Financial Markets










 Financial Markets – Introduction and Basic concepts

a. Introduction

Markets for trading financial instruments including money, bonds, stocks, and derivative are referred to as Financial Markets. Developed financial markets can play a key role of intermediating between the lenders (savers) and the borrowers (investors), reduce information asymmetries and allow central banks to implement and achieve objectives of monetary and exchange rate policies

b. Basic Financial Market terminologies

  • Money Market: Money Market is a financial market in which only short-term debt instruments (maturity less than one year) are traded. MM is for transactions in wholesale short term loans and deposits and for trading short term financial instruments. Major players in the money market are:
    • Central Bank And Government
    • Primary Dealers/Market Makers
    •  Banks
    • Non-bank financial Institution
    • Money Market Funds & Corporate
    • Money Market Brokers

  • Repurchase/ Repo:   A repurchase agreement is the sale of a security with a commitment by the seller to buy the security back from the purchaser at a specified price at a designated future date. Basically a repurchase agreement is a collateralized loan, where the collateral is a security.

  • Reverse Repurchase/ Reverse Repo: A Reverse Repurchase is an agreement to purchase and resale of a security at a specific price and a specific future date. It is the mirror image of a Repo transaction. Provider of funds does Reverse Repo transaction.

  • Overnight Money Market Repo Rate: The rate at which overnight repo deals are transacted in the money market.

  • Call Money: Funds placed with a financial institution without a fixed maturity date. The money can be “called” (withdrawn) at any time.  It is a form of clean borrowing / lending in the MM for short term requirements without collateral.

  • Delivery Versus Payment (DVP): Clearing and settlement of transactions in money market instruments (MMIs) is through book-entry system of transferring ownership with delivery of the securities against payment i.e. Delivery Versus Payment (DVP).

  • Over The Counter (OTC): A  secondary market in which dealers at different locations who have an inventory of securities stand ready to buy and sell securities “ over the counter ” to anyone who comes to them and is willing to accept their prices.

  • Interbank market: A market for wholesale loans and deposits traded between banks.

  • Bid: A bid rate is the rate that a bank will wish to pay on any borrowing it makes.

  • Offer: Offer rate is the rate that a bank will want to receive on any lending it makes.

  • Primary Market:  The market in which new issues of financial instruments/ securities are sold initially.

  • Secondary Market: A market for buying and selling securities in the period between their issue and maturity. A liquid secondary market enhances the attractiveness of financial instruments/securities to investors.

  • Broker: An entity that acts as an agent or go-between to bring together principals who wish to deal e.g. borrower & lenders in MM at mutually agreed prices. Brokers do not act as principals to any transaction.

  • Subsidiary General Ledger Account (SGLA): Is a securities account of Banks/FIs with SBP. SGLA was extended to banks and FIs in March 1991 for settlement of Government securities.

  • Investor Portfolio of Securities (IPS) Account: Is a securities account of Clients with Banks/FIs.
i

  •  
    SBP Policy Rate
    17.00% p.a.
     
    SBP Overnight
    Reverse
    Repo (Ceiling) Rate
    18.00% p.a
     
    SBP Overnight
    Repo (Floor) Rate
    16.00% p.a.
  •  
    Weighted-average Overnight Repo Rate
    As on 01-Feb-23

    16.77% p.a.
    KIBOR
    As on 02-Feb-23
    Tenor BID OFFER
    3-M 17.66 17.91
    6-M 17.75

    18.00

    12-M 17.81 18.31
     

  • MTBs
    Tenor Rates
    3-M 17.9374%
    6-M Bids Rejected
    12-M Bids Rejected
    (as on Jan 25, 2023)
    Fixed-rate PIB
    Tenor Cut-off Rates
    3-Y Bids Rejected
    5-Y Bids Rejected
    10-Y Bids Rejected
    15-Y No Bid
    20-Y No Bid
    30-Y No Bid
    (as on Jan 18, 2023)

    Floating-rate PIBs (Quarterly Coupon)

    Tenor Cut-off Price
    2-Y Rs. 99.0127
    3-Y Rs. 97.8235

    Floating-rate PIBs
    (Half-yearly Coupon)

    Tenor Cut-off Price
    5-Y Bids Rejected
    10-Y Bids Rejected
    (as on Jan 25, 2023)
    GIS FRR
    Tenor Cut-off Rental Rate
    3-Y No Bid
    5-Y No Bid
    GIS VRR
    Tenor Cut-off Margin
    3-Y -25 BPs
    5-Y Bids Rejected
    (as on 03-Jan-2023)
  • PIB Auction
    (Fixed Rate)
    15-Feb-23


    MTB
    08-Feb-23

    Floating Rate PIB
    (Semi-Annual Coupon)

    08-Feb-23
    Floating-rate PIB
    (Quarterly Coupon)

    08-Feb-23
    GIS VRR

    16-Feb-23
    GIS FRR

    16-Feb-23
    As on 27-Jan-23
    SBP’s Reserves
    3,086.2
    Bank’s Reserves
    5,655.5
    Total Reserves
    8,741.7

  •  
    As on 02-Feb-23
     
    M2M
    Revaluation Rate
    271.3550
    Weighted
    Average Rate
    Bid: 270.6409
    Offer:

    271.0570


       
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