The document provides an overview of the evolution and growth of the global credit default swap (CDS) market from 1994 to 2012. It discusses key milestones and developments over this period, including the first CDS trade in 1994, increased standardization of documentation and contracts through industry initiatives in the late 1990s/early 2000s, the rapid growth and expansion of the market in the 2000s, and central clearing and regulatory changes following the 2008 financial crisis. The document also examines ongoing challenges for CDS markets in Asia, including lack of historical default data, liquidity issues, and the need for further standardization and legal/settlement frameworks.
This document provides an overview of credit derivatives and their role in credit risk management. It defines credit derivatives as instruments that insure against adverse movements in a borrower's credit quality. Various credit derivative products are examined, including total return swaps, credit default swaps, credit linked notes, collateralized debt obligations, and collateralized loan obligations. The growth and decline of these markets leading up to and during the global financial crisis is also discussed. The document aims to explain how credit derivatives can be used to transfer and manage credit risk.
Standard Chartered Bank and Mahindra Finance use different sources of long-term and short-term finance. Standard Chartered Bank relies more on equity capital (58%) and internal accruals like reserves and surplus (24%). It uses less debentures (20%) and term loans (8%). In contrast, Mahindra Finance has lower equity capital (42%) but higher use of debentures (33%) and both long-term and short-term term loans (13%). While Standard Chartered Bank has less dependence on outside sources, Mahindra Finance relies more on external financing through debentures and loans.
Capital Market: Components & Functions of Capital Markets, Primary & Secondary Market Operations, Capital
Market Instruments - Preference Shares, Equity Shares, Non-voting Shares, Convertible Cumulative Debentures (CCD),
Fixed Deposits, Debentures and Bonds, Global Depository receipts, American Depository receipts, Global Debt
Instruments, Role of SEBI in Capital Market.
The document discusses credit derivatives and the credit derivatives market in India. It provides information on different types of credit derivatives including credit default swaps (CDS), credit linked notes (CLN), and credit spread options (CSO). It then discusses the growth of the CDS market globally and the composition of the credit derivatives market. It outlines the benefits of credit derivatives for banks and other financial institutions in India. Finally, it discusses the role of the Clearing Corporation of India in facilitating CDS trading and settlement and provides details on the first CDS trades in India in 2011.
Kingfisher Airlines owes Rs 260 crore to Airports Authority of India for airport infrastructure usage. KFA will pay through an inter-corporate deposit from UB Group. [ICDs are short-term loans between corporations, often at higher interest rates than banks due to risk. They lack collateral but help cash-strapped firms access funds.] Kingfisher will receive an ICD from UB Group to pay its debt to AAI. ICDs are an unsecured source of short-term funds for companies in need, bearing higher interest than bank loans. They are an alternative to bank loans, especially for less creditworthy companies. However, their reliance on corporate relationships limits their availability compared to formal bank financing.
Dodd-Frank Compliance and Technology Summer Meeting 2013Jeffrey C.Y. Li
The document discusses Dodd-Frank compliance requirements and challenges for financial institutions. It outlines four levels of compliance that a company called CPS II can provide, including archiving communications, capturing trade data, securely storing records, and reporting to agencies. It also discusses the compliance discovery, planning, and processing services CPS II offers. The document emphasizes that Dodd-Frank compliance requires appropriate technology, and penalties for non-compliance are severe. It advises financial institutions to learn requirements, identify deadlines, budget for solutions, and prepare to work with technology providers.
The document discusses various types of financial services including banking services, mutual funds, insurance, credit rating agencies, housing finance, factoring services, and demat services. It provides details on the concepts, objectives, types and processes involved in these services. The key financial services covered are banking products and services like loans, credit/debit cards, ATMs; mutual funds advantages and types; insurance phases and agriculture insurance schemes; objectives and types of credit rating agencies and export finance; housing finance development in India; factoring and demat services procedures.
This document provides an overview of financial services. It begins by defining the service sector as the tertiary economic activities that are intangible. Financial services are then introduced as services provided by the finance industry, such as banks, insurance companies, and investment funds.
The document further discusses the classification, functions, importance and innovations within the financial services sector. Financial services are broadly categorized into fund-based services like banking, venture capital, and insurance, and non-fund based services including consultancy, market operations, and research. New financial instruments are also introduced to demonstrate innovations in the industry.
This document provides an overview of credit derivatives and their role in credit risk management. It defines credit derivatives as instruments that insure against adverse movements in a borrower's credit quality. Various credit derivative products are examined, including total return swaps, credit default swaps, credit linked notes, collateralized debt obligations, and collateralized loan obligations. The growth and decline of these markets leading up to and during the global financial crisis is also discussed. The document aims to explain how credit derivatives can be used to transfer and manage credit risk.
Standard Chartered Bank and Mahindra Finance use different sources of long-term and short-term finance. Standard Chartered Bank relies more on equity capital (58%) and internal accruals like reserves and surplus (24%). It uses less debentures (20%) and term loans (8%). In contrast, Mahindra Finance has lower equity capital (42%) but higher use of debentures (33%) and both long-term and short-term term loans (13%). While Standard Chartered Bank has less dependence on outside sources, Mahindra Finance relies more on external financing through debentures and loans.
