Money Market The money market is the financial market for short-term borrowing and lending. It provides short term liquid funding (readily cashable) for the financial system The money market is a wholesale market for low risk, highly liquid, short-term & long term debt instruments. It serves as an avenue through which banks and financial institutions can offload their excess liquidity or meet their funding requirements. A major portion of their liabilities are demand deposits. Another large portion of bank liabilities are time deposits. On the asset side, in addition to loans banks have part of their assets invested in marketable securities.

M.M Objective…. Managing liquidity and interest risk. Coordinating with corporate/retail banking departments for assets/liability pricing. To deploy excess funds in order to save liquidity wastage To manage funding requirements which may arise from time to time keeping in view the cost and interest scenario.

Purpose of Money Market The need for financial institutions to indulge in money market transactions arises primarily from the statutory reserve and liquidity requirements imposed by the State Bank. Statutory Cash Reserve Requirement Bi-Weekly average 5% of DTL ( Minimum Daily 3% of DDL) A/C with SBP Rate of Return = 0% Opportunity Cost = Av. Weekly O/N Rate Statutory Liquidity Requirement 19% of DTL in Eligible Liquid Assets 1. Treasury Bills 2. PIBs Not More Than 15% of DTL 3. Reverse Repos - Repos 4. Other Approved Assets i.e. NIT, Cash in Vault, Foreign Currency Held, Excess in CRR etc.

Markets Primary Market: This constitutes all securities issued for the first time. Secondary Market: The securities issued in the primary market are then traded in the secondary market among banks, investors etc.

PRIMARY DEALERS The PDs are Price makers, quoting two-way prices reflective of market sentiment and actively participating in trading of all marketable securities. PD must be a Bank/ DFI/ Investment Bank/ Listed Brokerage House. The PD status is assigned by the SBP.

Primary Dealers For The Year 2015-16 Habib Bank Limited Bank Alfalah Limited JS Bank Limited NIB Bank Limited National Bank Limited United Bank Limited Faysal Bank Limited MCB Bank Limited Standard Chartered Bank (Pakistan) Limited Pak Oman Investment Company Limited Citibank NA (Pakistan Operations) Allied Bank Limited

Pakistan Money Market Instruments(MMIs)/Transactions Call/Term lending/borrowing Clean lending/borrowing among banks Outright Sale/Purchase Treasury Bill and Bond Repo/ Reverse Repo (Repurchase Agreement) Certificate of Deposit (CD) /CoI Term Deposit Receipt (TDR) Commercial Paper Providing KIBOR as a benchmark for term lending to the corporate sector

MM Transactions-Tenors Overnight and Weekend Money Term Money Intra –Day Money

Factors influencing MM Market Demand for risk-free fixed-income securities in general—For example, a "flight to safety" caused by concerns about default or liquidity risk in other financial markets may cause investors to shift to T-bills to avoid risk. Supply of T-bills by the government--for example, federal budget surpluses reduce the supply of some Treasury securities issues Economic conditions may influence rates--for example, T-bill rates typically rise during periods of business expansion and fall during recessions. Monetary policy actions by the Central Bank--SBP actions that affect the Discount rate likely will influence interest rates for other close substitutes, including short-term T-bills. Inflation and inflation expectations also are factors in determining interest rates--for example, periods of relatively high (low) rates of inflation usually are associated with relatively high (low) interest rates on T-bills

Price Calculation of Repo Securities With effect from 19-05-2007 Market Rate (PKRV) would be used to calculate Ist. price of securities involved in repo transactions ( OMOs- Mop-Up/injection & Ceiling/Floor) between SBP and market participants.

PKRV-Revaluation Rates For Treasury Bills* (Applicable For 31-08-2016) Tenor BMA GSL ICSL IFIM IONE JSCM SCPL VCPL Avg Rate 0-7 days 6.75 6.85 6.9 6.7 6.95 6.84 8-15 days 6.92 6.91 16-30days 7 6.94 6.93 31-60days 61-90days 91-120days 121-180days 181-270days 6.96 271-365days 10years 9.37 9.38 9.35 9.36 9.39 15years 10.5 20years 10.7 10.75 10.71 10.72 30years 11.28 11.25  

Commercial Paper Issued by corporate like T Bills Unsecured minimum have “A” rating to raise short term working capital. Issued for min days 30 and max 1 year.

KIBOR KIBOR introduced in Aug 01 The basic concept behind KIBOR was to put forward a market based benchmark A total of 17 banks participate in quoting KIBOR rates Tenors ranged between one week to three years Reuters is responsible for managing KIBOR SBP release daily rates of KIBOR on SBP Web

Discounting Facility From SBP State Bank of Pakistan provides discounting facility to all Commercial Banks against Government Securities when the Banking system fails to square its position. The Banks can borrow for overnight till a maximum period of 3 days and are charged a fixed rate of interest known as Discount rate. In order to obtain such facility the borrower has to confirm and advise SBP Securities department that local money market is short of funds and therefore they would like to avail the SBP discounting facility. Upon acceptance of our request of borrowing a SGLA letter, daily Money Market Activity Report and a discounting statement are submitted to SBP. An acknowledgement on the duplicate of these documents is obtained from SBP. Funds are credited directly in the Bank’s account by SBP.  On maturity a letter is sent to SBP along with a cheque to settle the Repo transaction carried out under discounting facility.