"Collateralized Borrowing and Lending Obligation (CBLO)", as the name implies is a fully collateralized

and secured instrument for borrowing / lending money. CBLO as a product is conceived and developed
by CCIL for the facilitating deployment in a collateralized environment. As a product, CBLO aims to
benefit those entities who have been phased out of Call/ Notice money market and / or those entities
on restrictions have been placed on the borrowing / lending in call / notice money market. CBLO
Dealing system is hosted and maintained by Clearcorp Dealing Systems (India) Ltd, a fully owned
subsidiary of CCIL. CCIL becomes Central Counterparty to all CBLO trades and guarantees settlement
of CBLO trades. CBLO is an RBI approved money market instrument which can be issued for a
maximum tenor of one year. CBLO is a discounted instrument traded on Yield Time priority. CBLO
instrument that are generally made available for trading are those with maturity of next seven
business days and three month end dates. The balances are maintained in electronic book entry. The
access to CBLO Dealing system for NDS Members is made available through INFINET and for non NDS
Members through Internet. The Funds settlement of members in CBLO segment is achieved in the
books of RBI for members who maintain an RBI Current Account and are allowed to operate that
current account for settlement of their secondary market transactions. In respect of other members,
CBLO Funds settlement is achieved in the books of Settlement Bank.

What is CBLO?

CBLO:
• Is an RBI approved Money Market instrument;
• Is an instrument backed by Gilts as Collaterals
• Creates an Obligation on the borrower to repay the money borrowed along with interest on a
predetermined future date;
• A Right and Authority to the lender to receive money lent along with interest on a predetermined
future date;
• Creates a charge on the Collaterals deposited by the Borrower with CCIL for the purpose.

Membership:

Membership to CBLO segment is generally extended to Repo eligible entities as per RBI guidelines.
CBLO Membership is granted to NDS Members and non NDS Members. The entity type eligible for
CBLO Membership are Nationalized Banks, Private Banks, Foreign Banks, Co-operative Banks,
Financial Institutions, Insurance Companies, Mutual Funds, Primary Dealers, Bank cum Primary
Dealers, NBFC, Corporate, Provident/ Pension Funds etc. Entities who have been granted CBLO
Membership are classified based on their NDS Membership. CBLO Members who are also NDS
Members are CBLO (NDS) Members and other CBLO Members are CBLO (Non NDS) Members or
Associate Members.

Eligible Securities:

Eligible securities are Central Government securities including Treasury Bills as specified by CCIL from
time to time.
Borrowing Limit and Initial Margin
Borrowing limit for the members is derived based on mark to market values and hair-cuts
applicable on securities deposited by that member in CBLO segment. The members can borrow
up a maximum of Borrowing Limit including all amounts which are borrowed and outstanding at
that point in time. Members are required to deposit initial margin generally in the form of Cash
(minimum Rs.1 lac) and Government Securities. Initial margin is computed at the rate of 0.50%
on the total amount borrowed/lent by the members. CBLO members may seek intraday
enhancement of BL/ IM by depositing additional collaterals/ Government Securities/ Cash.
Similarly, Members may withdraw securities intraday from CBLO segment provided they are
unencumbered. However, one day prior notice is required for cash withdrawal.

Dealing

Auction Market
Auction market is available only to NDS Members having settlement a/c at RBI, for overnight
borrowing and settlement on T+0 basis. Access to auction market is not available to Associate
members. Based on the borrowing limits fixed by CCIL, members submit their borrowing requests to
CCDS through CBLO System indicating clearly the amount, maturity and the cap rate before
commencement of the auction session. Members are permitted to borrow and lend funds on overnight
basis indicating the cap rate/s which is/are linked to CCBOR (a cap rate is the maximum rate up to
which the borrower is willing to pay). Currently the permissible caps are:

a) CCBOR

b) CCBOR + 10 bps

c) CCBOR – 10 bps

d) No cap specified.

