Money market in italy
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Money market in italy






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Money market in italy Money market in italy Presentation Transcript

  • Money Market in Italy vis-à-vis India By: Itisha Gupta (865) B.B.A. LL.B. (Hons.) Available at:
  • Money Market • Investopedia defines “Money Market” as: “A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded.” • The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year. • Money market securities consist of negotiable certificates of deposit (CDs), bankers acceptances, Treasury bills, commercial paper, municipal notes, federal funds and repurchase agreements (repos).
  • Money Market • Money market securities are essentially issued by governments, financial institutions and large corporations. • These instruments are very liquid and considered extraordinarily safe. • Because they are extremely conservative, money market securities offer significantly lower returns than most other securities.
  • Money Market in Italy • Activity in the Italian market has picked up since the European Central Bank unveiled its bond buying scheme in September 2010 and lifted investor confidence that the region can contain its three-year-old debt crisis. • Trading in short-term seen instead of long-term, where foreign counterparties are interested again and are opening lines to trade Italian repo has been seen over the recent years. • All securities normally traded on the money market are eligible for deposit at Monte Titoli and can be transferred through it, although no secondary market is developed.
  • Bank of Italy • The Bank of Italy helps to draft monetary policy for the Euro area as the Governor is a member of the Governing Council of the European Central Bank (ECB). • The Bank also plays a role in implementing monetary policy in accordance with the principles of operational decentralisation and subsidiarity established in Europe. • The Bank of Italy manages the Italian Money Market.
  • Bank of Italy • The Bank of Italy assists the Ministry of the Economy and Finance (MEF) in the management of the public debt. • The Bank of Italy, on behalf of the MEF, organises and carries out placements/buy backs of government securities and debt service. • The Bank of Italy also helps to draft issuing policy, providing forecasts for coverage of the borrowing requirement through securities placements. This activity ties in closely with the forecasts of the banking system’s liquidity used by the European Central Bank to plan open market operations. • Lastly, the Bank of Italy makes financial calculations associated with government securities.
  • Bank of Italy: Management of Money Market Operations • The objective of money market operations is to improve control over the Treasury payments account with the Bank of Italy, making it easier to manage the public debt and finance the state borrowing requirement. • The management of this account involves: - sharing information between the Bank and the Ministry of the Economy and Finance (MEF) concerning forecasts of the balance on the account so as to exert greater control over it and improve its predictability, - carrying out money market operations with the banking system. These operations consist in tenders that the Bank of Italy manages on behalf of the MEF and in bilateral negotiations managed by the MEF itself or by the Bank of Italy on its behalf.
  • Promissory Note Repurchase Agreement Major Money Market Instruments in Italy Commercial Paper Treasury Bill Certificate of Deposit
  • Major Money Market Instruments in Italy 1. Promissory Note • The “cambiale finanziaria” is a negotiable promissory note with maturity from 3 months to 1 year and a minimum amount of 100 million lire (EUR 52,000). • Industrial or financial companies can issue it, but not banks. • The rating is not compulsory. • The issuance of a promissory note must first have been notified to the Bank of Italy. • No notification is required for securities with standard characteristics issued for amounts below EUR 50 million. Prospectus is required only if the promissory note is placed among the public. • Since the note is not dematerialised, a physical delivery (with an endorsement) is needed to sell it. • No withholding tax is applied. VAT applies as in the case of bonds.
  • 2. Repurchase Agreements • MTS Repo (sometimes known as the Telematico), part of MTS Group, which is based in Italy claims a 90% share of the Italian repo market. It manages the Italian Repo Market. • Italy daily repo volumes at highest since 2006 financial crisis. 3. Commercial Paper • Italian commercial paper market set to grow bankers. • CP issues are seen making a comeback in Europe as corporate borrowers and banks see this as a more liquid alternative for short-term debt than the interbank market. • Banca Popolare di Milano is preparing a 5-10 billion euro CP programme to launch soon. • CP Market has become easier to access as markets recover from the financial crisis. • The CP market for short-term paper, including European and U.S. issues, is seen at 1 trillion euros, much bigger than the interbank market. • Maturities of between 1-3 months are the most popular, accounting for three-quarters of outstanding short-term paper, while six-month paper is also significant, ECB data said. • Major Italian banks preparing CP issues use their subisidiaries in London, Dublin or Luxembourg rather than be penalised by Italian withholding tax. • Buyers for the fixed or variable CP paper include money market funds, insurers, asset managers or the banks themselves.
  • 4. Treasury Bills • Almost exclusively use auctions to sell their Treasury bills. • It is expressed in days. • Italy issues its securities with some regularity: issues 3- and 12-month BOTs at mid month, 6-month BOTs at the end of the month. • On a quarterly basis, they refine this information by specifying the amount that will be sold at the auction. • Primary dealers are financial institutions which specialize in trading government securities. 5. Certificate of Deposit • Regulated under the Interbank Deposit Protection Fund, which is recognized by the Bank of Italy. • Banks may issue registered and bearer certificates of deposit in order to rise funds. • These instruments are required to provide all the essential data concerning the issuing bank as well as other information like the nominal value of the certificate and all the elements to determine both remuneration and repayment procedures. • It entitles its holder to both reimbursement and the agreed remuneration.
  • 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. • The Indian money market consists of the • unorganised sector: moneylenders, indigenous bankers, chit funds; • organised sector: Reserve Bank of India, private banks, public sector banks, development banks and other non-banking financial companies (NBFCs) such as Life Insurance Corporation of India (LIC), the International Finance Corporation, IDBI, and the co-operative sector.
  • Structure of Indian Money Market
  • Major Money Market Instruments in India Call money market Treasury bill market Ready forward contract (Repos) Money market mutual funds
  • Comparison between Italian and Indian Money Markets • The regulator of money market in India is the Reserve Bank of India. The Italian money market is regulated by the Bank of Italy. • The Repo rates in India are determined by the Reserve Bank of India, whereas, it is done by MTS Repo in Italy. • The money market rates in Italy (apart from repo rates) are monitored by the presence of Bank of Italy and its recognized subsidiaries. However, in India, the market forces determine the rates. • Where India’s money market is in its nascent stage, the Italian money market is struggling to recover from the recent financial crisis. • Both countries support several instruments for investing in the money market.
  • Thank You!