pvijaykumar1978

Exotic Derivatives

Over the years, many derivatives have evolved into more or less standard products with well-defined properties that are widely known and actively traded. The prices, volume and implied volatilities are quoted by exchanges or by brokers on a regular basis. However, the derivatives markets being large and still evolving have many non-standard products that are created by financial engineers for specific purposes. These non-standard products are known as “Exotics” or “Exotic Derivatives”. They are traded less actively in comparison with standard products. These products are not entirely new but are variants of standard products: the variation mainly in the features of the products such as maturity, payoffs, effective date, notional amount, reset dates, etc., or the variation is due to the combination of two or more derivatives to form a new derivative. Although they are a small part of the derivatives universe, many derivative dealers use them frequently because they are generally more profitable than the usual standard products. The standard products are also known as “Plain Vanilla Products”.

The exotic products are developed to meet varied requirements such as very specific hedges, tax, accounting or legal. Occasionally, they are also developed to make them more appealing to the corporate customer in comparison to the standard products. The below table shows some of the exotic products and features that are modified.

Equity

Equity forwards
Equity warrants
Equity linked debt

Debt

Structured notes

Options

Packages
Non-standard American options
Forward start options
Compound options
Chooser options
Barrier options
Binary options
Look back options
Shout options
Asian options
Options to exchange one asset for another
Options involving several assets

Swaps

Basis swap
Constant maturity treasury swap (CMT)
Constant spread swap (CMS)
Flavoured swap
Delayed start and forward start swap
Step-up and step-down coupon swap
Zero coupon swap or prepaid swap
Market agreed coupon swap (MAC)
In arrears swap
Overnight Index Swap (OIS)

Equity Forwards

An equity forward contract is simply a forward contract on a stock, stock index, or stock portfolio. It is an agreement between two parties whereby one party agrees to buy a stock, stock index or portfolio of stocks from another party at a pre-determined price at a future point in time. It is a very simple agreement but some consider it to be exotic because usually stocks and portfolios of stocks are bought and sold on exchanges and there is price transparency and liquidity.

An interesting variation of a forward contract is the Break Forward. It is a combination of spot and derivative positions that replicate the outcome of an ordinary call with one exception – the positions are structures such that the overall position costs nothing up front. This instrument is like a zero-cost call, except that it would be impossible to have an instrument that costs nothing up front and returns either zero or a positive number, like an ordinary call. The break forward achieves this by penalizing the investor if the option ends out-of-the-money. An ordinary call pays Max (0, ST-X), where ST is the stock price at expiry and X is the exercise price. This instrument is a call that pays off if it expires in-the-money and incurs a charge if it expires out-of-the-money. Even the in-the-money payoff, however, can be negative.

For example, let’s suppose the following.

Stock price = $125.9375

Time to expiry = 0.0959 years (35/365) (35 days being the duration of the contract)

Risk free rate = 4.46% p.a. continuous compounding

Volatility = 0.83

Number of units = 100

Based on the above information, the forward price, using continuous compounding would be:

F = Se^rt

= 125.9375 x e ^ (0.0446 x 0.0959)

= 126.48

This forward price will be the exercise price of the break forward.

Let us assume that the premium on the above call is $12.88.

The exercise price would be 126.48 + 12.88 ^(0.0446 x 0.0959) = 139.41

There will be two scenarios under the break forward – one where the stock price is above $126.48 and another below $ 126.48. The payoffs of these two scenarios is as below.

If the stock price at expiry (35 days) is more than 126.48, then the payoff would be ST – 139.41.

If the stock price at expiry (35 days) is less than 126.48, then the payoff would be 126.48 – 139.41 = -12.96 (a loss or negative payoff).

Since the quantity in the above example is 100, the real payoff should be multiplied by 100.

In a normal call option, the investor must pay the premium upfront. In a break forward, the investor does not pay the premium upfront but undertakes to pay the compounded value of the premium at the time of expiry. In other words, in a normal option, if the option is out-of-the-money, the investor need not pay anything as he has already paid the premium upfront. But in a break forward, if an option is out of the money, the investor has to pay the compounded value of the option premium. You may consider this as if the option seller has provided a loan to the option buyer for an amount equal to the premium, which needs to be repaid at the time of expiration with continuous compounding interest.

Break forward options are sometimes also known as “Pay later options”.

Equity Warrants

Warrants have been around much longer than exchange traded options. A warrant is an option written by a firm on its own stock and usually offered with a bond issue. The investor in a bond receives warrants which entitles him to purchase one or more of the underlying stocks of the company at a future point in time. Warrants can be priced similar to options, except that the exercise of warrants dilutes the value of the stock and this must be taken into consideration during their valuation. Many warrants trade on stock exchanges. They are usually issued for periods ranging from 3 to 10 years.

Though simple stock warrants are not called as Exotics, there are plenty of variants which are called as exotics. For example, warrants on domestic and foreign stock indices payable in USD are classified as exotics.

Equity Linked Debt

It is a combination of call option and a bond. Usually, companies offer bonds with coupons at market rates. However, it is possible for companies to issue them for lesser rates than the market rates but to make the issue attractive, it may link the payoff to the returns from an index or any other instruments, such as the performance of a single stock or a basket of stocks. Such issues or instruments are known as “Equity Linked Debt’.

These sort of instruments came to the market during the late 1980s but were not popular. However, since the last few years there has been a steady demand for these instruments.

For example,

Suppose, a bank or investment banking firm makes the following offer:

Purchase a one year zero coupon bond paying 1% interest and receive 50% of any upside gain on the S&P 500. Each unit is sold with a principal amount of $10. Currently, a one year zero coupon bond without the S&P feature would pay 5% compounded annually. The S&P is at 1,500, its standard deviation is 0.12, and its dividend yield is 1.5%. Is this a good deal?

