Money Market Instruments-France

Kundan Jha-498

Viraj Gandhi-616

France-An Overview

Area:643,801 sq km Population:65,630,692 GDP:$2.773 trillion GDP per Capita:$23,016.85 Unemployment Rate:10.2% Interest Rate:0.75% 10y Government Bond:2.17% EURIBOR/1 month average:0.11%Source: CIA-The World Fact Book, www.tradingeconomics.com,

www.banque-france.fr

French Money Market-Key Points

Money Market Instruments:

1. Commercial Paper (billets de tresorerie)

2. Certificates of Deposit

3. Medium Term Notes and Term Deposits (Banker’s Acceptances)

Commercial Paper

Similar to Certificates of deposits (certificats de depot) and Medium term notes (bons a moyen term negociables)

Regulated by L213 of the French Financial and Monetary Code

Maturity-1day-1 year Interest Rate- Fixed, Floating or Derivative

(Index Linked)-Declared by Banque-de-France

Creditworthiness of Commercial Paper Contingent upon ratings and guarantees Rating agencies registered with French

Ministry of Economy and Finance Information about-Financial and Economic

Situation, Structure of Credit Program Regulating Authority- Banque-de-France

French Government Bond

One of the most liquid in European Bond Markets

French Treasury Agency (Agence France Tresor)

Three Categories of Standardized Government Securities- OATs, BTANs and BTFs- Difference in Maturity Period

SVTs- Primary dealers who exclusively auction French government paper

Chosen as market counterparties by the Treasury

Provide advise and assistance on matters related to issuance policy and debt management

Include large banking networks and capital market specialists

Non-resident institutions allowed Around 6 US, 3 German, 2 British and 1 each

from Italy, Netherlands and Switzerland Selected through a SVT selection process of

Treasury

Secondary Market

One of the most liquid secondary market in the world

Technically sophisticated and better quality of services

Liquidity for entire range of the Government Securities

Execution of trades in large amounts at any time

Standardized and Diversified product line such as floating rate products

Reliable Settlement/Delivery procedures. Settlement through RGV (Relit grande

vitesse)-An irrevocable real-time gross settlement system

In operation since 1988

Treasury Bills

BTF (Bons du Tresor a taux fixe et a interets precomptes)

Maturity-Less than 1 year Denominated in -1 EUR Auctioned every Monday according to

quarterly calendar published in advance Maturity of BTFs specified in Calendar

Every week one BTF with Maturity of 13 weeks is issued

Semi-annual or annual BTFs issued periodically

BTFs with maturity period of 4-7 weeks issued outside calendar period if needed for cash management requirements

Auction Process

AFT announces the precise amount to be issued every Thursday prior to the auction

Minimum amount of Bid- EUR 1 Miliion BTFs quoted on a straight line yield and

expressed as a % of a 360-day year Auction through TELSAT Settlement- First Thursday following auction

When-Issued, Secondary or Forward Market Trades executed on D+1 date for domestic

market and D+3 for non-residents Bids based on money market yield expressed

as a % of 360-day year All bids are scaled down on a pro-rata basis

in both Primary and Secondary Market

Treasury Notes

Bons du Tresor a taux fixe et a interets annuels- BTANs

Negotiable Fixed-Rate Medium Term Treasury Notes with annual interest

Maturity-2-5 years Denomination-1 EUR Auctioned every third Thursday of each

month according to a semi-annual calendar published in advance.

Interest and Maturity due on 12th of every month

5 year & 2 year BTAN issued every 6 month Auction limits announced on Friday

preceding auction Minimum Bid- EUR 1 million Settlement- Next Tuesday

Treasury Bonds

Obligations assimilables du Tresor- OATs Long Term Debt Instruments Maturity- 7-30 years Denomination- EUR 1 Available in both Fixed and Floating Rates Inflation Indexed Bonds also offered Auctioned on Thursday of every month.

