Money Market in Italy
By: Itisha Gupta (865)
B.B.A. LL.B. (Hons.)
• 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 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
• 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
Bank of Italy: Management of Money
• 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.
Instruments in Italy
Certificate of Deposit
Major Money Market Instruments in
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
• 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
• 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
Structure of Indian Money Market
Major Money Market Instruments in
Call money market
Treasury bill market
Ready forward contract
Money market mutual
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