If you invest $10 in the bond you would get:

$10 x $1.01 = $10.1

The alternative opportunity (without S&P 500 linkage) would give:

$10 x 1.05 = $10.50

To analyse whether it is worth the investment, we should calculate the present value of our investment by discounting it at the market rate of return.

Thus, PV = 10.10/1.05 = 9.62

We can say that for an investment whose value is $9.62, we are paying $10. That means, we are paying $0.38 for getting the upside on the S&P index.

This amount is also known as the implicit or intrinsic value of the investment. We can think of it as if we are paying a premium of $0.38 for an upside of 50% on the S&P 500, with a strike price of 1,500. We can compare this premium with market premium rates and thereby take a decision as to whether this investment is worth or not.

Alternatively, we can calculate the value of the call option by using Black-Scholes model and compare whether the premium payable is reasonable or not.

These securities sometimes have other features such as payoffs based on average price over the last 10 days before expiration, 100% upside on the index, etc.

These securities have at times been created by stock and options exchanges but they mostly are traded in the OTC market.

Structured Notes

Corporations routinely issue notes rating from 2 to 10 years. Usually, the notes carry both fixed and floating interest rates. In the early 1990s many corporations began issuing notes with derivative transactions attached so as to change the payoff pattern. These instruments have come to be known as “Structured Notes”.

They are mostly issued by companies having high credit quality. Hence, there is a very limited credit risk involved with them. These are designed for a particular user(s) in mind. The user(s) wants a particular exposure and normally plans to hold the instruments until maturity. Thus, these tend to be fairly illiquid instruments.

Some of the notes have coupons indexed to the CMT (Constant Maturity Treasury) rate, while others have leveraged and range rates. The following are some common structures available in the market.

Leveraged coupon structures
Range floaters
Reverse or inverse floaters

Leveraged coupon structures:

Usually, floating rate coupons are linked to indices such as LIBOR, EURIBOR, etc. However, the coupons can be set up as ‘n times’ the index values. For example, a particular coupon can be set up as 1.5 times the LIBOR value. That means, if the LIBOR is 6% then the coupon would be 9%. Similarly, if the LIBOR increases to 7% then the coupon increases to 9.5%. These instruments are usually available in OTC market and are relatively illiquid.

Range floaters:

Coupons can be set in such a manner that the payoff would be positive only if the linked index is within a particular range. For example, an instrument can promise to pay LIBOR +3% if the LIBOR is between 0% and 6% in the first year, between 0% and 7% in the second year and so on. If the LIBOR is 7% in the first year, then the payoff would be zero. These instruments are called as Range Floaters. It can be viewed as a bet on the LIBOR remaining within a specific range within a particular time period.

Reverse or Inverse floaters:

A standard floating rate note pays interest at a rate that changes directly with changes in the market interest rates. A reverse or inverse floater is one which pays interest at a rate that changes in opposite direction to the changes in the market interest rates. In other words, if the interest rates go up, the coupon of an inverse floater goes down and vice-versa. This is achieved by setting the coupon at Y-LIBOR, as an example. Suppose, Y is 12% and LIBOR is 5%, then the coupon rate would be 7% (12-5). If LIBOR increases to 6%, then the coupon would decrease to 6%.

If the LIBOR increases to 13%, then the coupon would be -1% (12%-13%). In this case, the lender will have to pay the interest to the borrower rather than the other way round. Since this would not make any sense, there is usually a cap to the LIBOR increase, and is put in such a way that the coupon rate would always give a minimum return, say 3% or 4%, irrespective of the movement of the LIBOR rate.

The inverse floaters can also be structured as a leverage – e.g. (Y – 0.75 times LIBOR). They can also be structured in a various creative ways such as the difference between two interest rates, linked to foreign indices, etc.

November 6, 2017 Posted by pvijaykumar1978 | Uncategorized | Leave a comment

India GST – Frequently Asked Questions (FAQs) for Traders

s. If The below is an extract of the information published by the Central Board of Excise and Customs (CBEC), Government of India. The Government of India has published information about GST for public educational and awareness purpose in various newspapers and online resources. I am hereby presenting the copy of that information with minimal and required changes for easy understanding of the subject.

1. How will GST benefit the Trading Community?

Under GST, a trader would be entitled to avail input tax credit paid on his domestic procurements of goods and services unlike the present indirect tax regime. Presently, a significant portion of indirect taxes namely Central Excise and Service Tax form part of the cost component for a trader. This will not be the case under GST. He will now be able to take credit of all taxes paid by him.

In respect of imports, the landed cost is expected to reduce significantly under GST. Hence, the traders will gain significantly in terms of input tax credit on their operating expenses thereby decreasing their operating costs.

CST which was non-creditable has been subsumed in GST. This will be a huge benefit for the traders. Entry tax has also been subsumed in GST. Removal of CST and entry tax shall immensely benefit the traders. Traders will be able to sell their goods to farthest areas.

2. Will all traders necessarily have to register under GST?

A trader dealing only in exempted goods or where his turnover is below Rs. 20 lakhs in a financial year (but not engaged in Inter-State supplies) is NOT required to register under GST.

3. Are monthly returns required to be filed by a trader not opting to pay tax under the composition scheme?

Traders not opting to pay tax under composition scheme need to file returns on a monthly basis. Form GSTR-1 is to be filed for outward supplies made by the trader (made in the month for which return is being filed) by the 10th of the next month. Other parts of the return Form GSTR-2 and Form GSTR-3 are auto-populated and only needs to be verified and submitted by the 15th and the 20th of the next month respectively.