Capital Market: Components & Functions of Capital Markets, Primary & Secondary Market Operations, Capital
Market Instruments - Preference Shares, Equity Shares, Non-voting Shares, Convertible Cumulative Debentures (CCD),
Fixed Deposits, Debentures and Bonds, Global Depository receipts, American Depository receipts, Global Debt
Instruments, Role of SEBI in Capital Market.
The document discusses credit derivatives and the credit derivatives market in India. It provides information on different types of credit derivatives including credit default swaps (CDS), credit linked notes (CLN), and credit spread options (CSO). It then discusses the growth of the CDS market globally and the composition of the credit derivatives market. It outlines the benefits of credit derivatives for banks and other financial institutions in India. Finally, it discusses the role of the Clearing Corporation of India in facilitating CDS trading and settlement and provides details on the first CDS trades in India in 2011.
Kingfisher Airlines owes Rs 260 crore to Airports Authority of India for airport infrastructure usage. KFA will pay through an inter-corporate deposit from UB Group. [ICDs are short-term loans between corporations, often at higher interest rates than banks due to risk. They lack collateral but help cash-strapped firms access funds.] Kingfisher will receive an ICD from UB Group to pay its debt to AAI. ICDs are an unsecured source of short-term funds for companies in need, bearing higher interest than bank loans. They are an alternative to bank loans, especially for less creditworthy companies. However, their reliance on corporate relationships limits their availability compared to formal bank financing.
Dodd-Frank Compliance and Technology Summer Meeting 2013Jeffrey C.Y. Li
The document discusses Dodd-Frank compliance requirements and challenges for financial institutions. It outlines four levels of compliance that a company called CPS II can provide, including archiving communications, capturing trade data, securely storing records, and reporting to agencies. It also discusses the compliance discovery, planning, and processing services CPS II offers. The document emphasizes that Dodd-Frank compliance requires appropriate technology, and penalties for non-compliance are severe. It advises financial institutions to learn requirements, identify deadlines, budget for solutions, and prepare to work with technology providers.
The document discusses various types of financial services including banking services, mutual funds, insurance, credit rating agencies, housing finance, factoring services, and demat services. It provides details on the concepts, objectives, types and processes involved in these services. The key financial services covered are banking products and services like loans, credit/debit cards, ATMs; mutual funds advantages and types; insurance phases and agriculture insurance schemes; objectives and types of credit rating agencies and export finance; housing finance development in India; factoring and demat services procedures.
This document provides an overview of financial services. It begins by defining the service sector as the tertiary economic activities that are intangible. Financial services are then introduced as services provided by the finance industry, such as banks, insurance companies, and investment funds.
The document further discusses the classification, functions, importance and innovations within the financial services sector. Financial services are broadly categorized into fund-based services like banking, venture capital, and insurance, and non-fund based services including consultancy, market operations, and research. New financial instruments are also introduced to demonstrate innovations in the industry.
Credit ratings are an assessment of the creditworthiness or risk of default of issuers of debt obligations like bonds or commercial paper. They are issued by credit rating agencies and represent the agency's opinion on the likelihood that the issuer will repay the debt. The ratings are determined based on both qualitative and quantitative factors related to the issuer's industry, financial performance, debt levels, and other business and financial risks. Credit ratings use alphanumeric symbols to convey the agency's opinion on the risk of default, ranging from highest safety ratings like AAA to ratings indicating higher risk or default. Major credit rating agencies in India include CRISIL, ICRA, CARE, and Fitch.
There are three main types of financial instruments in India: money market instruments, capital market instruments, and hybrid instruments. Money market instruments include treasury bills, commercial papers, certificates of deposit, and call/notice money, which are used for short-term borrowing and lending of up to one year. Capital market instruments such as equity shares, preference shares, debentures, and bonds are used for long-term borrowing and lending of over one year. Hybrid instruments blend characteristics of equity and debt instruments, with features like convertible debentures that can be converted into equity shares.
Dynamics of indian finacial markets b.v.raghunandanSVS College
This document provides an overview of the Indian financial markets, including the capital market and money market. It discusses the key components and players in each market, as well as the various instruments that are traded. The capital market is for long-term funds and includes stocks, bonds, and government securities. The money market is for short-term funds and includes treasury bills, certificates of deposit, commercial paper, and other short-term debt instruments. Stock exchanges facilitate trading in the capital market, while the money market involves direct dealings between institutions.
Kotak Mutual Fund is a leading mutual fund provider in India that is a subsidiary of Kotak Mahindra Bank. It offers a variety of equity, debt, balanced, and other funds that invest across different asset classes and sectors. The document discusses Kotak Mutual Fund's history, products, competitors, strengths such as size and performance, weaknesses such as manager changes, opportunities like emerging markets, and threats such as rising interest rates. It also covers the advantages of diversification and professional management that mutual funds provide investors.
The document discusses various sources of finance for companies. It categorizes sources as short term, medium term, and long term based on tenure. Short term sources include working capital finance from banks, trade credit, inter-corporate deposits, factoring, and commercial paper. Medium term sources include loans from banks and financial institutions, lease financing, hire purchase, external commercial borrowings, and bonds. Long term sources include shares, debentures, retained earnings, depository receipts, venture capital, and securitization. The document provides details on each type of financing source and their advantages and disadvantages.
The document discusses the financial system of India. It describes the key components of the Indian financial system including financial institutions, financial markets, financial instruments, and financial services. It provides details about various financial markets such as money markets, capital markets, government securities market, long term loan market, and treasury bills market. It also explains the roles and importance of the financial system in facilitating capital formation and efficient allocation of resources in the economy.
