CBLO dealing system in Money Market

Besides overnight call money and repo market, there is another market called collateralized borrowing and lending obligation (CBLO). The CBLO is a tradable repo, available in the form of discounted instrument in electronic book entry form. There are some difference in repo trading and CBLO trading. In repo trading, it is obligatory on the part of the borrower and the lender to follow the terms of the bilateral contract whereas in CBLO either side can change the contract even before the expiry of the contract. For example if the lender needs money before the maturity of the instrument; he may trade the same through CCIL trading system and realize the money. The specialty of CBLO trading is that counterparties need not identify each other. The maturity period of CBLO ranges from one day to ninety days (up to one year as per RBI guidelines).

The CBLO dealing system is maintained by Clearcorp Dealing Systems (India) Ltd, a subsidiary of the Clearing Corporation of India Ltd. (CCIL). The CCIL will be the central counterparty to all CBLO trades and guarantees settlement of all CBLO trades. By participating in the CBLO market, CCIL members can borrow or lend funds against the collateral of eligible securities. Eligible securities are Central Government securities including Treasury Bills, and such other securities as specified by CCIL from time to time. Borrowers in CBLO have to deposit the required amount of eligible securities with the CCIL based on which CCIL fixes the borrowing limits. CCIL matches the borrowing and lending orders submitted by the members and notifies them. While the securities held as collateral are in custody of the CCIL, the beneficial interest of the lender on the securities is recognised through proper documentation. The NDS members who maintain the current account with RBI, the settlement of funds of CBLO transactions is achieved in the books of RBI. The other members who do not maintain a current account with RBI, the funds’ settlement are achieved in the books of their settlement bank.

The membership to CBLO is opened to members of RBI- Negotiated Dealing System (NDS) entities that have access through Indian Financial Network (INFINET) and the entities who are non-NDS members (Associate Members) will have access to the internet. The entities viz., Nationalised Banks, Private Banks, Foreign Banks, Co-operative Banks, Financial Institutions, Insurance Companies, Mutual Funds, Primary Dealers, etc. are eligible for CBLO trading.

Related articles:

What is money market?

What is call money market?

What is commercial paper?

Different types repos in money market

Certificate of deposit in money market