, debentures and other securities are sold for the first time for collecting long term capital.

• This market is concerned with new issues. Therefore the primary market is also called “new issue market”.

• In this market, the flow of funds is from savers to borrowers. Hence, it helps directing in the capital formation of the country

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Secondary Market Segments

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Clearing and Settlement

ClearingClearing is all steps of the post-trade processes apart from the final settlement — i.e. apart from the final payment and change in ownership.

SettlementSettlement is the last step in the post-trade process. Settlement is a two way process which involves transfer of funds and securities on the settlement date.

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Salient features of Clearing and Settlement in Debt Market segment

1. Clearing and settlement of all trades in the Debt Market shall be subject to the Bye Laws, Rules and Regulations of the Capital Market Segment and such regulations, circulars and requirements etc. as may be brought into force from time to time in respect of clearing and settlement of trading in Debt Market (Government securities).

2. Settlement in Debt Market is on T + 2 Rolling basis viz. on the 2nd working day. For arriving at the settlement day all intervening holidays, which include bank holidays, NSE holidays, Saturdays and Sundays are excluded. Typically trades taking place on Monday are settled on Wednesday, Tuesday's trades settled on Thursday and so on.

3. NSCCL shall compute member obligations and make available reports/data by T+1.

4. The existing clearing bank accounts shall be used for funds settlement.

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STRIPS

• Separate Trading of Registered Interest and Principal Securities (STRIPS)

• It is that whose interest and principal portions of the security have been separated, or "stripped"; these may then be sold separately in the secondary market.

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Example

• a Treasury note with 10 years remaining to maturity consists of a single principal payment, due at maturity, and 20 interest payments, one every six months over a10 year duration. When this note is converted to STRIPS form, each of the 20 interest payments and the principal payment becomes a separate security.

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• Generally the following convention is followed for calculating price/yield of STRIPS:

• 100• P = ---------------------• (1+y/2)^((r/s)+n)• • Where• P = Price of strip • y = Gross redemption yield• r = Number of days from the settlement date to the

next quasi coupon date*• s = Exact number of days in the current quasi coupon

period • n = Number of remaining quasi coupon periods after

the current period

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Features of STRIPS

• STRIPS let investors hold and trade the individual interest and principal components of eligible Treasury notes and bonds as separate securities.

• STRIPS are popular with investors who want to receive a known payment on a specific future date.

• It is issued at discount.• These are zero coupon instrument with single

maturity value.

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CONCLUSION

• The debt markets play an important role in efficient mobilization and allocation of resources in the economy , financing the development activities of the Government ,transmitting signals for implementation of the monetary policy, facilitating liquidity management in tune with overall short term and long term objectives.

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