The document describes the evolution and components of the Indian financial system. It discusses how the system evolved from underdeveloped economies with low incomes and no financial intermediaries, to higher incomes with the birth of intermediaries like banks and mutual funds. The current system includes formal institutions regulated by entities like RBI and SEBI, as well as informal local markets. Key components of the system described include banking, insurance, capital markets, money markets, and various financial instruments and their roles in facilitating funds flow. Regulators like SEBI and their roles in developing, regulating and protecting the securities market are also summarized.
Certificate of deposits and Commercial Papersbarkha goyal
This document discusses Certificate of Deposits (CDs) and Commercial Paper (CP). It defines them as short-term debt instruments issued by banks (CDs) and corporations (CP) respectively. CDs pay higher interest than bank deposits but less than CPs due to higher risk. Both allow qualified issuers to diversify funding sources. Key requirements for issuing each are a minimum credit rating and company net worth for CPs.
Since 2003, Indian capital markets have been receiving global attention, especially from sound investors, due to the improving macroeconomic fundamentals. The presence of a great pool of skilled labour and the rapid integration with the world economy increased India’s global competitiveness. No wonder, the global ratings agencies Moody’s and Fitch have awarded India with investment grade ratings, indicating comparatively lower sovereign risks.
The Securities and Exchange Board of India (SEBI), the regulatory authority for Indian securities market, was established in 1992 to protect investors and improve the microstructure of capital markets. In the same year, Controller of Capital Issues (CCI) was abolished, removing its administrative controls over the pricing of new equity issues. In less than a decade later, the Indian financial markets acknowledged the use of technology (National Stock Exchange started online trading in 2000), increasing the trading volumes by many folds and leading to the emergence of new financial instruments. With this, market activity experienced a sharp surge and rapid progress was made in further strengthening and streamlining risk management, market regulation, and supervision.
John convery of west palm beach a financial professionalJohn Convery
John Convery is an experienced financial professional in West Palm Beach, Florida. He was born in Point Pleasant, New Jersey and spent part of his childhood in Germany. He attended East Stroudsburg University and graduated in 1984 with a Bachelor of Arts. He then used his education to build a career for himself. He started working in finance and specialized in retirement planning. He established The Educated Wealth Center in 1985 and focused on helping his clients with all of their retirement preparation needs. He has thirty years of experience in the financial industry, and is a regular contributor to radio programs and news sites.
This document provides an overview of various financial services including banking, loan syndication, project finance, and wealth management in India. It discusses the structure of banks in India including commercial banks like SBI and private banks, co-operative banks, and development banks. It also summarizes how banks facilitate international trade through letters of credit and payments. Loan syndication and its types are defined. Project financing is described as financing long-term infrastructure projects based on cash flows. Sources of project financing include equity, debt, and subsidies. Finally, wealth management is summarized as a professional service combining financial advice, tax services, and planning to meet objectives like risk management and lifestyle enhancement.
This is a document that covers the MSME financing in India. It explores the financing sources and problems in India. It talks about working capital financing via factoring and reverse factoring, cluster financing, Germany's cluster financing, listing looking at alternativa model of listing of ventures, and Thailand's SME bond markets. It also covers the need for policy redefinition of MSMEs and policy support required.
A credit derivative is a financial contract in which the underlying is a credit asset (debt or fixed-income instrument). The purpose of a credit derivative is to transfer credit risk (and all or part of the income stream in relation to the borrower) without transferring the asset itself.
A credit derivative serves as a sort of insurance policy allowing an originator or buyer to transfer the risk on a credit asset (of which he may or may not be the owner) to the seller(s) of the protection or counterparties.
Credit derivatives are financial instruments that allow parties to transfer credit risk of underlying entities like loans or bonds between each other. There are various types of credit derivatives, including credit default swaps (CDS) where one party pays an annual fee in exchange for a payout if the underlying entity defaults, and synthetic CDOs which invest in CDS or other assets to obtain exposure to credit risks. While credit derivatives help distribute risk, their value depends on the credit quality of both the underlying borrower and the counterparty assuming the risk.
The document discusses various financial services in India including investment banking, credit rating, consumer finance, housing finance, asset restructuring, mutual fund management companies, depository services, debit cards, and online share trading. It provides definitions and explanations of these terms. It also discusses the regulation of non-banking financial companies (NBFCs) under the RBI Act and the CAMEL model used in credit ratings.
Debt On Net is A Web-Based Fixed Income Security Valuation Platform that offers a one-stop solution to Investment Valuation, Reporting, and Risk Monitoring.
The document discusses the introduction of credit default swaps (CDS) for corporate bonds in India and compares it to CDS markets in other countries. Some key points:
1) CDS allow an entity to hedge or speculate on the credit risk of a bond or loan by making payments to another party in exchange for a payoff if default occurs.
2) The RBI has proposed strict regulations for India's CDS market including requiring physical settlement, limiting naked positions, and restricting participants.
3) The Indian CDS market differs from those that caused issues abroad as it only allows CDS on single entities rather than packages of loans, and requires the buyer to hold the underlying bond.
