Clearing Corp Plans To Extend Collateral Tool To Corporates

The Clearing Corporation of India Ltd (CCIL) is planning to extend its indigenously developed money market instrument -- collateralised lending and borrowing obligation (CBLO) -- to corporates for facilitating better fund management.

It also plans to provide settlement and guaranteeing facility in foreign exchange to transactions done on cash and tom basis (cash settlement is valued on the day the trade was done, while tom is valued the next day).

At present, the settlement facility is available only for spot (where the settlement takes place two days after the trade) and forward.

CBLO is a variant of repo that has been designed to address short-term fund management issues of entities which have been phased out from the call money market or have been imposed with restrictions on participation in the call money market.

 

At present it is only available to members of the negotiated dealing settlement (NDS) system of the Reserve Bank of India such as banks, primary dealers, co-operative banks etc.

Apart from being a fully collateralised product (unlike call money) and the cash reserve ratio provisions being exempted on CBLO borrowings, the most important features that make it stand apart are the rollover facility for better portfolio management and early redemption facility which provides an exit route to the participant, said official sources.

As part of its foreign exchange-related activities, in forward transactions the corporation is contemplating to extend the period of counter-guarantee to the entire period of trade and not only for two days before the settlement of the forward trade which it does at present.

Meanwhile, the corporation has achieved a netting factor ratio of 81.86 per cent in foreign exchange settlements where it undertakes multilateral netting of member obligations in transactions both in dollar and rupees.

The volumes in netting for the financial year ended March 31, 2003, stood at $24.68 billion. Netting is the settlement of trade arrived after cancelling payment obligations on both lending and borrowing or buying and selling legs of transactions, wherein a player has to only pay or get paid the net amount and not the gross.

However, the corporation is of the view that the netting factor ratio in government securities, which at present is only around 30 per cent, is slated to improve when the regulatory approval will enable it to settle transactions both in funds and government securities.

Under the existing system, it only settles the fund leg of government securities transaction and not the security part.