CCDS approves the requests of the members subject to availability of borrowing limit and places the
same on the specified auction windows on behalf of the borrowing members. The lenders willing to
lend place their bids directly on the respective auction window indicating the amount and the rate
during the auction market session. At the end of the Auction market session, CCDS initiates auction
matching process based on Uniform Yield principle. The successful borrowers and lenders are notified
well before the close of business hours regarding borrowing and lending of funds by them through the
dealing system.

Normal Market
CBLO Normal market is available to both CBLO (NDS) members and Associate members. The access
to CBLO (NDS) members is made available through INFINET whereas Associate members are provided
access through Internet. Members have to deposit Cash and/ or eligible securities prior to starting
CBLO Dealing operations. The limits are made available to members based on cash / eligible securities
deposited with CCIL for that purpose in CBLO Segment. CBLO Members can place borrow / lend orders
till the closure of market hours for T+0 settlement type for the same day settlement and till closure of
market hours for T+1 settlement type for settlement on next business day. The maturity or
redemption date of CBLO can be identified from the nomenclature of CBLO itself which captures as
part of the description the maturity or redemption date of CBLO. The CBLO are issued at par for a
particular maturity date which implies that CBLO shall be redeemed at par. CBLO are traded in the
secondary market at a discount to redemption or par value. The borrowing and lending orders match
on Yield Time priority. The Borrow limit and Initial Margin are blocked on post trade basis and hence
the onus is on the members to ensure prior to placing the order that sufficient BL and IM are
available. Borrow order implies that the member is selling CBLO whereas Lend order implies that the
member is buying CBLO.

CBLO Market Timing

CBLO Normal Market is available for all members (including Associate Members) for settlement on T+0
and T+1 basis. CBLO Auction market is available for only for NDS members having settlement account
at RBI and T+0 settlement type. The CBLO Normal market timing for settlement type T+0 and T+1 for
various business days shall be as decided by Clearcorp and notified from time to time. The CBLO
Normal market time for T+0 and T+1 valid now is available under notifications of Clearcorp Dealing
Systems (India) Ltd.

S.No. Terms Description

Best Yield – Time Priority refers to the matching principle that the
system follows in matching the offers with bids and vice versa. The
Best Bid Yield for an Offer is the Bid yield which is equal to or less than
the Offer Yield quoted by the borrowers. The Best Offer Yield for a Bid
Best Yield – Time
1. Order is the Offer Yield which is equal to or greater than the Bid Yield
Priority
quoted by the lenders. If there are two or more identical Bid/Offer
orders with the same Bid/Offer Yield, then the system follows the
“Time Priority” principle based on the time of receipt of order by the
system.

Initial margin is collected to take care of the volatility in interest rates

2. Initial Margin
in case of default by the lenders.

3. Offer Offer refers to an order for borrowing funds.

4. Bid Bid refers to an order for lending funds.

Order Lot refers to the minimum amount that is required to constitute

5. Order Lot
a successful trade on the trading system.

Trading/Dealing Trading/Dealing Session refers to the market hours fixed by CCDS

6.
Session when members are permitted to conclude trades among themselves.

Uniform yield is the cut-off rate which is applicable to both the

7. Uniform yield
borrowers and lenders.
 Volatility is a statistical measure of a market or a security's price
8. Volatility
movements over time and is calculated by using standard deviation.

Volatility Margin is the extra margin which may be imposed by CCDS

9. Volatility Margin on both borrowers and lenders in the event of sudden increase in
volatility of interest rates in the market.

