Table of Contents
Topics to discuss
- P-notes Unregulated deposit scheme
- Bilateral netting
- Government e market place
- Bonds in News: Masala bonds
- Bharat 22
- Exchange trade funds Corporate bonds
- NIIF
- Terms in News
Q) Which of the following Statements is correct regarding Participatory notes?
- P-notes are offshore derivative instruments of underlying Indian
- These are issued by registered Foreign Portfolio investors (FPIs) to overseas investors
- P-notes are misused due to anonymity involved in case of participatory notes
- All the given options are correct
WHY IN NEWS
Participatory Notes
- P-notes are offshore derivative instruments of underlying Indian assets.
- These are issued by registered Foreign Portfolio investors (FPIs) to overseas investors or hedge funds who wish to be part of the Indian stock market without registering themselves with SEBI directly.
Reasons for decline in the value of P-Notes
- Tightening of rules on P-notes.
- Liberalised norms for foreign portfolio investors (FPIs) based on recommendations of H.R. Khan committee
- Declining equity inflows
- Profitability of Indian corporates has worsened over the last decade.
- There are few concern on P-notes
- Often P-notes have been seen as an instrument that is being misused to launder money or fund illegal activities because of the anonymity involved.
WHY IN NEWS
More in news
- Ponzi schemes, over the years have been a menace in the country. Rose Valley, Saradha, IMA Jewels scam in Bengaluru—are among the major scams in the recent past.
- The Act covers existing gaps in legislation that had been exploited by various parties to siphon large amounts of money away from small investors.
Ponzi Scheme
- A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors.
- It generates returns for early investors by acquiring new investors.
- They rely on a constant flow of new investments to continue to provide returns to older investors. When this flow runs out, the scheme falls apart.
- Reasons for the popularity of Ponzi Scheme are Higher Rate of return and easy to invest in such schemes
WHY IN NEWS
Bilateral Netting
- A bilateral netting agreement enables two counterparties in a financial contract to offset claims against each other to determine a single net payment obligation that is due from one counterparty to the other
- This means that the payables and. receivables are netted off
Background
- Indian financial contract laws do not permit bilateral netting, however, they do allow multi-lateral netting where parties can offset claims against each other through a central counterparty.
- Without bilateral netting, Indian banks have had to set aside higher capital against their trades in the over-the-counter (OTC) market, which impacts their ability to participate in the market.
- Moreover, it also increases the systemic risk during defaults
- Bilateral netting would help reduce hedging costs and liquidity needs for banks, primary dealers and other market-makers, thereby encouraging participation in OTC derivatives market.
- Global regulatory bodies such as Financial Stability Board and Basel Committee on Banking Supervision have supported use of such netting.
- At present, S., U.K., Australia, Canada, etc. have such netting agreements.
Over the Counter (OTC) Market
- Over-the-counter markets are those in which participants trade directly between two parties, without the use of a central exchange or other third party.
- OTC markets do not have physical locations or market-makers.
- Some of the products most commonly traded over-the-counter include bonds, derivatives, structured products and currencies.
WHY IN NEWS
Government e-Marketplace
- The Government e Marketplace (GeM), launched in 2016, is an online market platform to facilitate procurement of goods and services by various Ministries and agencies of the Government
- The portal was developed by the Directorate General of Supplies and Disposals (DGS&D) with technical support of National e-Governance Division (MeitY).
- It has been envisaged by Government of India as the National Procurement Portal of India and is directly monitored by the PMO office.
- It is offering end to end solutions for all procurement needs of Central and State Government Departments, PSUs, autonomous institutions and local bodies.
- The purchases through GeM by Government users have been made mandatory by Ministry of Finance.
- 24 States and UTs have signed a formal MoU with GeM to formalize this arrangement
Terminologies related to Bond
Q) Which among the following pairs is/are not matched correctly?
Liast 1
- Dim sum bonds
- Samurai bonds
- Komodo bonds
List 2
- Denominated in Chinese Renminbi
- Denominated in Indonesian Rupiah
- Denominated in Japanese Yen
Which of the above statements is/are correct?
- 1 only
- 2 and 3
- 1 and 3
- All are matched correctly
WHY IN NEWS
More in News
- Asian Development Bank (ADB) has listed its 10- year Masala bonds worth ₹850 crore on the Global Securities Market of India International Exchange (India INX)
- ADB’s masala bonds are dual listed on both Luxembourg exchange and India INX.
