MIBOR- A REFLECTION OF DEBT MARKET IN INDIA

PRESENTED BY:

PAREEKSHIT (59) HIMANSHU (61) ANKUR (12) SAJAL (47) SURAJ (71) DEEP (70)

I. II. III.

Debt market in INDIA do not have an organizational firm that supports transparent form of trading. Dealing are done between dealers on telephone, are not centrally reported and last traded prices are also not observed. Then, they discovered the methodology which is used to obtain market information by conducting a poll amongst dealers and help them to estimate market rates. Two methods of polling: a) one poll occur either at the beginning of the markets or during market hours , when the participants of the provide their estimates of the market rates at the time of poll. b) another poll occur at the last traded prices from dealers soon after the close of the market. Polling techniques have two variation: a. dealers are asked to quote rates at which they would like to trade. b. dealers could provide their estimates of the market rates.

IV.

Advantage
The rates of the sample dealers are put together and liquidity in the market are estimated . From their, they choose the rate which suited the market as a whole.

Disadvantage
I. II. III.

Carry elements of noise Manipulation Idiosyncratic variation

INTRODUCTION OF MIBOR
MIBOR- Stands for Mumbai Inter Bank Offered Rate and is closely modeled on the LIBOR. I. The interest rate at which banks can borrow funds, in marketable size, from other banks in the Indian interbank market. II. It is an overnight lending rate calculated daily by the National Stock Exchange of India (NSEIL). III. This rate is given to first class borrowers and lending institutions, and is based on an average of lending rates offered by major banks throughout India. IV. As the financial markets started developing in the country, the need for a reference rate in the debt market was felt. The National Stock Exchange (NSE) then developed Mumbai Interbank Bid Rate (MIBID) and Mumbai Inter Bank Offer Rate (MIBOR) for the money market after the committee recommended the modalities for the benchmark rate. Thus, MIBOR was launched on 15 June 1998.

PANEL OF PARTICIPANTS
MIBOR is calculated on the basis of data collected from the panel of 29 banks and primary dealers. The panel has a mix of: public sector banks (SBI, CBI) private sector banks (Axis Bank Ltd, HDFC Bank Ltd) foreign banks (Citibank NA and Deutsche Bank) primary dealers (ICICI Securities Ltd and PNB Gilts Ltd.)

Public Sector Banks

Bank of Baroda Bank of India Canara Bank Central Bank of India Corporation Bank Indian Bank Indian Overseas Bank Punjab National Bank State Bank of India State Bank of Hyderabad State Bank of Patiala Syndicate Bank Union Bank of India UCO Bank

Private Sector Banks

Axis Bank Ltd. HDFC Bank Ltd. ICICI Bank Ltd. IndusInd Bank Ltd. IDBI Bank Ltd. Kotak Bank Yes Bank Ltd.

Foreign Banks Citibank N.A. Deutsche Bank AG Development Bank of Singapore HSBC Standard Chartered Bank

Primary Dealers
SBI DFHI Ltd. ICICI Securities Ltd. (I-Sec). PNB Gilts Ltd. Securities Trading Corporation India Ltd. (STCI)

Importance
Unbiased
The National Stock Exchange of India (NSEIL) has been trusted by the securities markets for its unbiased independence and professionalism. The function of forecasting has become more meaningful as the information comes from a source, which is not only reliable but has no vested interest of its own in the market movements.

Market Representation

FIMMDA-NSE MIBID MIBOR is based on rates polled by NSE from a representative panel of 29 banks/ primary dealers.

Transparent The reference rate is released to all the market participants simultaneously through various
media, making it transparent with the aspiration of the market. Ensuing transparency helps the market participants to judge the market mood and the probable rate one is likely to encounter in the market. This information is useful not only to the banks but also to the issuers and investors.

Reliable The high level of co-relation between actual deals and the reference rate gives an indication of its
reliability. The bootstrapping technique guards against the possibility of cartelization and of extreme observations influencing the mean.

Scientifically Computed The methodology of "Polling" with "Bootstrapping" is scientific and the values
are generated through a system that has been extensively tested. The technique involves generating multiple data sets based on the rates polled with a dynamically determined number of iterations, identification of outliers, trimming the data set of its extreme values and computation of the mean and its standard deviation.

Elimination of Noise The trimming procedure is vulnerable to market manipulation of the rates due to
the amount of sampling noise. Excessive trimming may lead to loss of information whereas no trimming may lead to excessive influence of the extreme values. To derive a true representative benchmark for the market NSE ensures that after trimming at least 14 data points should remain in observation for the bid and for the ask rates.

Consistency The Exchange ensures that everyday the FIMMDA-NSE MIBID MIBOR along with the

Advantage

Traders can make many decision as offsets compared with the prevailing preference rate. II. Derivatives require a clearly defined reference rate as a foundation, off which the pay-off from the derivative is defined. III. A variety of contracts can be structured as offsets from the future levels of a reference rate.
I.

Method To Calculate MIBOR Rate

The rates are calculated by a combination of two methods: a) Polling b) Bootstrapping

a) Polling Method
The polling method includes the following: I. On every polling day, randomly 29 participants including dealers and principal investors are chosen. II. They are asked to report their perception of the bid and ask rates in the market. III. Currently, quotes are pulled and processed daily by NSE at 9:40 hrs for overnight rate and at 11:30 hrs. for the 14 days, 1 month, and 3 month rates. IV. Participants are free to give either both ask & bid rates or any one of them. V. The sample polled is kept confidential. VI. Monitoring of quotes are done to assesss quality of poll participant rates.

b) Bootstrapping Method
Polling is combined with bootstrapping: BOOTSTRAPPING is a statistical method that basically reduces the noise and identifies the outliers in the data collected from market participants. I. After the rates are obtained from poll, many exchange uses simple trimmed mean to trim outliers. II. The average rates are obtained from the mean of the trimmed sample. III. From the data obtained , NSE disseminates the average bid rates (MIBID) and the average offer rates (MIBOR). IV. The rates are published at the NSE website and news

DISSEMINATION
FIMMDA-NSE MIBID MIBOR rates are broadcast through the NEAT-WDM trading system immediately on release. The NSE website carries the daily rates as well as the historical data on the FIMMDA-NSE MIBID MIBOR. The FIMMDA also disseminates the FIMMDA-NSE MIBID MIBOR rates through its website and other means. In addition leading information vendors carry these rates on a daily basis. Reuters on its news information page, Bridge News Service (Knight Rider) on page no.2811, Bloomberg on its money market page as well as a news story and PTI on its money market page. FIMMDA-NSE MIBID MIBOR rates are also carried by all leading financial dailies including Economic Times, Financial Express, Business Standard and Business Line. In addition to the above, FIMMDA-NSE MIBID MIBOR rates

CURRENT MIBOR RATE

FIMMDA-NSE MIBID MIBOR for the Day

Last Updated on 20-November-2013

Category Time MIBID SD(MIBID) MIBOR SD(MIBOR)

OVERNIGHT 3 DAY 14 DAY

9:40 a.m. 9:40 a.m. 11:30 a.m. 11:30 a.m.

8.73
-

0.0054
-

8.78
-

0.0051
-

8.87 8.94

0.0929 0.1027

8.95 9.03

0.0682 0.0751

1 MONTH

3 MONTH

11:30 a.m.

9.17

0.0586

9.24

0.048