a) Nature of the Instrument:
CBLO would be treated as a money market instrument. There will be no restrictions on the minimum denomination as well as lock-in period for its secondary market transactions. The regulatory provisions for CBLO will be the same as those applicable to other money market instruments.

b) Term of the Instrument:
CBLO may have original maturity period between one day and upto one year.

c) (i) Issue and Trading Norms:
• CBLO shall be issued in electronic book-entry form only.
• The rate at which CBLO is issued and traded in the secondary market will be decided by market participants.
• CBLO could be traded in the secondary market without any lock-in period.
• CCIL will provide the trading platform for trading CBLOs to the satisfaction of the market participants.
• Dissemination of traded prices to all market participants as also to RBI will also have to be enabled by CCIL.

(ii) Borrowing Limits:
Borrowing limits for members will be fixed by CCIL at the beginning of the day taking into account the securities deposited by borrowers in their CSGL account with CCIL. The securities will be subjected to necessary hair-cut after marking them to market. The limits so derived in effect will denote the drawing power upto which the members can borrow funds. Lenders will deposit cash to meet initial margin requirements that are designed to take care of the settlement risk.

(d) Reserve Requirements:
Cash Reserve Ratio (CRR) / Statutory Liquidity Ratio (SLR): The treatment of CBLO in regard to CRR and SLR will be as follows.

CRR
Since CCIL would be the central counter party for both borrowers and lenders, the status of CCIL would have implications for applicability of CRR. As CCIL is considered as a non-bank institution, transactions in CBLO will attract CRR even though the actual borrowers and lenders of the transaction are banks. However, in order to develop CBLO as a money market instrument, it has been decided to give a special exemption from CRR for transactions in CBLO subject to the bank maintaining minimum CRR of 3 per cent.  

SLR
Securities lodged in the Gilt Account of the bank maintained with CCIL under CSGL facility remaining unencumbered at the end of any day will be reckoned for SLR purposes by the concerned bank. For this purpose, CCIL will provide a daily statement to banks/RBI listing the securities lodged/utilized/remaining unencumbered.

The statutory pre-emptions relating to CRR and SLR will of course have no applicability to institutions like PDs, Mutual Funds, Insurance companies, DFIs, etc.  

(e) Valuation of Collaterals:
Securities in the Gilts Account of the participant for CBLO can be from any of the three categories, viz., ‘Held to Maturity’, ‘Available for Sale’, and ‘Held for Trading’. While CBLO will involve movement of securities from the SGL account of a participant to its own Gilt Account with CCIL on a value free transfer basis, there is no transfer of ownership involved. Since the securities will continue to remain in investment portfolio of the participant even when encumbered, there will be no change in valuation of such securities. The CBLO arrangement envisages earmarking specified value of securities (based on the borrowings under CBLO). The intent of earmarking such securities will be accomplished through a suitable agreement.

(f) Risk Weight:
Market Risk
Since CBLO is fully collateralized by government securities, the risk weight as applicable to government securities for market risk would be applicable to CBLO.