- This is the first time a foreign issuer and a supranational is doing a primary listing with India INX.
- It will promote the GIFT IFSC as a global hub for fund raising by Indian and Foreign issuers.
Masala Bonds
- They are rupee-denominated bonds e. the funds would be raised from overseas market in Indian rupees.
- Any corporate, body corporate and Indian bank is eligible to issue Rupee denominated bonds overseas.
- The first Masala bond was issued in 2014 by International Finance Corporation (IFC) for the infrastructure projects in India.
- Money raised through such bonds cannot be used for real estate activities other than for development of integrated township or affordable housing projects.
- It also can’t be used for investing in capital markets
Other Local Currency Bond
- Dim sum bonds Denominated in Chinese Renminbi
- Samurai bonds Denominated in Japanese Yen
- Komodo bonds Denominated in Indonesian Rupiah
India International Exchange Limited (India INX)
- It is the country’s first international exchange, located at International Financial Services Centre, GIFT City in Gujarat.
- It is a subsidiary of Bombay Stock Exchange (BSE) Limited.
- It is the fastest in the world with a turn-around time of 4 micro seconds, operating on an advanced technology platform of EUREX T7.
- It launched Global Securities Market, India’s first international primary market platform that connects global investors with Indian and foreign issuers.
WHY IN NEWS
More in News
- Recently, fourth tranche also known as Further Fund Offer-2 (FFO-2) of Bharat 22 Exchange Traded Fund (ETF) was launched
Exchange Trade Fund
- An ETF is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange.
- The Bharat 22 ETF invests in 22 stocks of Central Public Sector Enterprises (CPSE), Public Sector Banks and private companies which are Strategic Holding of Specified Undertaking of Unit Trust of India (SUUTI).
- It is the second ETF from Govt. of India after CPSE ETF which comprises only state-run companies as its constituents.
- Proceeds from the ETF will help the government meet its disinvestment target of Rs 1.05 lakh crore for the current financial year.
WHY IN NEWS
More in news
- RBI has setup a task force under TR Manoharan to examine the possibilities of a secondary market for corporate loans in India
- It suggested creating a self-regulatory body (SRB) to manage the secondary market.
Corporate Bonds
- Corporate bonds are debt securities issued by private and public corporations. Companies issue corporate bonds to raise money for a variety of purposes, such as building a new plant, purchasing equipment, or growing the business.
- Earlier, the R. Khan Committee had given recommendations on development of corporate bond market.
WHY IN NEWS
More in news
- The government has announced the creation of an Alternate Investment Fund (AIF) with a targeted corpus of Rs 25,000 crore for the completion of stalled housing projects.
Alternate Investment Fund
- AIF means any fund established or incorporated in India which is privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign for investing it in accordance with a defined investment policy for the benefit or its investors.
- AIF are categorized under SEBI Regulations as-
- Category I (venture capital funds, SME funds, social venture funds etc.)
- Category II (real estate funds, private equity funds, funds for distressed assets, )
- Category III (hedge funds, PIPE Funds, etc.)
WHY IN NEWS
More in news
- NIIF of India and Canada Pension Plan Investment Board (CPPIB) have agreed for CPPIB to invest up to $600 million through the NIIF Master Fund
National Infrastructure Investment Fund
- NIIF is being considered as an Alternative Investment Fund (AIF) under SEBI
- The NIIF is a trust that raises debt to invest in the equity of infrastructure finance companies.
- It acts like a bankers’ bank in infrastructure financing.
- Government owns 49% of NIIF.
- NIIF currently manages three funds each with its distinctive investment mandate
Three Funds
- Master Fund: Is an infrastructure fund with the objective of primarily investing in operating assets in the core infrastructure sectors such as roads, ports, airports, power etc.
- Fund of Funds: Managed by fund managers who have good track records in infrastructure and associated sectors in India. Some of the sectors of focus include Green Infrastructure, Mid-Income & Affordable Housing, Infrastructure services and allied sectors.
- Strategic Investment Fund: Is registered as an Alternative Investment Fund II under SEBI in India. The objective is to invest largely in equity and equity-linked It will focus on green field and brown field investments in the core infrastructure sectors.
Terms in news
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