4. What is the basic information that needs to be furnished in Form GSTR-1?

The details to be entered in the return of outward supplies Form GSTR-1, made by the trader depends upon the nature of supplies made. The provisions are as follows:

Intra-State supplies to consumers (B2C supplies) – tax rate wise summary.
Inter-State supplies to consumer (B2C supplies) of value up to Rs. 2.5 lakhs – State-wise and tax-rate wise summary.
Inter-State supplies to consumers (B2C supplies) of value above Rs. 2.5 lakhs – specified invoice wise details.
Supplies to resellers (B2B) – specified invoice-wise details.

5. Under GST, will traders be required to declare their IEC at the time of imports and exports?

For the time being, both GSTIN and IEC have to be declared. But over a period of time, traders need to declare only their GSTIN instead of IEC at the time of imports and exports.

6. Can traders get the credit of IGST paid at the time of imports for discharging their domestic liabilities under GST? If yes, how?

Yes. Under GST, traders will be on par with manufacturers. IGST paid at the time of import will be available as a credit which can be used for payment of taxes on further supplies. GSTIN would be used for the purpose of credit flow of IGST on import of goods and refund of IGST paid in case of export.

7. When will a trader have to pay tax?

A trader, if registered under GST, will have to pay tax on monthly basis on or before 20th of the succeeding month.

A person who has opted for composition levy will have to pay tax on quarterly basis on or on before 18th of the month succeeding the quarter relating to supplies.

8. Can a trader having duty paying documents (including a first stage dealer or a second stage dealer) claim the Cenvat credit on the stock held on the appointed date viz. 1st July 2017?

Yes a trader having duty paying documents including a first stage dealer or second stage dealer can claim Cenvat credit as per section 140(3) of the CGST Act, 2017 subject to fulfilment of following conditions:-

Such inputs are used or intended to be used for making taxable supplies.
The said taxable person is eligible for input tax credit on such inputs.
The said taxable person is in possession of invoice and/or other prescribed documents evidencing payment of duty under the earlier law.
Such invoices and/or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day.
The supplier of services is not eligible for any abatement.

9. What is a credit transfer document? How can it help the trader?

A manufacturer may have cleared some goods to the dealer prior to the GST, and in case a dealer who has not registered under the Central Excise Act, however is registered under CGST Act. 2017. A special provision has been made in the CENVAT Credit Rules, 2004 to take care of such cases. In such a situation, the manufacturer may issue a credit transfer document (CTD in brief) to the dealer subject to the following conditions:-

The value of such goods is higher than rupees twenty-five thousand per piece, bears the brand name of the manufacturer or the principal manufacturer and are identifiable as a distinct number such as chassis/engine no. of car, etc.
Verifiable records of clearance and duty payment relatable to each piece of such goods is maintained by the manufacturer and are made available for verification on demand by a Central Excise officer.
CTD shall be serially numbered and shall contain the Central Excise registration number, address of the concerned Central Excise Division, name, address and GSTN number of the person to whom it is issued, description, classification, invoice number with date of removal, mode of transport and vehicle registration number, rate of duty, quantity, value and duty and exercise specified in the First Schedule to the Central Exercise Tariff Act, 1985 paid thereon.
The manufacturer is satisfied that the dealer to whom CTD is issued is in possession of such manufactured goods in the form in which it was cleared by him (on 1st July 2017).
CTD shall be issued upto 30th July 2017 and copy of the corresponding invoices shall be enclosed with the CTD.
Copies of all invoices relating to buying and selling from manufacturer to the dealer, through intermediate dealers, is maintained by the dealer available credit using CTDs.
CTD shall not be issued in favour of a dealer to whom invoice was issued for the same goods before the appointed date.
A dealer availing credit using CTD on manufactured goods shall not be eligible to avail credit under provision of rule 117(4) of the CGST Rules, 2017 on identical goods manufactured by the same manufacturer available in the stock of the dealer.
The dealer availing credit on the basis on CTD shall, at the time of making supply of such goods, mention the corresponding CTD number in the invoice issued by him under section 31 of the CGST Act, 2017.

10. Traders are presently not entitled to take CENVAT credit. They will be having duty paid stock as on 1st July, 2017. However, it is possible that the traders may not have duty paid documents in respect of such stock. Is there any scheme under GST, where such trades will be able to get credit of such taxes under GST?

Yes. If duty paid invoices are available within them, then full credit of ITC on existing stock can be carried over to GST. If duty paid invoices are not available, then a deemed credit scheme is made available to the traders.

11. Will the compliance procedure under GST be complicated for traders under GST? What measures have been put in place to ease burden of compliance on small traders?

No. The compliance process is automated and easy for traders. The following steps have been taken by the Government in this regard.

Small traders with a turnover below Rs. 20 lakhs need not register under GST.
An easy to understand and comply composition scheme for traders having turnover upto Rs. 75 lakhs where tax can be paid quarterly as a percentage of turnover.
GST Seva Kendras have ben opened in all Commissionates (upto range office) under CBEC to help small traders in any matter concerning GST laws and processes.
For uploading of invoice details, GST Network will be providing easy to use application free of cost which will enable hassle-free uploading of invoices by traders.
The returns and payment of tax processes under GST are completely online. There will be minimal interface or no interface with the tax authorities.
Small taxpayers can use the services of GST Practitioners at a nominal cost to take care of their compliance under GST.
GST Suvidha Providers (GSPs) will be providing easy to use applications which will provide an interface with the GST Network for easy and smooth compliance under GST.
Strict time lines have been prescribed which shall be adhered to by all proper officers. Registration will be given in 3 working days if the documents are in order. In case no response is received from the proper officer within 3 days, registration shall be deemed to be granted.
Application for refund will be completely online with minimal interface with the tax officer. Acknowledgement of refund claim will be given in 15 days and the claim will be processed in 60 days failing which interest will be paid. For exports, provisional refund up to 90% of the claim will be sanctioned upfront without any verification. The amount of refund will be directly credited to beneficiary’s bank account.