Discover the Beauty and Functionality of The Expert Remodeling Serviceobriengroupinc04
Unlock your kitchen's true potential with expert remodeling services from O'Brien Group Inc. Transform your space into a functional, modern, and luxurious haven with their experienced professionals. From layout reconfiguration to high-end upgrades, they deliver stunning results tailored to your style and needs. Visit obriengroupinc.com to elevate your kitchen's beauty and functionality today.
Credit ratings are an assessment of the creditworthiness or risk of default of issuers of debt obligations like bonds or commercial paper. They are issued by credit rating agencies and represent the agency's opinion on the likelihood that the issuer will repay the debt. The ratings are determined based on both qualitative and quantitative factors related to the issuer's industry, financial performance, debt levels, and other business and financial risks. Credit ratings use alphanumeric symbols to convey the agency's opinion on the risk of default, ranging from highest safety ratings like AAA to ratings indicating higher risk or default. Major credit rating agencies in India include CRISIL, ICRA, CARE, and Fitch.
There are three main types of financial instruments in India: money market instruments, capital market instruments, and hybrid instruments. Money market instruments include treasury bills, commercial papers, certificates of deposit, and call/notice money, which are used for short-term borrowing and lending of up to one year. Capital market instruments such as equity shares, preference shares, debentures, and bonds are used for long-term borrowing and lending of over one year. Hybrid instruments blend characteristics of equity and debt instruments, with features like convertible debentures that can be converted into equity shares.
Dynamics of indian finacial markets b.v.raghunandanSVS College
This document provides an overview of the Indian financial markets, including the capital market and money market. It discusses the key components and players in each market, as well as the various instruments that are traded. The capital market is for long-term funds and includes stocks, bonds, and government securities. The money market is for short-term funds and includes treasury bills, certificates of deposit, commercial paper, and other short-term debt instruments. Stock exchanges facilitate trading in the capital market, while the money market involves direct dealings between institutions.
Kotak Mutual Fund is a leading mutual fund provider in India that is a subsidiary of Kotak Mahindra Bank. It offers a variety of equity, debt, balanced, and other funds that invest across different asset classes and sectors. The document discusses Kotak Mutual Fund's history, products, competitors, strengths such as size and performance, weaknesses such as manager changes, opportunities like emerging markets, and threats such as rising interest rates. It also covers the advantages of diversification and professional management that mutual funds provide investors.
The document discusses various sources of finance for companies. It categorizes sources as short term, medium term, and long term based on tenure. Short term sources include working capital finance from banks, trade credit, inter-corporate deposits, factoring, and commercial paper. Medium term sources include loans from banks and financial institutions, lease financing, hire purchase, external commercial borrowings, and bonds. Long term sources include shares, debentures, retained earnings, depository receipts, venture capital, and securitization. The document provides details on each type of financing source and their advantages and disadvantages.
The document discusses the financial system of India. It describes the key components of the Indian financial system including financial institutions, financial markets, financial instruments, and financial services. It provides details about various financial markets such as money markets, capital markets, government securities market, long term loan market, and treasury bills market. It also explains the roles and importance of the financial system in facilitating capital formation and efficient allocation of resources in the economy.
The document describes the evolution and components of the Indian financial system. It discusses how the system evolved from underdeveloped economies with low incomes and no financial intermediaries, to higher incomes with the birth of intermediaries like banks and mutual funds. The current system includes formal institutions regulated by entities like RBI and SEBI, as well as informal local markets. Key components of the system described include banking, insurance, capital markets, money markets, and various financial instruments and their roles in facilitating funds flow. Regulators like SEBI and their roles in developing, regulating and protecting the securities market are also summarized.
Certificate of deposits and Commercial Papersbarkha goyal
This document discusses Certificate of Deposits (CDs) and Commercial Paper (CP). It defines them as short-term debt instruments issued by banks (CDs) and corporations (CP) respectively. CDs pay higher interest than bank deposits but less than CPs due to higher risk. Both allow qualified issuers to diversify funding sources. Key requirements for issuing each are a minimum credit rating and company net worth for CPs.
Since 2003, Indian capital markets have been receiving global attention, especially from sound investors, due to the improving macroeconomic fundamentals. The presence of a great pool of skilled labour and the rapid integration with the world economy increased India’s global competitiveness. No wonder, the global ratings agencies Moody’s and Fitch have awarded India with investment grade ratings, indicating comparatively lower sovereign risks.
The Securities and Exchange Board of India (SEBI), the regulatory authority for Indian securities market, was established in 1992 to protect investors and improve the microstructure of capital markets. In the same year, Controller of Capital Issues (CCI) was abolished, removing its administrative controls over the pricing of new equity issues. In less than a decade later, the Indian financial markets acknowledged the use of technology (National Stock Exchange started online trading in 2000), increasing the trading volumes by many folds and leading to the emergence of new financial instruments. With this, market activity experienced a sharp surge and rapid progress was made in further strengthening and streamlining risk management, market regulation, and supervision.
John convery of west palm beach a financial professionalJohn Convery
John Convery is an experienced financial professional in West Palm Beach, Florida. He was born in Point Pleasant, New Jersey and spent part of his childhood in Germany. He attended East Stroudsburg University and graduated in 1984 with a Bachelor of Arts. He then used his education to build a career for himself. He started working in finance and specialized in retirement planning. He established The Educated Wealth Center in 1985 and focused on helping his clients with all of their retirement preparation needs. He has thirty years of experience in the financial industry, and is a regular contributor to radio programs and news sites.
