Money Market Instruments

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Money Market Instruments

While the bond market generally caters to the investors with a long-term investment horizon, money market provides investment avenues of shorter tenor. Money market transactions are generally used for funding the transactions in other markets including bond market and meeting short term liquidity mismatches. By definition, money market is for a maximum tenor of one year.

Types of instruments:

Money market includes:

  • the uncollaterised segment (call, notice and term money market)

  • the collateralised segment (triparty repo, market repo and repo in corporate bonds)

  • Commercial Paper (CP) and Non-Convertible Debenture (original maturity upto one year)

  • Certificate of Deposit (CD)

  • Treasury Bills and Cash Management Bills

Call Money Market:

  • Call Money means borrowing or lending in unsecured funds on an overnight basis.

  • Notice Money is borrowing or lending in unsecured funds for tenors up to and inclusive of 14 days excluding overnight borrowing or lending.

  • Term Money means borrowing or lending in unsecured funds for periods exceeding 14 days and up to one year.

  • Scheduled Commercial Banks (excluding Local Area Banks),Payment Banks, Small Finance Banks, Regional Rural Banks, State Co-operative Banks, District Central Co-operative Banks and Urban Co-operative Banks (hereinafter Co-operative Banks); and Primary Dealers are all eligible to participate in the Call, Notice and Term Money Markets, both as borrowers and lenders as per the prudential limits set by the Reserve Bank of India.

  • Interest rates on call money, notice money and term money are market-driven.


‘Repo’ or ‘repurchase contract’ is an instrument for borrowing funds by selling securities with an agreement to repurchase the said securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed. The opposite of the repo transaction is called ‘reverse repo’ which is lending of funds against buying of securities with an agreement to resell the said securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.

  • The duration between the two legs in a repo/reverse repo transaction is called the ‘repo period’.
  • Predominantly, repos are undertaken on overnight basis, i.e., for one day period. However, it is possible to undertake repo transactions for a minimum period of one day and a maximum period of one year.
  • Settlement of repo transactions happens along with the outright trades in G-Secs.
  • All repo market transactions are traded/reported on the electronic platform called the Clearcorp Repo Order Matching System (CROMS).
  • Government securities issued by the Central Government or a State Government, listed corporate bonds and debentures, Commercial Papers (CPs) and Certificate of Deposits (CDs) are all permissible for repo.
  • Any regulated entity, listed corporate, unlisted company, which has been issued special securities by the Government of India, using only such special securities as collateral, any All India Financial Institution (FIs) viz. Exim Bank, NABARD, NHB and Small Industries Development Bank of India (SIDBI), constituted by an Act of Parliament and any other entity approved by the Reserve Bank from time to time for this purpose is eligible to participate in the repo market.

Triparty Repo:

Tri-party repo means a repo contract where a third entity (apart from the borrower and lender), called a Tri-Party Agent, acts as an intermediary between the two parties to the repo to facilitate services like collateral selection, payment and settlement, custody and management during the life of the transaction. 

  • CCIL is the Central Counterparty to all trades from TREPS and also performs the role and responsibilities of Triparty Repo Agent.
  • Tri Party Repo Dealing System (TREPS) facilitates borrowing and lending of funds in Triparty Repo arrangement.
  • The borrowing/ lending can be done for settlement type T+0 and T+1.
  • All the repo eligible entities are entitled to participate in Triparty Repo. The entity type admitted include, Public Sector Banks, Private Banks, Foreign Banks, Co-operative Banks, Financial Institutions, Insurance Companies, Mutual Funds, Primary Dealers, Bank cum Primary Dealers, NBFCs, Corporates, Provident/ Pension Funds, Payment Banks, Small Finance Banks, etc.
Commercial Paper (CP) : 

Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note and held in a dematerialized form through any of the depositories approved by and registered with SEBI.

  • A CP is issued in minimum denomination of ₹5 lakh and multiples thereof and is issued at a discount to face value.
  • Companies, including NBFCs and AIFIs, other entities like co-operative societies, government entities, trusts, limited liability partnerships and any other body corporate having presence in India with net worth of ₹100 cr or higher and any other entities specifically permitted by RBI are eligible to issue Commercial papers subject to conditions specified by RBI.
  • All residents, and non-residents permitted to invest in CPs under Foreign Exchange Management Act (FEMA), 1999 are eligible to invest in CPs; however, no person can invest in CPs issued by related parties either in the primary or secondary market. Investment by regulated financial sector entities are subject to such conditions as the concerned regulator may impose.
  • All Over the Counter (OTC) trades in CP are reported to the Financial Market Trade Reporting and Confirmation Platform (“F-TRAC”) of Clearcorp Dealing System (India) Ltd. The settlement cycle for OTC trades in CP is T+0 or T+1.
Certificate of Deposit (CD)  :

Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialised form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period.

  • Banks can issue CDs for maturities from 7 days to one year whereas eligible FIs can issue for maturities from 1 year to 3 years.
  • CDs are issued only in dematerialised form and held with a depository registered with SEBI
  • CDs are issued in minimum denomination of ₹5 lakh and in multiples of ₹5 lakh thereafter.
  • CDs are issued on a T+1 basis where T represents the date of closure of the offer period for issuance of the CDs.
  • CDs may be issued at a discount to the face value. CDs may also be issued on a fixed / floating rate basis provided the interest rate on the floating rate CD is reset at periodic rests agreed to at the time of issue and is linked to a benchmark published by a Financial Benchmark Administrator or approved by the Fixed Income Money Market and Derivatives Association of India (FIMMDA) for this purpose. 
Intercorporate deposits : 

An intercorporate deposit (ICD) is an unsecured borrowing by corporates and FIs from other corporate entities registered under the Companies Act 1956. The corporate having surplus funds lends to another corporate in need of funds.

  • This lending is on uncollaterized basis.
  • The short term credit rating of the corporate would determine the rate at which the corporate would be able to borrow funds.
  • The borrowing under ICD is restricted to 150% of Net Owned Funds and the minimum tenor of borrowing is for 7 days for Primary Dealers.
Why invest in money market:
  • Provides short-term funds to borrowers at a reasonable rate.
  • Enables lenders to turn their short term funds into an effective investment.
  • Maintains liquidity in the market. The RBI uses money market instruments to regulate the level of liquidity.
  • Helps organisations raise necessary funds to meet their capital needs.

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