12. Stock transfers have been made taxable in GST. Will it impact adversely?

The objective of taxing stock transfers is just to ensure that the ITC moves along with the supply of goods to the place where a supply is finally consumed. This is to ensure that the taxes accrue to the State where a supply is consumed. If the stock transfers are not taxed, the ITC would not flow to other State along with the supply and trader will not be able to utilise the credit in another State. Therefore, taking of stock transfers is in the interest of traders and is perfectly revenue neutral for the trader.

13. How will the stock transfer be valued?

In case the recipient is eligible for full input tax credit, then the value declared by a trader in the invoice shall be taken as the open market value and shall be accepted for assessment purpose. Traders shall themselves assess the value of supplies. In such case the value shall normally be the value of inward supply plus the transport costs, etc., involved in stock transfer.

14. Traders are not used to classifying the goods under the HSN nomenclature and are likely to face hardships in this regard. How will they cope with it?

Taxpayers whose turnover is above Rs. 1.5 crore but below Rs. 5 crore shall use 2-digit code and the taxpayers whose turnover is Rs. 5 crore and above shall use 4-digit code. Taxpayers whose turnover is below 1.5 crore are not required to mentioned HSN Code in their invoices. Further, the goods emanate either from manufacture or from imports. Traders usually don’t change the nature of goods. The classification, in general, will be continuity from the HSN declared by the manufacturer or importer both of whom have been using the system in the past also.

15. What if a trader/businessman is unable to undertake compliances under GST himself?

Under GST, the government will allow qualified persons to act as GST Practitioners. In case the trader is unable to undertake compliance himself, he can utilise the services of such GST Practitioners to fulfil his compliance requirement. There would also be Facilitation Centre, Helpdesk in each GST Commissionerate. There would also be facility of GST Suvidha Providers (GSPs) who would be developing software for uploading data on to the GSTN Portal.

July 7, 2017 Posted by pvijaykumar1978 | Uncategorized | Leave a comment

FAQ’s on Indian GST

The following is an extract from the FAQ’s circulated by the Central Board of Excise and Customs, Government of India. Since the Board has done an excellent job in explaining the topic in a simple language, I thought of sharing this information with minor and necessary edits to its contents. The pdf format of the FAQ’s can be downloaded directly from the CBEC’s website.

TOPIC – 1: Overview of Goods and Services Tax (GST)

1. What is Goods and Services Tax (GST)?

It is a destination based tax on consumption of goods and services. It is levied at all stages right from manufacturing up to final consumption with credit of taxes paid at previous stages available a setoff. In a nutshell, only value addition will be taxed and burden of tax is to be borne by the final consumer.

2. What exactly is the concept of destination based tax on consumption?

The tax would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed as place of supply.

3. Which of the existing taxes are subsumed under GST?

The GST has replaced the following taxes.

Central Taxes

Central Excise Duty
Duties of Excise (Medicinal and Toilet Preparations)
Additional Duties of Excise (Goods of Special Importance)
Additional Duties of Excise (Textiles and Textile Products)
Additional Duties of Customs (commonly known as CVD)
Special Additional Duty of Customs (SAD)
Service Tax
Central Surcharges and Cesses so far as they relate to supply of goods and services.

State Taxes

State VAT
Central Sales Tax
Luxury Tax
Entry Tax (all forms)
Entertainment and Amusement Tax (except when levied by the local bodies)
Taxes on advertisements
Purchase Tax
Taxes on lotteries, betting and gambling
Stage surcharges and cesses so far as they relate to supply of goods and services

4. What principles are adopted for subsuming the above taxes under GST?

The various Central, State and Local levies were examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind.

Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services.
Taxes or levies to be subsumed should be part of the transaction chain which commences with import/manufacture/production of goods or provision of services at one end and the consumption of goods and services at the other.
The subsumation should result in free flow of tax credit in intra and inter-state levels. The taxes, levies and fees that are not specifically related to supply of goods and services should not be subsumed under GST.
Revenue fairness for both the Union and States individually would need to be attempted.

5. Which commodities are kept outside the purview of GST?

The following items have been kept out of GST as for now.

Alcohol for human consumption
Petroleum Crude
Motor Spirit (Petrol)
High Speed Diesel (HSD)
Natural Gas
Aviation Turbine Fuel
Electricity

6. What is the status of Tobacco and Tobacco products under the GST regime?

Tobacco and Tobacco products would be subject to GST. In addition, the Center would have the power to levy Central Excise duty on these products.

7. What type of GST is implement?

A dual GST is implemented wherein the Center and the States simultaneously levy the tax on a common base.

The GST to be levied by the Center on intra-state (within state) supply of goods and services is called “Central GST (CGST)“.

The GST to be levied by the States and Union Territories on supply of goods and services is called “State GST (SGST)“.

The GST to be levied by the Center on inter-state (between states) supply of goods and services is called “Integrated GST (IGST)“.

8. Why is Dual GST required?

India is a Union with Federal characteristics, where both the Center and the States have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST, therefore fulfills this constitutional requirement of fiscal federalism.

9. Which authority will levy and administer GST?

Center will levy and administer CGST and IGST.
States and Union Territories will levy and administer SGST/UTGST.