Auction limits announced on Friday Minimum bid amount- 1 Million EUR Settlement takes place on Tuesday Also traded in grey market 2-5 days prior to

auction and until settlement Traded in secondary market 3 days after the

settlement

OATs or Strips

Sperate Trading of Registered Interest and Principal of Securities on OAT

Stripped Bonds allow investors to improve the performance of their bond portfolio because of interest rate movements

Offers greater leverage than OAT French Strips market largest and most liquid

in Euro area

Auction System

Method- ‘bid price system’, bank syndication in special circumstances

Transparent system of open bidding in accordance with a planned issuance program

Securities are served at the bid price of effective bid rate from highest bid to lowest bid up to the target amount

Eligibility: Any institution affiliated to EuroClear France and having an account in Banque-de-France

Auction results such as volume requested and quantity provided are announced after the bids are exmained

France has the shortest auction time due to introduction of screen-based bidding and data transmission through TELSAT

Commercial Paper

Applies to notes and acceptances originating from commercial transactions

Definite maturity date Received by firms as payment for goods or

services rendered. Interest is paid in the form of a deducted

discount Discount rate =Market Rate of CP

Euro Commercial Paper

Short term paper issued by first class companies

Not underwritten by any bank or financial institution

Tradable in non-regulated markets Distributed by a group of dealers including

Citibank, Deutsche Bank, Societe Generale

French Commercial Paper

Short Term unsecured promissory notes Issues by any corporation in Pound Sterling Maturity less than 270 days Average maturity between 30-50 days

Euro Certificates of Deposit

Issued by banks as recording of time/term deposits

Have high face value and redeemed upon maturity

Normal maturity period-3-12 months, Maximum-5 years

Available at fixed and variable interest rates

Foreign Currency CD

Certificate issued by bank For a specified sum of money deposited in a

currency other than Francs, Euros or Pound Sterlings at a fixed interest rate

Maturity- up to 5 years Denomination-Flexible ‘Yankee CDs’- CDs issued in US Dollars by a

non-US institution with US subsidiary

French CD

Issued by a bank for a specified sum of money deposited in Francs

Maturity- up to 5 years Interest Rate- Fixed and Specified

European Term Deposits and Medium Term Notes TD-Saving Account or Certificate of Deposit

in a financial institution or bank Withdrawal only upon advance notice TN-Debt instrument with medium term

maturity Issued on the Euromoney market Key players: BNP Paribas, Goldman Sachs

Tax Treatment

French Residents: Flat rate withholding tax of 32.5 % or Income Tax on interest and redemption premiums & Capital gains tax of 32.5 % on transfer of securities

Redemption Premiums on stripped OATs exempt from tax if less than 5% of the face value of security

Non-Profit Organizations: Interest subject to 10%. No capital gains tax

Corporations- Interest, redemption premiums and capital gains- 33.33 %

Non-Residents- One-off exemption on interest provided interest in not paid in a non-cooperative state or territory

Euro Area Interbank Market Rates EONIA- Euro Overnight Index Average Rate calculated by the ECB and

disseminated by the EBF (European Banking Federation).

Weighted average of all uncollateralized overnight loans made by the banks included in the calculation of Euribor.

EONIA -12/9/2012- 0.101%

EURIBOR

Rate at which Euro inter bank term deposits within the Euro zone are offered.

An average of daily quotes provided for thirteen maturities by a panel of 57 of the most active Banks in the Euro zone.

Fixed at 11:00am provided that at least 50% of all Panel Banks have contributed.

The top and bottom 15% are eliminated and the remaining are averaged, to three decimal places.

EURIBOR/1Month-12.9.2012- 0.120%

Regulating Authorities- Agence France Tresor- Created by Ministry of Economy, Finance and

Foreign Trade order on 8 February 2001 Reports to Head of Treasury Directorate Current Chief Executive: Phillipe Mills Primary Tasks: Projection and Management

of Treasury, Risk control and Management

Banque de France

Created in 1800 was granted independent status in 1993 by the Statute of the Banque de France

Ensures smooth operation of negotiable debt securities market

Ensures full compliance with the issuing conditions laid down by the Banking Regulatory Committee

Regulations

Issuers have to file financial prospectus with the COB (college of the banks), AMF (stock exchange regulator) and the Bank prior to issue.

Periodic submission of documents such as quarterly cash statements

Resale in secondary markets subject to regulations relating to amounts and residual maturities.

Bank may ban firms on failure to comply with regulations and failure to pay at maturity.

Three databases provide information about respective outstanding volumes of commercial paper, CDs and bills of exchange.

Weekly reports are published on these information.

Sources

Agence France Tresor- www.aft.gouv.fr Banque de France- www.banque-france.fr