This document provides an overview of various financial services including banking, loan syndication, project finance, and wealth management in India. It discusses the structure of banks in India including commercial banks like SBI and private banks, co-operative banks, and development banks. It also summarizes how banks facilitate international trade through letters of credit and payments. Loan syndication and its types are defined. Project financing is described as financing long-term infrastructure projects based on cash flows. Sources of project financing include equity, debt, and subsidies. Finally, wealth management is summarized as a professional service combining financial advice, tax services, and planning to meet objectives like risk management and lifestyle enhancement.
This is a document that covers the MSME financing in India. It explores the financing sources and problems in India. It talks about working capital financing via factoring and reverse factoring, cluster financing, Germany's cluster financing, listing looking at alternativa model of listing of ventures, and Thailand's SME bond markets. It also covers the need for policy redefinition of MSMEs and policy support required.
A credit derivative is a financial contract in which the underlying is a credit asset (debt or fixed-income instrument). The purpose of a credit derivative is to transfer credit risk (and all or part of the income stream in relation to the borrower) without transferring the asset itself.
A credit derivative serves as a sort of insurance policy allowing an originator or buyer to transfer the risk on a credit asset (of which he may or may not be the owner) to the seller(s) of the protection or counterparties.
Credit derivatives are financial instruments that allow parties to transfer credit risk of underlying entities like loans or bonds between each other. There are various types of credit derivatives, including credit default swaps (CDS) where one party pays an annual fee in exchange for a payout if the underlying entity defaults, and synthetic CDOs which invest in CDS or other assets to obtain exposure to credit risks. While credit derivatives help distribute risk, their value depends on the credit quality of both the underlying borrower and the counterparty assuming the risk.
The document discusses various financial services in India including investment banking, credit rating, consumer finance, housing finance, asset restructuring, mutual fund management companies, depository services, debit cards, and online share trading. It provides definitions and explanations of these terms. It also discusses the regulation of non-banking financial companies (NBFCs) under the RBI Act and the CAMEL model used in credit ratings.
Debt On Net is A Web-Based Fixed Income Security Valuation Platform that offers a one-stop solution to Investment Valuation, Reporting, and Risk Monitoring.
The document discusses the introduction of credit default swaps (CDS) for corporate bonds in India and compares it to CDS markets in other countries. Some key points:
1) CDS allow an entity to hedge or speculate on the credit risk of a bond or loan by making payments to another party in exchange for a payoff if default occurs.
2) The RBI has proposed strict regulations for India's CDS market including requiring physical settlement, limiting naked positions, and restricting participants.
3) The Indian CDS market differs from those that caused issues abroad as it only allows CDS on single entities rather than packages of loans, and requires the buyer to hold the underlying bond.
Discover the Beauty and Functionality of The Expert Remodeling Serviceobriengroupinc04
Unlock your kitchen's true potential with expert remodeling services from O'Brien Group Inc. Transform your space into a functional, modern, and luxurious haven with their experienced professionals. From layout reconfiguration to high-end upgrades, they deliver stunning results tailored to your style and needs. Visit obriengroupinc.com to elevate your kitchen's beauty and functionality today.
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During the budget session of 2024-25, the finance minister, Nirmala Sitharaman, introduced the “solar Rooftop scheme,” also known as “PM Surya Ghar Muft Bijli Yojana.” It is a subsidy offered to those who wish to put up solar panels in their homes using domestic power systems. Additionally, adopting photovoltaic technology at home allows you to lower your monthly electricity expenses. Today in this blog we will talk all about what is the PM Surya Ghar Muft Bijli Yojana. How does it work? Who is eligible for this yojana and all the other things related to this scheme?
Cover Story - China's Investment Leader - Dr. Alyce SUmsthrill
In World Expo 2010 Shanghai – the most visited Expo in the World History
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Explore the steadfast and reliable nature of the Taurus Zodiac Sign. Discover the personality traits, key dates, and horoscope insights that define the determined and practical Taurus, and learn how their grounded nature makes them the anchor of the zodiac.
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Kirill Klip GEM Royalty TNR Gold Lithium Presentation
CDS-panel.ppt
1. Credit Default Swaps – India
FIMMDA – PDAI 13th Annual Conference 2012
DATE: 27th January 2012
Ben Davies
Head of Credit Trading, DBS Singapore
2. Private & Confidential
2
1994 : The First Ticket
Ms Blythe Masters of JP Morgan closes what’s widely acknowledged as the first CDS
trade by buying protection from the EBRD on the corporation Exxon after the Exxon
Valdez oil disaster spiked failure concerns on the worlds second largest oil company.
1995 - 1999: The Wild West
All major Wall Street and London dealing houses create their first CDS desks.
•Documentation, bespoke & a mess
•Liquidity, none to a little more
•Intent, a rapid change in customer focus
•ISDA 99, the first true milestone
2000 - 2003: Over Taking Bonds
Single name CDS now quoted across the capital structure and Rating spectrum.
Volumes spike to eclipse the products that CDS was created to hedge. The death of
Enron & the Dot Com collapse test the fledgling settlement process’s.
•IBOXX & TRAC X – The birth of the indices
•Documentation back logs, errors & fears… A scary paper trail
•Mark-It Partners & DTCC. Transparency surges volumes once again.
•ISDA 2003 sets the standard for standardization.