10. What was the need to amend the constitution for effecting GST?

Currently, the fiscal powers between the Center and the States are clearly demarcated in the Constitution with almost no overlap between the respective domains. The Center has the power to levy tax on the manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics, etc.). While the States have the powers to levy tax on the sale of goods. In the case of inter-state sales, the Center has the power to levy a tax (the Central Sales Tax) but, the tax is collected and retained entirely by the States. As for services, it is the Center alone that is empowered to levy service tax.

Introduction of GST required amendments in the Constitution so as to simultaneously empower the Center and the States to levy and collect this tax. The Constitution of India has been amended by the Constitution (One Hundred and First Amendment) Act, 2016 for this purpose. Article 246A of the Constitution empowers the Center and the States to levy and collect the GST.

July 4, 2017 Posted by pvijaykumar1978 | Uncategorized | Leave a comment

Benefits of GST

Benefits to Citizens:

Simpler tax system
Reduction in prices of goods and services due to elimination of cascading effect of taxes
Uniform prices throughout the country
Transparency in taxation system
Increase in employment opportunities

Benefits to Trade and Industry:

Reduction in multiplicity of taxes
Mitigation of cascading effect of taxes (or double taxation)
More efficient neutralisation of taxes especially for exports
Development of common national market
Simpler tax regime (fewer rates and exemptions)

Benefits to Central and State Governments:

A unified common national market to boost Foreign Investment and “Make in India” campaign.
Boost the manufacturing and export activity, generation of more employment, leading to reduced poverty and increased GDP growth.
Improving the overall investment climate in the country which will benefit the development of states
Uniform SGST (State GST) and IGST (Inter-State GST) rates to reduce the incentive for tax evasion.
Reduction in compliance costs as no requirement of multiple record keeping.

July 4, 2017 Posted by pvijaykumar1978 | Uncategorized | Leave a comment

Indian GST Rates for commonly used items

The information is arranged in the following order.

Sl. No…..Item……….Pre-GST Rate (%)……….GST Rate (%)

Wheat – 2.5% – 0%
Rice – 2.75% – 0%
Unbranded Flour – 3.5% – 0%
Curd, Lassi, Butter Milk – 4% – 0%
Unbranded Natural Honey – 6% – 0%
Ultra High Temperature (UHT) Milk – 6% – 5%
Tea (other than unprocessed green leaves of tea) – 6% – 5%
Milk Powder – 6% – 5%
Sugar – 6% – 5%
Sweetmeats – 7% – 5%
Vegetable Edible Oils – 6% – 5%
Spices – 6% – 5%
Ketchup & Sauces – 12% – 12%
Mustard Sauce – 12% – 12%
Toppings, Spreads and Sauces (other than mayonnaise, salad dressings and seasonings ) – 12% – 12%
Mineral Water – 27% – 18%
Sugar Confectionary – 21% – 18%
Children’s Picture, Drawing or Colouring Books – 7% – 0%
Footwear of RSP upto Rs. 500/- per pair – 10% – 5%
Kerosene Pressure Lantern – 8% – 5%
Coal – 9% – 5%
Toothpowder – 17% – 12%
LED – 15% – 12%
X-Ray films for medical use – 23% – 12%
Diagnostic Kits and Reagents – 16% – 12%
Fixed Speed Diesel Engines of power not exceeding 15HP – 16% – 12%
Fly ash bricks and fly ash blocks – 16% – 12%
Sewing Machine – 16% – 12%
Hair Oil – 27% – 18%
Toothpaste – 27% – 18%
Soap – 27% – 18%
Other Footwear – 21% – 18%
LPG Stove – 21% – 18%
Aluminium Foils – 19% – 18%
School Bags – 22% – 18%
Printers (other than multi-function printers) – 19% – 18%
Staplers – 27% – 18%
Tractors rear tyres and tractor rear tyre tubes – 20% – 18%
Helmet – 20% – 18%
CCTV – 19% – 18%
Baby Carriages – 27% – 18%
Plastic Tarpaulin – 19% – 18%
Bamboo Furniture – 23% – 18%
Headgear and parts thereof – 27% – 18%
Cement – 29% – 28%

Source: Central Board of Excise and Customs (CBEC), Government of India.

July 4, 2017 Posted by pvijaykumar1978 | Uncategorized | Leave a comment

Videos

Please find below the link to my YouTube videos.

Subject:- GLOBAL SECURITIES MARKETS

Part-1

Part-2

Part-3

Part-4

Part-5: Types of banks in USA

Part-6: Types of Banking Services

Part-7: Role of Central Bank

Role of Central Bank – 1

June 27, 2017 Posted by pvijaykumar1978 | Videos | Leave a comment

IOSCO Code of Conduct Fundamentals for Credit Rating Agencies

IOSCO stands for International Organisation of Securities Commissions

The following is their code of conduct

1. QUALITY AND INTEGRITY OF THE RATING PROCESS

A. Quality of the Rating Process

1.1 The CRA should adopt, implement and enforce written procedures to ensure that the opinions it disseminates are based on a thorough analysis of all information known to the CRA that is relevant to its analysis according to the CRA’s published rating methodology.

1.2 The CRA should use rating methodologies that are rigorous, systematic, and, where possible, result in ratings that can be subjected to some form of objective validation based on historical experience.

1.3 In assessing an issuer’s creditworthiness, analysts involved in the preparation or review of any credit rating action should use methodologies established by the CRA. Analysts should apply a given methodology in a consistent manner, as determined by the CRA.

1.4 Credit ratings should be assigned by the CRA and not by any individual analyst employed by the CRA; rating should reflect all information known, and believed to be relevant, to the CRA, consistent with its published methodology; and the CRA should use people who, individually or collectively have appropriate knowledge and experience in developing a rating opinion for the type of credit being applied.