Close-out is a process by which the CBLO shortfall quantity is

10. Close-out distributed proportionately to members having net bought position in
the concerned CBLO.

Hair-cut is stipulated by CCIL to protect itself from potential losses

11. Hair-cut arising on account of decline in market value of security held as
collateral.

Margin Call refers to the demand made by CCIL on a member to

12. Margin Call deposit additional funds and/or securities towards fulfillment of its
margin obligation.

Member ID refers to the Identification Code allotted to each member of

13. Member ID
CCIL to establish the identity. ID is unique to every member.

Clearing & Settlement:

CBLO operates on a Straight through Processing (STP) environment. The trade flows from CBLO
Dealing System for Clearing and Settlement. The trades received are novated and netted for
settlement. A single obligation is generated for each member for each settlement date by netting
trades received for settlement that business date with redemption obligation for the same date. The
funds settlement is achieved at Settlement Bank for those CBLO members who are either not
permitted to open a current account at RBI or those who are permitted and maintain a current accout
are not allowed to operate those current account for settlement of secondary market transactions.
CBLO Funds settlement is achieved at RBI for those members who maintain current account at RBI
and are allowed to settle secondary market transactions in such account. The securities of equivalent
value are blocked for members utilizing borrow limits. CBLO credits in the form of book entry are
given to those members who have lent funds after the CBLO Funds settlement is completed. A report
is made available giving details of securities encumbered in CBLO segment.

CBLO Funds Settlement @ Settlement Bank :

The net fund obligation in CBLO Segment for those members who either do not maintain a Current
Account with RBI or not allowed to operate such current account for settlement of secondary market
transactions are achieved at Settlement Bank. A single obligation generated for such members CBLO
Funds obligations is transmitted electronically to the Settlement Bank containing details of Funds Pay-
in and Pay-out to be effected by the respective Settlement Bank. The Settlement Bank shall after
effecting such Pay-in and Pay-out, confirm back electronically the completion of such process. The
onus on ensuring that sufficient funds are made available in the respective current account with
Settlement Bank rests with the CBLO members settling through Settlement Bank.

CBLO Funds Settlement @ RBI Current Account:

The funds settlement for those members who maintain a Current Account with RBI and are allowed to
settle secondary market transactions in that current account is achieved in RBI Current Account of
those members. A single funds obligations for CBLO segment is generated for each of these members
which include Pay-in and Pay-out positions in respect of their proprietary positions and also on account
of those obligations of other members for whom they have undertaken the function as a Settlement
Bank.

Risk Management:

CCIL addresses risk relating to trading and settlement by adopting stringent membership norms by
restricting its membership only to the entities which meet the minimum eligibility criteria. Members
are allowed to borrow to the extent of the limit fixed after MTM valuation of securities with appropriate
haircut. The securities in the CSGL account are subjected to daily valuation and any deficit in the value
of the securities vis-à-vis the borrowed amount (face value of CBLO) is collected from the concerned
members. Besides, CCIL stipulates initial margin for the lenders in the Auction market and for each bid
and offer in the Normal market to address the interest rate risk, in case the lenders do not honor their
commitments. In case of members failure to deposit such deficit on the same day, it is treated as a
Margin Default and penalty is charged accordingly.

Default handling:

(i) Funds Shortage:

Shortfall in funds can take place when the members (by lenders on the day of lending and by
borrowers on the day of redemption) fail to meet funds obligation on the day of settlement. In such
cases, CCIL meets the shortage by utilizing the lines of credit extended by the member banks /
Settlement Banks and complete the settlement. CCIL then initiates the default handling process by
withholding the CBLO receivable by the lenders (defaulting members). In case of failure by the
borrower to meet the redemption proceeds on maturity of CBLO, the underlying securities of such
member stands encumbered till the funds are replenished along with charges. In case of eventual
default, CCIL liquidates the underlying securities / CBLO and adjust the proceeds towards the shortfall
and other charges.

(ii) CBLO Shortage :

CBLO shortage can take place when the members Borrow / sell CBLO without having sufficient
borrowing limit or concerned CBLO in their account. In case of CBLO shortfall, CCIL withholds the
funds receivable by the defaulting members and creates CBLO to the extent of CBLO shortfall quantity
by using the withheld funds and credit the same to the concerned buyers’ CBLO account. Alternatively,
CCIL may also opt for Close-out process by reducing the CBLO shortfall quantity proportionately from
the buyers (lenders) receivable position in the concerned CBLO.