The Evolution Of A Product
3. Private & Confidential
3
2004 - 2007: The Ugly Years
As CDO’s mutated from Cash to Synthetic the market first ran then sprinted before its time. Many
good lessons however were learned from the mistakes.
•Tranches, CDO Squares, SPV’s, The great correlation unwind….
•Delphi & Dana personify physical settlement “Price Squeezes” & the market takes notice.
•Market moves to IMM settlement.
2008 - 2011: Hank Paulson Understands ISDA 2003
CDS in the Great Credit Crisis... Suddenly EVERYONE is in the same boat.
•The importance of the word “Conservatorship”… The effect on CDS enters the decision line.
•Big Bang, Little Bang & Standardised coupon initiatives.
•Central clearing evolves… Dodd-Frank enforces.
•Explosion in volumes of global index.
2012 & Beyond :
The market nears what its always set out to need….
•Standardised & trusted documentation representing a solid and defined legal structure.
•True Assimilation in structure & central clearing as the norm.
•A balance of market participants to truly reflect true value and avoid skewed pricing
The Evolution Of A Product
4. Credit Default Swaps – India
FIMMDA – PDAI 13th Annual Conference 2012
DATE: 27th January 2012
Gigi P. Tan
Global Content Specialist – Credit
5. 5
Nov’10: The Chinese
market opens for
Credit Mitigation
Instruments with
CRMA and CRMW.
Dec’11: Indian market
sees first INR-
denominated CDS
trades (Rural
Electrification Corp
and India Railway
Finance Corp)
2009: More
standardisatio
n mainly in
valuation with
the Big Bang
(Apr) and
Small Bang
(Jul) Protocols.
1997 1999 2001 2003 2005 2007 2009 2011
1995
1995/1996:
The concept of
a Credit
protection
instrument is
created by JP
Morgan and
Single Name
CDS starts to
trade
1999/2000: The
market opens to
more parties. We
see some first
real volume from
IDBs
Mar 2003: ISDA
definitions
become the
market standard.
Oct 2003: IBOXX
and TRAC-X CDS
Indexes are
created.
Later in 2004
they were
merged to form
iTraxx for Asia
and Europe, and
the DJ CDX for
North America.
Jun 2005: ISDA
creates
definitions for
CDS on ABS
1998: first basket
trades
7. 7
Challenges in the Asian Market
Negative Mindset on CDS
Pricing
- Lack of Default Statistics/ Empirical Data
Market Liquidity
- Reference vs. Deliverable Obligations
- Standardisation of Contracts
Settlement issues
- Proper legal framework
- Central clearing
- Determination Committee
8. 8
Challenges in the Asian Market
• A Negative Mindset
– CDS at market inception = Hedging Tool
– implies exposure to highly risky credits
– As market evolves CDS becomes THE primary tool to take a
position on a Credit
– a very active market in CDSs written on credits in which neither
the buyer nor the seller of protection believes there is the
remotest possibility of default
• China: Credit Risk Mitigation Instruments
– Hesitation to use the term “Default”
– Hesitation to expose volume information (NAFMII)
9. 9
Challenges in the Asian Market : Pricing
• Lack of Empirical Data/Default Observations
• Asia (ex-Japan)*
*Asia refers to Cambodia,
China, Fiji, Hong Kong, India,
Indonesia, Korea,
Malaysia,Marshall Islands,
Mongolia, Pakistan, Papua
New Guinea, Philippines,
Singapore, South Korea, Sri
Lanka, Taiwan, Thailand, and
Vietnam
• 48 defaults in 17
years
• Japan: 3 CDS
defaults since 2003
10. 10
Challenges in the Asian Market : Pricing
• Lack of Empirical Data/Default Observations
• India
• Fitch India
National
Ratings 2010
Transition and
Default Study
• 18 defaults in 11
years
11. 11
Challenges in the Asian Market : Liquidity
Opaque Market
• Banks Price approximately 2,500 Single Names
• The liquid part of the Market is no more than 1,000.
• Many do not price daily, most do not have pricing in the full term
structure.
• 5Y Contracts are by far the most liquid.