1.5 The CRA should maintain internal records to support its credit opinions for a reasonable period of time or in accordance with applicable law.

1.6 The CRA and its analysts should take steps to avoid issuing any credit analyses or reports that contain misrepresentations or are otherwise misleading as to the general creditworthiness of an issuer or obligation.

1.7 The CRA should ensure that it has and devotes sufficient resources to carry out high-quality credit assessments of all obligations and issuers it rates. When deciding whether to rate or continue rating an obligation or issuer, it should assess whether it is able to devote sufficient personnel with sufficient skill sets to make a proper rating assessment, and whether its personnel likely will have access to sufficient information needed in order to make such an assessment.

1.8 The CRA should structure its rating teams to promote continuity and avoid bias in the rating process.

B. Monitoring and Updating

1.9 Except for rating that clearly indicate that they do not entail ongoing surveillance, once a rating is published the CRA should monitor on an ongoing basis and update the rating by:

a. regularly reviewing the issuer’s creditworthiness;

b. initiating a review of the status of the rating upon becoming aware of any information that might reasonably be expected to result in a rating action (including termination of rating), consistent with the applicable rating methodology; and,

c. updating on a timely basis the rating, as appropriate, based on the results of such review.

1.10 Where a CRA makes its ratings available to the public, the CRA should publicly announce if it discontinues rating an issuer or obligation. Where a CRA’s ratings are provided only to its subscribers, the CRA should announce to its subscribers if it discontinues rating an issuer or obligation. In both cases, continuing publications by the CRA of the discontinued rating should indicate the date the rating was last updated and the fact that the rating is no longer being updated.

C. Integrity of the Rating Process

1.11 The CRA and its employees should comply with all applicable laws and regulations governing its activities in each jurisdiction in which it operates.

1.12 The CRA and its employees should deal fairly and honestly with issuers, investors, other market participants, and the public.

1.13 The CRA’s analysts should be held to high standards of integrity, and the CRA should not employ individuals with demonstrably compromised integrity.

1.14 The CRA and its employees should not, either implicitly or explicitly, give any assurances or guarantee of a particular rating prior to a rating assessment. This does not preclude a CRA from developing prospective assessments used in structured finance and similar transactions.

1.15 The CRA should institute policies and procedures that clearly specify a person responsible for the CRA’s and the CRA’s employees’ compliance with the provisions of the CRA’s code of conduct and with applicable laws and regulations. This person’s reporting lines and compensation should be independent of the CRA’s rating operations.

1.16 Upon becoming aware that another employee or entity under common control with the CRA is or has engaged in conduct that is illegal, unethical or contrary to the CRA’s code of conduct, a CRA employee should report such information immediately to the individual in charge of compliance or an officer of the CRA, as appropriate, so proper action may be taken. A CRA’s employees are not necessarily expected to be experts in the law. Nonetheless, its employees are expected to report the activities that a reasonable person would question. Any CRA officer who receives such a report from a CRA employee is obligated to take appropriate action, as determined by the laws and regulations of the jurisdiction and the rules and guidelines set forth by the CRA. CRA management should prohibit retaliation by other CRA staff or by the CRA itself against any employees who, in good faith, make such reports.

2. CRA INDEPENDENCE AND AVOIDANCE OF CONFLICTS OF INTEREST

A. General

2.1 The CRA should not forbear or refrain from taking a rating action based on the potential effect (economic, political, or otherwise) of the action on the CRA, an issuer, an investor, or other market participant.

2.2 The CRA and its analysts should use care and professional judgement to maintain both the substance and appearance of independence and objectivity.

2.3 The determination of a credit rating should be influenced only by factors relevant to the credit assessment.

2.4 The credit rating a CRA assigns to an issuer or security should not be affected by the existence of or potential for a business relationship between the CRA (or its affiliates) or any other party, or the non existence of such a relationship.

2.5 The CRA should separate, operationally and legally, its credit rating business and CRA analysts from other businesses of the CRA, including consulting business, that may present a conflict of interest. The CRA should ensure that ancillary business operations which do not necessarily present conflicts of interest with the CRA’s rating business have in place procedures and mechanisms designed to minimize the likelihood that conflicts of interests will arise.

B. CRA Procedures and Policies

2.6 The CRA should adopt written internal procedures and mechanisms to (1) identify, and (2) eliminate, or manage and disclose, as appropriate, any actual or potential conflicts of interest that may influence the opinions and analyses the CRA makes or the judgement and analyses of the individuals the CRA employs who have an influence on rating decisions. The CRA’s code of conduct should also state that the CRA will disclose such conflict avoidance and management measures.

2.7 The CRA’s disclosures of actual and potential conflicts of interests should be complete, timely, clear, concise, specific and prominent.

2.8 The CRA should disclose the general nature of its compensation arrangements with rated entities. Where a CRA receives from a rated entity compensation unrelated to its ratings service, such as compensation for consulting services, the CRA should disclose the proportion such non-rating fees constitute against the fees the CRA receives from the entity for rating services.

2.9 The CRA and its employees should not engage in any securities or derivatives trading presenting conflicts of interest with the CRA’s rating activities.

2.10 In instances where rated entities (e.g. governments) have, or are simultaneously pursuing, oversight functions related to the CRA, the CRA should use different employees to conduct its rating actions than those employees involved in its oversight issues.

C. CRA Analyst and Employee Independence

2.11 Reporting lines for CRA employees and their compensation arrangements should be structured to eliminate or effectively manage actual and potential conflicts of interest. The CRA’s code of conduct should also state that a CRA analyst will not be compensated or evaluated on the basis of amount of revenue that the CRA derives from issuers that the analyst rates or with which the analyst regularly interacts.

