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Integrated Treasury and Operations Overview for Banking Professionals

Learn about integrated treasury functions, products, markets, auction of securities, OMO, primary dealers' role, terminologies, systems, settlement processes, risk management, and important websites in the financial industry.

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Integrated Treasury and Operations Overview for Banking Professionals

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  1. TREASURYANDTREASURY OPERATRIONS PRASAD KELKAR

  2. Integrated Treasury • Integrated Treasury refers to integration of money market, securities market and foreign exchange operations. -Meeting reserve requirements -Global cash management -Optimizing profit by exploiting market opportunities in forex market, money market and securities market -Risk management -Assisting bank management in ALM

  3. Integrated Treasury

  4. Treasury – Functions and Responsibility • Front office - Dealing • Mid-Office - Risk management, accounting and management information • Back office - Confirmations, settlement and reconciliation

  5. Treasury – Products

  6. Treasury – Products • SLR Securities • Repo Market • Money Market • Non SLR Securities • Foreign Exchange Market • Derivatives Market

  7. Treasury – Products • SLR Securities • Gsec • SDL • Tbill • Repo Market • Repo • Reverse Repo • CBLO • CROMS

  8. Treasury – Products • Money Market • Call Money • Term / Notice Money • CDs • CPs • ICDs • Non SLR Securities • Fixed Rate Bonds • Floating Rate Bonds

  9. Markets • Primary Market • Underwriting • Gsec • Auction • Gsec • SDL • TBill • Secondary Market

  10. What is auction of Securities Auction is a process of calling of bids with an objective of arriving at the market price. It is basically a price discovery mechanism.

  11. Primary Dealers Primary Dealers can be referred to as Merchant Bankers to Government of India, comprising the first tier of the government securities market.

  12. Role of Primary Dealers The role of Primary Dealers is to – (i) commit participation as Principals in Government of India issues through bidding in auctions (ii) provide underwriting services (iii) offer firm buy - sell / bid ask quotes for T-Bills & dated securities (v) Development of Secondary Debt Market

  13. OMO OMO or Open Market Operations is a market regulating mechanism often resorted to by Reserve Bank of India. Under OMO Operations Reserve Bank of India as a market regulator keeps buying or/and selling securities through it's open market window. It's decision to sell or/and buy securities is influenced by factors such as overall liquidity in the system.

  14. Terminologies Spot Deal Forward Deal Repo Deal Reverse Repo Interest (Coupon) Put Option Call Option SLR Non - SLR

  15. Terminologies • Primary Market • Secondary Market • CCIL • Depository • NSCCL • ICCL • Discounted Security

  16. What is Put / Call Option Put – Right to investor to premature the bond Call – Right with the Issuer to Premature the bond

  17. CRR & SLR CRR = 4% SLR = 19.5% CRR and SLR are to be maintained on fortnightly basis. The RBI is authorized to increase or decrease the CRR and SLR at its discretion.

  18. Coupon rate and Yield The difference between coupon rate and yield arises because the market price of a security is different from the face value of the security. The Yield and the Coupon Rate is same normally at the time of new issue.

  19. Factors Influencing Interest Rates The factors which govern the interest rates are mostly economy related and are commonly referred to as macroeconomic factors. Some of these factors are: 1) Demand for money 2) Government borrowings 3) Supply of money 4) Inflation rate 5) The Reserve Bank of India and the Government policies which determine some of the variables mentioned above.

  20. Settlement Process

  21. Systems Used for settlement • Gsec Market • NDS • NDS-OM • Corporate Bond Market • NSCCL • ICCL • FTrac

  22. Valuation of Securities FIMMDA – Gsec / SDLs / Tbills NSE / BSE – Corporate Bonds Book Value – CDs / CPs

  23. Risk • Transaction risk: Execution error, Product complexity, booking error, settlement error, commodity delivery risk, documentary/ contract risk • Operational control risk: Exceeding limit, rogue trading, money laundering, security risk, key personnel risk, processing risk

  24. Risk • Systems risk: Programming error, model/ methodology error, IT systems failure, telecommunications failure • Business events risk: Currency convertibility risk, shift in credit rating, reputation risk, legal risk, taxation risk, disaster risk, wars, collapse/ suspension of market • Regulatory risk: Breaching capital requirements, regulatory changes

  25. Important Websites • Rbi.org.in • Ccilindia.com • Fimmda.org • Sebi.gov.in

  26. Foreign Exchange Market PRASAD KELKAR

  27. What is FX market • Identify participants and currencies • Understand spot and forward Deals • Understand forward rates and spread

  28. Terminologies Cash Deal Tom Deal Spot Deal Forward Deal Swap Deal

  29. Bid & Ask Quotes • Foreign currency dealers provide two quotes: Bid Price: Price at which the dealer is willing to buy foreign currency from you. Ask Price: Price at which the dealer is willing to sell foreign currency to you. • It is always the case that the Ask Price > Bid Price. The difference is the Bid-Ask spread. • The less traded and more volatile a currency, the greater is the spread.

  30. Types of Transactions 0 • A Spot transaction in the interbank market is the purchase of foreign exchange, with delivery and payment between banks to take place, normally, on the second following business day. • The date of settlement is referred to as the value date.

  31. Types of Transactions 0 • An outright forward transaction (usually called just “forward”) requires delivery at a future value date of a specified amount of one currency for a specified amount of another currency. • The exchange rate is established at the time of the agreement, but payment and delivery are not required until maturity. • Forward exchange rates are usually quoted for value dates of one, two, three, six and twelve months. • Buying Forward and Selling Forward describe the same transaction (the only difference is the order in which currencies are referenced.)

  32. Types of Transactions 0 • A swap transaction in the interbank market is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates. • Both purchase and sale are conducted with the same counterparty. • Some different types of swaps are: • spot against forward • forward-forward

  33. Market Participants 0 • Banks (Also referred as Authorised Dealers) • Corporates (Importers / Exporters) • Central Bank (RBI) • Brokers • Individuals

  34. Types of Activities • Speculation • An activity that leaves one open to exchange rate fluctuations where one aims to make a profit. • Hedging • Allows the firm to transfer exchange rate risk inherent in foreign currency transactions or positions. • Arbitrage –take advantage of inconsistent prices to make risk-free profits. These profits are unlikely to last long.

  35. Settlement Process for FX

  36. Derivatives • This is the Market which is derived by taking one of the vanilla product as the base for arriving at a new product.

  37. 0 • CAREERS

  38. 0 THANK YOU

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