Reference vs. Deliverable Obligations (CRMs)
• CRMs specify a deliverable obligation
• No naked positions
• Standardisation of Contracts
12. 12
Other Challenges: Settlement issues
Proper legal framework
• Weak bankruptcy laws in Asia
• E.g. Takefuji
Central Clearing
• transparency of CDS volumes trading
• DTCC has 98%* visibility
Determination Committee
*source: ISDA media comment Nov 2011
13. Credit Default Swaps – India
FIMMDA – PDAI 13th Annual Conference 2012
DATE: 27th January 2012
H. Jayesh
Founder Partner, Juris Corp
14. Eligible Participants
Market Makers
• Commercial Banks
• Primary Dealers
• NBFCs#
• Mutual Funds*
• Insurance Companies*
Users
• Market Makers
• Housing Finance Companies
• Provident Funds
• Listed Companies
• FIIs
* Subject to permission from their respective regulators
# Currently only as Users
15. User Restrictions / Obligations
Only Indian Resident or Registered FIIs
Only hedging / buy protection
No naked CDS
• Hold Reference Obligation or Unwind
• CDS protection value ≯ FV of Reference Obligation
• CDS tenor ≯ Reference Obligation maturity
Submit auditor / custodian certificate of holding underlying bond when
entering into / unwinding the CDS contract
16. User Restrictions / Obligations …contd
On selling the Reference Obligation:
• Assign CDS with the Reference Obligation or
• Negotiate termination
Hardwired termination:
• Uncovered CDS Event occurs within 10 Business Days
• CDS terminated and Buyer pays the Seller CDS Transaction Costs (one
way payment only)
Failure / Non compliance - Not an Event of Default or Termination
Event
Cannot enter into an offsetting trade
17. Reference Obligation
Must satisfy ALL of the following at ALL times:
• Bond denominated in INR
• Direct obligation of the Reference Entity (no guarantees)
• Dematerialised format
• Freely transferrable without any contractual, statutory or
regulatory restriction (including SEBI lock-in requirements)
18. Reference Obligation …contd
Any ONE of the following:
• Listed
• Rated by any Rating Agency
• Obligation in respect of which the Reference Entity is an SPV
that is an Affiliate of an Infrastructure Company
19. Reference Obligation …contd
Must NOT be:
• Short Term Instrument (commercial paper)
• Asset-Backed Security
• Convertible Obligation
• Exchangeable Obligation
• Interest Receivable
• Puttable or Callable
Consequences of failing Reference Obligation criteria on Trade Date
(or date of identifying Substitute Reference Obligation) - Terminate at
zero cost (no MTM, no Event of Default or Termination Event)
20. Deliverable Obligations
User MCA
• Reference Obligation Only (consistent with User obligation to hold the
Reference Obligation)
Market-maker MCA:
• Reference Obligation
• Deliverable Obligation Category: Bond
• Deliverable Obligation Characteristics: Not Subordinated, Not Sovereign
Lender, Not Contingent, Transferable, Maximum Maturity (30 years) and
Not Bearer
• Denominated in INR and dematerialised format
• Other than:
• Short Term Instruments (commercial paper)
• Asset-Backed Securities
• Convertible Obligations
• Exchangeable Obligations
• Interest Receivables
• Puttable or Callable obligations
21. Obligations
Reference Obligation
Obligation Category: Bond or Loan
Obligation Characteristics:
• Not Subordinated and Not Sovereign Lender
Excluded Obligations
• Short Term Instruments (commercial paper)
• Interest Receivables
No guarantees
No currency limitations
22. Credit Events
Restructuring (Article 4.7) – substituted clause:
• BIFR decision
• Reference Entity is declared a Relief Undertaking or is granted
statutory protection from its creditors or from enforcement of any
monetary claims
• Reference Entity is referred to Corporate Debt Restructuring
23. Credit Default Swaps – India
FIMMDA – PDAI 13th Annual Conference 2012
DATE: 27th January 2012
Jacqueline ML Low
Senior Counsel, Asia - ISDA
24. Determinations of Indian DC are legally binding on anyone who uses the
Market-maker MCA or User MCA.
Representation on DC.
• 7 Market-maker FIMMDA members:
2 Public Sector Banks.
2 Private Indian Banks.
2 Foreign Banks.
1 Non-Banking Financial Company.
• 4 User members.
Transparency.
International experience.
Indian Determinations Committee
24
25. Between Indian and offshore CDS.
Between Market-maker and User CDS.
• Ref Ob CDS for User.
• Physical Settlement Period.
• Uncovered CDS Event.
• Substitution Trigger Event c/f Substitution Characterisation Event.
Basis Risk
25
26. Credit Default Swaps – India
FIMMDA – PDAI 13th Annual Conference 2012
DATE: 27th January 2012
Mr. Vaidya Nathan
Director, Quantum Phinance
27. Credit Default Swap
Buyer of protection need not
suffer an actual loss to receive
compensation
A privately negotiated, off balance sheet
agreement that explicitly transfers credit
risk from one party to another
Credit
Default
Swaps
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Buyer of CDS protection need not
own the defaulted asset in order to
receive compensation
28. Credit Default Swaps market completion
Risk Free Rate
Funding Risk
Credit Risk
Funding Risk
Credit Risk
Credit Risk
Bond / Loan Asset Swap Credit Default
Swap
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29. CDS in the context of financial markets growth
New applications
expanding financial
instruments use
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30. Role of CDS
Uses of Credit Default Swaps
Hedge,
transfer and/or
mitigate credit
exposure
Decompose
and separate
credit risks
embedded in
financial
instruments
Proactively
manage credit
risk on a
portfolio basis
Manage
regulatory
capital ratios
Generate
leverage or
yield
enhancement
Synthetically
create loan-
bond;
alternative to
equity
derivatives
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Uses of Credit Default Swaps
31. • Broad definition
– bilateral financial contract which allows specific aspects of credit risk to be
isolated from the other risks of an instrument, and passed from one
counterparty to another
Off-balance sheet
On-balance sheet
CDS isolate and transfer credit risk
FX,
Interest
Rate
Credit
6.60 %
yield
60 bps
Loan/bond
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32. Efficiency gains arising from disaggregating risk