2.12 The CRA should not have employees who are directly involved in the rating process initiate, or participate in, discussions, regarding fees or payments with any entity they rate.

2.13 No CRA employee should participate in or otherwise influence the determination of the CRA’s rating of any particular entity or obligation if the employee:

a. Owns securities or derivatives of the rated entity, other than holdings in diversified collective investment schemes;

b. Owns securities or derivatives of any entity related to a rated entity, the ownership of which may cause or may be perceived as causing a conflict of interest, other than holdings in diversified collective investment schemes;

c. Has had a recent employment or other significant business relationship with the rated entity that may cause or may be perceived as causing a conflict of interest;

d. Has an immediate relation (i.e. a spouse, partner, parent, child, or sibling) who currently works for the rated entity; or

e. Has, or had, other relationship with the rated entity or any related entity thereof that may cause or may be perceived as causing a conflict of interest.

2.14 The CRA’s analysts and anyone involved in the rating process (or their spouse, partner or minor children) should not buy or sell or engage in any transaction in any security or derivative based on a security issued, guaranteed, or otherwise supported by any entity within such analyst’s area of primary analytical responsibility, other than holdings in diversified collective investment schemes.

2.15 CRA employees should be prohibited from soliciting money, gifts or favours from anyone with whom the CRA does business and should be prohibited from accepting gifts offered in the form of cash or any gifts exceeding a minimal monetary value.

2.16 Any CRA analyst who becomes involved in any personal relationship that creates the potential for any real or apparent conflict of interest (including for example, any personal relationship with an employee of a rated entity or agent of such entity within his or her area of analytic responsibility), should be required to disclose such relationship to the appropriate manager of officer of the CRA, as determined by the CRA’s compliance policies.

3. CRA’S RESPONSIBILITIES TO THE INVESTING PUBLIC AND ISSUERS

A. Transparency and Timeliness of Rating Disclosure

3.1 The CRA should distribute in a timely manner its ratings decisions regarding the entities and securities it rates.

3.2 The CRA should publicly disclose its policies for distributing ratings, reports and updates.

3.3 The CRA should indicate with each of its ratings when the rating was last updated.

3.4 Except for “Private Ratings” provided only to the issuer, the CRA should disclose to the public, on a non-selective and free of charge, any rating regarding publicly issued securities, or public issuers themselves, as well as any subsequent decisions to discontinue such a rating, if the rating is based in whole or in part on material non-public information.

3.5 The CRA should publish sufficient information about its procedures, methodologies and assumptions (including financial statement adjustments that deviate materially from those contained in the issuer’s published financial statements) so that outside parties can understand how a rating was arrived at by the CRA. This information will include (but not be limited to) the meaning of each rating category and the definition of default or recovery, and the time horizon the CRA used when making a rating decision.

3.6 When issuing or revising a rating, the CRA should explain in its press releases and reports the key elements underlying the rating opinion.

3.7 Where feasible and appropriate, prior to issuing or revising a rating, the CRA should inform the issuer of the critical information and principal considerations upon which a rating will be based and afford the issuer an opportunity to clarity any likely factual misperceptions or other matters that the CRA would wish to be made aware of in order to produce an accurate rating. The CRA will duly evaluate the response. Where in particular circumstances the CRA has not informed the issuer prior to issuing or revising a rating, the CRA should inform the issuer as soon as practical thereafter, and, generally, should explain the reason for the delay.

3.8 In order to promote transparency and to enable the market to best judge the performance of the ratings, the CRA, where possible, should publish sufficient information about the historical default rates of CRA rating categories and whether the default rates of these categories have changed over time, so that interested parties can understand the historical performance of each category and if and how rating categories have changed, and be able to draw quality comparisons among ratings given by different CRAs. If the nature of the rating or other circumstances make a historical default rate inappropriate, statistically invalid, or otherwise likely to mislead the users of the rating, the CRA should explain this.

3.9 For each rating, the CRA should disclose whether the issuer participated in the rating process. Each rating not initiated at the request of the issuer should be identified as such. The CRA should also disclose its policies and procedures regarding unsolicited ratings.

3.10 Because users of credit ratings rely on an existing awareness of CRA methodologies, practices, procedures and processes, the CRA should fully and publicly disclose any material modification to its methodologies and significant practices, procedures and processes. Where feasible and appropriate, disclosure of such material modifications should be made prior to their going into effect. The CRA should carefully consider the various uses of credit ratings before modifying its methodologies, practices, procedures and processes.

B. The Treatment of Confidential Information

3.11 The CRA should adopt procedures and mechanisms to protect the confidential nature of information shared with them by issuers under the terms of confidentiality agreement or otherwise under a mutual understanding that the information is shared confidentially. Unless otherwise permitted by the confidentiality agreement and consistent with applicable laws or regulation, the CRA and its employees should not disclose confidential information in press releases, through research conferences, to future employers, or in conversations with investors, other issuers, other persons, or otherwise.

3.12 The CRA should use confidential information only for purposes related to its rating activities or otherwise in accordance with any confidentiality agreements with the issuer.

3.13 CRA employees should take all reasonable measures to protect all property and records belonging to or in possession of the CRA from fraud, theft or misuse.

3.14 CRA employees should be prohibited from engaging in transactions in securities when they possess confidential information concerning the issuer of such security.

3.15 In preservation of confidential information, CRA employees should familiarize themselves with the internal securities trading policies maintained by their employer, and periodically certify their compliance as required by such policies.

3.16 CRA employees should not selectively disclose any non-public information about rating opinions or possible future rating actions of the CRA, except to the issuer or its designated agents.

