MONEY MARKET –

The money market is where financial instruments with high liquidity and very
short maturities are traded. It is used by participants as a means for borrowing
and lending in the short term, with maturities that usually range from overnight to
just under a year. Among the most common money market instruments are euro
dollar deposits, negotiable certificates of deposit (CDs), banker's acceptances,
U.S. Treasury bills, commercial paper, municipal notes, federal funds
and repurchase agreements (repos).

Market Participants –

Institutions that participate in the money market include banks that lend to one
another and to large companies in the euro currency and time deposit markets;
companies that raise money by selling commercial paper into the market, which
can be bought by other companies or funds; and investors who purchase bank
CDs as a safe place to park money in the short term.

The U.S. government issues Treasury bills in the money market, and the bills
have maturities that range from a few days to one year. Only primary dealers can
buy them directly from the government; dealers trade them between themselves
and sell retail amounts to individual investors. State, county and municipal
governments also issue short-term notes.

Commercial paper is a popular borrowing mechanism because it is exempt

from SEC registration requirements. It's attractive to corporate investors because
rates are higher than for bank time deposits or Treasury bills, and a range of
maturities is available, from overnight to 270 days. However, the risk of default is
significantly higher for commercial paper than for bank or government
instruments.
Segments of money market –

There are two kinds of markets where borrowing and lending of money takes place between
fund scarce and fund surplus individuals and groups. The markets catering the need of short
term funds are called Money Markets while the markets that cater to the need of long term
funds are called Capital Markets. Thus, money markets is that segment of financial markets
where borrowing and lending of the short-term funds takes place. The maturity of the money
market instruments is one day to one year. In our country, Money Markets are regulated by
both RBI and SEBI.

Indian money market is divided into organized and unorganized segments. Unorganized
market is old Indigenous market mainly made of indigenous bankers, money lenders
etc. Organized market is that part which comes under the regulatory purview of RBI and
SEBI. The nature of the money market transactions is such that they are large in amount and
high in volume. Thus, the entire market is dominated by small number of large players. At
the same time, the money market in India is yet underdeveloped. The key players in the
organized money market include Governments (Central and State), Discount and Finance
House of India (DFHI), Mutual Funds, Corporate, Commercial / Cooperative Banks, Public
Sector Undertakings (PSUs), Insurance Companies and Financial Institutions and Non-
Banking Financial Companies (NBFCs).
 Call money market –
According to the RBI, “the money market is a market for short-term financial assets that are
close substitutes of money”.

Call money market-

The call money market (CMM) the market where overnight (one day) loans can be availed
by banks to meet liquidity. Banks who seeks to avail liquidity approaches the call market as
borrowers and the ones who have excess liquidity participate there as lenders. The CMM is
functional from Monday to Friday. Banks can access CMM to meet their reserve
requirements (CRR and SLR) or to cover a sudden shortfall in cash on any particular day.

Effectively, the Call Money Market is the main market oriented mechanism to meet the
liquidity requirements of banks.

Notice money market-

The call money is usually availed for one day. If the bank needs funds for more days, it can
avail money through notice market. Here, the loan is provided from two days to fourteen
days.

Participants-

Participants in the call money market are banks and related entities specified by the
RBI. Scheduled commercial banks (excluding RRBs), co-operative banks (other than Land
Development Banks) and Primary Dealers (PDs), are permitted to participate in call/notice
money market both as borrowers and lenders. As per the new regulations, Payment Banks are
also allowed to participate in CMM as both lenders and borrowers.

Banks are the dominant participants in the CMM and hence it is often known as interbank
call money market. Surplus banks will give loans to other banks. Deficit banks that need
funds will purchase it.
Role of DFHI in money market –

Pursuant to the Vaghul Working Group recommendation for setting up an institution to

provide enhanced liquidity to the money market instruments, the RBI set up the Discount and
Finance House of India (DFHI) jointly with public sector banks and the all-India financial
institutions.

DFHI was incorporated in March 1988 and it commenced operation in April 1988. The main
objective of this money market institution is to facilitate smoothening of the short-term
liquidity imbalances by developing an active secondary market for the money market
instruments. Its authorized capital is Rs 250 crore.

Role of STCI in money market –

STCI Primary Dealer Limited (STCI PD) was set up as a wholly owned subsidiary of Securities
Trading Corporation of India (STCI) in 2006. STCI was among one of the first Primary Dealers
in the country set up in 1994 as a subsidiary of RBI. Subsequently, RBI’s stake was divested in
1998 and 2000 in favor of leading public Sector Banks and All-India Financial Institutions. STCI
has since been renamed as STCI Finance Ltd. In 2006, the PD business was de-merged by
STCI into a separate wholly owned subsidiary, STCI Primary Dealer Ltd (STCI PD). STCI PD
has an authorized capital of Rs 300 Cr and paid up share capital of Rs 150 Cr.

In India, the Primary Dealer business model was established to develop an active, vibrant and
liquid secondary market for Government Securities. STCI PD has continually endeavored to
fulfill these objectives and aid in deepening the sovereign yield curve. STCI PD is an
established player in the Fixed Income and money markets, catering to a diversified pool of
investors across the Indian geography.

The core activities of STCI PD comprise of underwriting, bidding, market making and trading in
Government Securities, Treasury Bills and other fixed income securities. Apart from the above,
the Company is an active participant in the money market instruments. STCI PD plays an active
role in all segments of the debt market i.e. in both the SLR and non-SLR segments. The
Company runs a proprietary portfolio comprising of GoI dated securities (including Floating Rate
Bonds, Inflation Indexed Bonds, etc.), GoI Special Bonds, State Development Loans, Treasury
Bills, Corporate Bonds, Commercial Papers, Certificates of Deposits, etc. As a Primary Dealer
the Company is also allowed to participate and trade in STRIPS, Interest Rate Derivatives,
When Issued market and undertake short selling in G-Secs on NDS OM. We have recently
diversified our activities and since May 2015, we have started dealing in Equity and Equity F&O
markets on a proprietary basis.