1. Pavitra Venkateswaran
Roll Number: 870
Semester VI
B.B.A; LL.B (Hons.)

2. Money Market in India

 The Money market in India is the money market for
short-term and long-term funds with maturity ranging
from overnight to one year in India including financial
instruments that are deemed to be close substitutes of
money.
 Similar to developed economies the Indian money
market is diversified and has evolved through many
stages, from the conventional platform of treasury bills
and call money to commercial paper, certificates of
deposit, repos, forward rate agreements and most
recently interest rate swaps

3. Money market in India

 The Indian money market consists of diverse submarkets, each dealing in a particular type of shortterm credit. The money market fulfills the borrowing
and investment requirements of providers and users
of short-term funds, and balances the demand for
and supply of short-term funds by providing an
equilibrium mechanism. It also serves as a focal
point for the central bank's intervention in the
market.

4. Money market in China

An Overview

5. Overview

 China‟s money market lagged in its development
prior to the mid-1990s compared with the other
segments of the financial system, especially the stock
market.
 Drastic Changes towards the ends of the last century
 The major money markets such as interbank lending
and borrowing, spot and bond repo, commercial
paper, and discount and rediscount, have developed
by leaps and bounds since the beginning of 1997.

6. The total combined volume of transactions of these markets reached 5,864
billion Yuan by the end of 2000, growing by 73 percent in the
short span of four years


7. Overview

 First, the interbank spot and repo trading
leapfrogged every year for those four years.
 The circulation of commercial paper and the scale of
bill discount and rediscount were also expanded
drastically in 2000
 Against this background of growth, it is natural that
the ratio of trading on the money market to GDP, an
index for measuring the development of money
market in an economy, rises rapidly

8. Structure of the Money
Market

 There was a sharp drop in the proportion of
interbank lending and borrowing and the big rise in
the trading of the bond market (especially repo) and
trading of paper and discount.
 In China‟s money market, the interbank market was
the earliest to appear as a result of mainly nongovernmental forces.
 As early as 1981, “underground” lending and
borrowing for overcoming a lack of funds appeared
in Jiangsu and Zhejiang, both of which boasted the
most developed township and village enterprises

9. Structure of the Money
Market

 In 1985, the People‟s Bank of China officially allowed
lending and borrowing among specialized banks as a
major part of financial reform.
 Lending and borrowing activities reached its peak in
1995, when the volume of trading reached 1,000
billion Yuan, doubling the amount of the previous
year.
 Such a situation on the interbank market, of
course, aroused discontent from the monetary
authorities and consequently led to three major
overhauls of the market from the end of the 1980s

10. Structure of the Money
Market

 A nationally unified interbank market was not officially
established until January 3, 1996, which was officially
subject to tight regulation by the monetary authorities
 it was from that time on, that the interbank market began
to scale down and the size has not exceeded that of 1995
until today
 On the other hand, the interbank bond market, especially
the interbank treasury bond repo market, has developed
rapidly, presenting a sharp contrast to the flagging
interbank lending and borrowing market

11. Structure of the Money
Market

 China‟s bond market has been dominated by repo.
 The trading volume of repo has been maintained at
around 80 percent.
 At the same time, China‟s bond market is relatively
segmented. Up to the present, the national interbank
bond market and the bond market of the Shenzhen
and Shanghai stock exchanges are still operating side
by side

12. Structure of the Money
Market

 The commercial paper market in China dates back to the
beginning of the 1980s, when some economically developed
areas began to explore the possibility of discount of commercial
paper.
 In 2000, the total trading volume of commercial paper, discount
and rediscount topped 1,000 billion Yuan, accounting for 25
percent of the entire trading volume of the money market
 while the total trading volume has been increasing, the
proportion of discount and rediscount has gradually increased.
 The commercial paper market has added such functions as
providing loans (discount) as working capital and the basis for
the open market operations rediscount by the central bank.

13. Tentative Provisions

 The China Securities Regulatory Commission
(CSRC), and the People‟s Bank of China (PBOC)
jointly released the long awaited “Tentative
Provisions” in 2004
 It‟s the first legal recognition of the seven quasimoney market funds that currently operate in
China‟s Capital markets
 It also presents an outline for future legal framework
for the Money Market Funds (MMFs)

14. Tentative Provisions

 As per the „TP‟, an MMF is a fund that only invests
in money market instruments. It is included in the
category of securities investment funds and its legal
framework falls within the framework of securities
investment funds.
 MMFs can invest in money market instruments
including cash, bank term deposits or large-amount
certificates of deposit, bonds, bond repurchases,
central bank notes and other money market
instruments with good liquidity that are permitted
by the CSRC and the PBOC

15. Tentative Provisions

 There is an emphasis on Safe and Standard Operation.
 There are strict limitations on the percentage of various
money market instruments invested by MMFs
 Given the low risk in money market instruments, the
interest rate fluctuations may be the only big threat.
 MMF‟s transactions and settlement in the national
interbank market shall comply with the PBOC‟s rules for
interbank transactions and be supervised and examined
periodically by the PBOC.

16. In 2013

 the Shanghai Interbank Offered Rate or Shibor
increased to 13.44 percent, exceeding even the highs
posted during the financial crisis in 2008 and setting
a new record high for the decade.
 Since late May, China's interbank lending market
began to show signs of tightness and the pressure
has gradually been rising since then
 By June 20, the tightening in the market reached a
tipping point which traders have started referring to
as the "June 20 massacre"

17. In 2013

 Over the recent period, some banks have been over
optimistic about their cash flows, and they didn't
consider a series of facts that would affect the
liquidity of the market in June. Therefore, without
effective responses, and lack of the help from
primary dealers like large banks, the price of funds
in the money market fluctuated widely.
 Overnight and 7-day lending rates reached 10-year
highs, surpassing the levels registered during the
height of the financial crisis in 2008.

18. In 2013

 The financial markets have become more complex
and for a long time now the financial institutions
involved are not restricted to a few state-owned
banks. The Central Bank also doesn't have any
experience in stabilizing the inter-bank market or in
ensuring that banks meet their repayment
obligations. It's never had to face this kind of
challenge before.

19. In 2013

 Most of the newly issued loans have indeed just been
churned around. The increase in funds has all gone
to interbank lending, the banks are playing amongst
themselves with money. This bout of tightness in the
money markets and the Central Bank's decision not
to release more funds is a warning to banks, that
banks should direct funds into the real economy.
 This echoes recent statements from China's State
Council and the head of the CBRC on the need to
ensure that funds are directed towards the real
economy.