3.17 CRA employees should not share confidential information entrusted to the CRA with employees of any affiliated entities that are not CRAs. CRA employees should not share confidential information within the CRA except on an “as needed” basis.

3.18 CRA employees should not use or share confidential information for the purpose of trading securities, or for any other purpose except the conduct of the CRA’s business.

4. DISCLOSURE OF THE CONDE OF CONDUCT AND COMMUNICATION WITH MARKET PARTICIPANTS

4.1 The CRA should disclose to the public its code of conduct and describe how the provisions of its code of conduct fully implement the provisions of the IOSCO Principles Regarding the Activities of Credit Rating Agencies and the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies. If a CRA’s code of conduct deviates from the ISOCO provisions, the CRA should explain where and why these deviations exist, and how any deviations nonetheless achieve the objectives contained in the IOSCO provisions. The CRA should also describe generally how it intends to enforce its code of conduct and should disclose on a timely basis any changes to its code of conduct or how it is implemented and enforced.

4.2 The CRA should establish a function within its organisation charged with communicating with market participants and the public about any questions, concerns or complaints that the CRA may receive. The objective of this function should be to help ensure that the CRA’s officers and management are informed of those issues that the CRA’s officers and management would want to be made aware of when setting the organisation’s policies.

June 19, 2017 Posted by pvijaykumar1978 | Uncategorized | Leave a comment

Registered Credit Rating Agencies in USA

A.M. Best Company, Inc.
DBRS Ltd.
Fitch, Inc.
Japan Credit Rating Agency, Ltd.
Moody’s Investors Service, Inc.
Rating and Investment Information, Inc.
Standard & Poor’s Ratings Services

June 5, 2017 Posted by pvijaykumar1978 | Uncategorized | Leave a comment

Registered Alternative Trading Systems in USA

Aqua Securities L.P.
Arbor Research and Trading LLC [Clarity Bid Rate Alternative Trading System]
ATS-1 [Morgan Stanley & Co. Inc.]
ATS-4 [Morgan Stanley & Co. Inc.]
ATS-6 [Morgan Stanley & Co. Inc.]
Automated Equity Finance Markets, Inc. [AQS, EquiLend Clearing Services (ECS)]
AX Trading, LLC.
Barclays ATS [LX]
Barclays DirectEx
BGC Financial L.P.
BIDS Trading, L.P. [BIDS Trading]
Bond Vision US
Brilliquid LLC [Brilliquid.com]
Brokertec [Brokertec Americas LLC]
CitiBLOC [Citigroup Global Markets, Inc.]
CITICROSS [Citigroup Global Markets, Inc.]
CODA Markets, Inc. [CODA]
Creditex Securities Corporation
Credit Suisse Securities (USA) LLC [Cross Finder]
DBOT ATS, LLC
Dealerweb, Inc. [Dealerweb]
Deutsche Bank Securities, Inc. [SuperX]
eBX LLC [Level ATS]
Electronifie [Electronifie Securities LLC]
EquiLend LLC
FixCenter, LLC
FNC AG Stock, LLC
GFI Securities LLC [CreditMatch (LATG)]
Global OTC [Archipelago Trading Services, Inc.]
HTDonline [Hartfield, Titus & Donnelly, LLC]
ICAP Trading Facility [ICAP Corporates LLC]
IDX Markets [IDX Markets, LLC]
Instinct X
Instinet Continuous Block Crossing System (CBX) [Instinet, LLC]
Instinet, LLC [Instinet Crossing, Instinet BLX]
Interactive Brokers LLC [IBKR ATS]
JPB-X [J.P. Morgan Securities LLC]
J.P. Morgan ATS (“JPM-X”) [J.P. Morgan Securities LLC]
JSVC LLC
KCG BondPoint [Knight Capital Americas LLC]
Lending Club Trading Market [FOLIO fn Investments, Inc.]
Liquidity Finance LP [Flow by Liquidity Finance]
LiquidNet Fixed Income ATS
LiquidNet H2O ATS
LiquidNet Negotiation ATS
Luminex Trading & Analytics LLC [Luminex]
Maps ECN [Marco Polo Securities Inc.]
MarketAxess Corporation Mid-X Trading System [Mid-X System; MID-X]
MarketAxess Corporation Single-Name CDS Central Limit Order Book [MarketAxess CDS CLOB]
Matchit [KCG Matchit]
MBS Source eTrading Inc. [MBS Marketplace]
Millennium [ConvergEx Execution Solutions LLC]
MTS BondsPro
MuniAxis ATS
Nasdaq Fixed Income
National Financial Services, LLC [Cross Stream]
NPM Securities, LLC
NXP [Dash Financial Technologies LLC]
OpenBondX LLC
Orchard X [Orchard Platform Markets LLC]
OTC Link LLC [OTC Link ATS]
Ouisa Capital LLC [Ouisa Capital]
POSIT
PRO Securities, LLC
REAL CADRE LLC
Shares Post Financial Corporation
SIGMA X [Goldman Sachs Execution and Clearing]
SIGMA X2 [Goldman Sachs Execution and Clearing]
Spot Quote LLC
Spread Quote LLC [Spread Zero ATS]
State Street Global Markets, LLC [BlockCross ATS]
Structured Credit Connection
TMC Bonds, LLC
Tradeweb Direct LLC
TruMid ATS
Tullet Prebon Financial Services LLC [TP CreditDeal]
UBS ATS [UBS Securities LLC]
Ustocktrade [Ustrocktrade Securities, Inc.]
Variable Investment Advisors Inc. [agstocktrade.com / Liquiditymaker.com]
Venovate Marketplace Inc.
XE [Weeden & Co. LP]
Zanbato ATS