through CDS
JOB LOT
Auctioneer sells a number of risks,
each to the highest bidder
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33. Applications for CDS in the global market
Motivations for using Credit Default Swaps
1. Trading/ market making
2. Product structuring
3. Hedging trading
instruments
4. Active portfolio/ asset
management
5. Management of
economic capital
6. Management of
regulatory capital
7. Management of
individual credit lines
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34. Market Composition
Breakdown of market participation
42%
34%
24%
Intermediary / Market Maker Buyer Seller
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35. Credit Derivatives by region
Credit Derivatives by region
43%
5%
10%
39%
3%
London Europe ex-London Asia/Australia US Other
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36. Product Percentage
Single-name credit default swaps 29.3%
Credit spread options 2.1%
Swaptions 1.0%
Variance Swaps 0.1%
Credit-linked notes (cash-backed & repackaged notes) 3.3%
Synthetic CDOs (over 10 names) – full capital structure 2.9%
Synthetic CDOs (over 10 names) – partial capital/single tranche 12.9%
Basket products (up to 10 names) 1.1%
Full index trades 29.4%
Tranched index trades 9.9%
Equity linked credit products (e.g. equity default swaps) 0.9%
Credit Contingent Swaps 0.7%
Constant Maturity Swaps 0.9%
CPPI 2.0%
Credit Option / Bond Option 1.6%
Binary CDS 2.2%
Other 0.3%
Global Credit Derivatives Product Usage
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37. Global Credit Derivatives Product Usage
Global Credit Derivatives Product Usage
Single-name credit default swaps Credit spread options
Swaptions Variance Swaps
Credit linked notes (Cash backed and repackaged notes) Synthetic CDOs (over 10 names) – full capital
Synthetic CDOs (over 10 names) – partial capital/single tranche Basket products
Full index trades Tranched index trades
Equity linked credit products Credit Contingent Swaps
Constant Maturity Swaps CPPI
CDO^N Credit Option/Bond Option
Binary CDS Recovery CDS
Other
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39. Tenor distribution of CDS
Maturity
5 years
18%
5 – 10 years
21%
Over 10 years
2%
Under 1 year
7%
1 – 5 years
52%
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40. Market Constraints
Constraints in using Credit Default Swaps
1. Lack of client
knowledge of the product
2. Regulatory constraints
3. Systems / Infrastructure
4. Pricing – lack of data
5. Lack of agreed
accounting conventions
6. Lack of homogenous
documentation
7. Lack of market liquidity
and depth
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41. Credit Default Swaps – India
FIMMDA – PDAI 13th Annual Conference 2012
DATE: 27th January 2012
Mr. Gaurav Pradhan
MD & Head, Global Credit Trading,
Deutsche Bank, Mumbai
42. Journey so far...
42
2003 – 1st Draft Guidelines
Scope of allowing banks
and financial institutions to
use credit derivatives
2007– 2nd Draft Guidelines
To permit Banks and PDs
to deal in single-name
CDS. Kept in abeyance on
account of global financial
crisis
2010 – Internal Group report in
Introduction of CDS released in
July
Detailed policy framework with
discussion on international
practices
2011 – 3rd Draft Guidelines
in Feb and Final Guidelines
in May
Final guidelines published
to be effective from October
2011 – Capital adequacy
guidelines released in November
First trade printed in December
between ICICI and IDBI
43. Global Experience
43
RBI introduced CDS in the Indian market at the right time. It could draw upon the
experience of the western world during the Financial Crisis of 2008 and incorporate
important safeguards since the inception:
Avoid complexity: Products like CDOs, ABS, MBS not allowed
Curb Speculative activity: Users allowed to only hedge long positing in cash bonds
Regulatory limits: Avoid excessive risk taking by putting limits like single name
exposure, gross PV01 limits
Standardized contracts: Enable trade reporting; enable trde compression thereby
reducing systemic risks on account of large number of open contracts
Regulatory oversight: Mandatory reporting of trades on central platform; Regulator
can monitor activity of participants and avoid any misuse/ large concentration of risk
Central Clearing Counterparty: Important to avoid counterparty risk; Will be
introduced when volumes pick up and viable to implement
44. Role of FIMMDA – So far
44
FIMMDA played a key role in developing the market infrastructure:
Documentation:
FIMMDA in liaison with ISDA and market participants helped in developing market
standard documentation (MCAs)
Determinations Committee:
Scope and role of DC was defined; Initial list of DC members finalized
Market-Makers
Market maker volunteers were identified
Valuation Methodolgy
Methodology for daily valuation of CDS positions was developed. External vendor
was identified and mandated with the task of polling/ publishing curves
45. Role of FIMMDA – Future
45
Next steps required for market to develop:
Activation of DC for continuous monitoring
Standardized Margining policy
Various supporting regulators like SEBI/ IRDA to evolve a framework allowing for
participants like Insurance companies/ Mutual Funds/ FII
Central counterparty settlement
Support training and development requirements for banks – Front office/ Middle
office/ Back office/ legal etc.
46. Market participants
46
Banks and PDs have been permitted by their Regulator to be market-makers (Onus
on them to ensure that the market develops)
Insurance cos/ MFs/ FIIs are yet to receive support from their respective regulators
Banks
PDs
Mutual Funds
Insurance Cos
NBFCs
FIIs
Corporates
Market Makers Users
47. Key Contributions
47
On behalf of FIMMDA, we would like to thank the market participants for their active involvement and
contribution in making the product go live:
ICICI Bank
IDBI Bank
SBI
Central Bank of India
HSBC
Standard Chartered
Morgan Stanley
Barclays
Citi
JP Morgan
Bank of America
ICICI Securities Primary Dealership
Additionally we would like to thank the following agencies
Thomson Reuters, Markit, Bloomberg, Newswire18
ISDA
Juriscorp