GKO: interpretation of the abbreviation, history and application of this financial instrument

Among securities, a significant segment of the marketreceived such an instrument as T-bills. What it is? What hides this abbreviation - GKO? The decoding of this word means "state short-term bonds". What are they needed for?

By the way, there is one more variant of the interpretation of thisabbreviations - "GKO USSR", the decipherment of which has nothing to do with the world of finance and means "State Defense Committee of the Union of Soviet Socialist Republics". It will not be about this, namely bonds.

Initial Release

What is GKO? The interpretation of this term implies that these papers were a prototype of bills that exist in the United States of America. State short-term bonds were issued on the territory of the Russian Federation in May 1993. Their role was to cover the deficit of the state budget. Since these securities in the financial system are classified as short-term, it is logical that they can not be used for long-term investments. The first issue of government short-term bonds (T-bills) was ten thousand rubles in nominal value, however, the face value was raised quite quickly to one million rubles.

Income from bonds

What is GKO and what is their income? The investor makes a profit by selling government short-term bonds at various auctions at a price that is below the nominal (with a discount). These securities can be repaid at face value by transferring money to the owner's account in a non-cash form. The income in this case is the difference between the price for the purchase of T-bills and their nominal value at the auction in the secondary market or at their initial placement.

Who can buy short-term government bonds?

Individuals and legal entities may beowners of T-bills. However, the participation of individuals in the market for the turnover of these bonds is hindered by some purely technical reasons. The first issue of government short-term bonds of state short-term bonds authorized to conduct all operations with them only through dealers, which are large financial companies and banks. In most cases, they are not interested in cooperating with private capital. Many banks and financial enterprises set certain limits on the amount of funds that investors need to conduct transactions with bonds through the dealer. At the beginning of the ninety-seventh year, this amount was in the range of three hundred to five hundred million Russian rubles.

History of issues

What does the term GKO mean? The interpretation of the name of this financial instrument, as we have already mentioned, is "state short-term bonds". Therefore, they were released for a short period of time at twelve, six and three months. In 1997, the issuer (the Ministry of Finance of the Russian Federation) changed the structure of the issuance of such a tool as short-term bonds, leaving only six months and twelve months in circulation. Since the GKO, whose decoding focuses on short terms of validity, is issued in alternating series, the issuer has the opportunity to systematically repay previously issued series by issuing new ones. These bonds are zero-coupon, so the investor can buy them at a price below the nominal. When the series is placed, the volumes of issues at par value should be higher by the discount value that was established during the auction sale of these securities.

Action by the Ministry of Finance on short-term bonds

The Ministry of Finance of the Russian Federation conducts frequent andregular issues (issues) of T-bills. The decipherment of this abbreviation includes the word "state", since it is to the budget that proceeds from the sale of these assets. Owing to the policy of frequent issues, short-term bonds are converted into long-term bonds by such simple methods, since the state always has a certain amount of borrowing. For example, already in the ninety-fifth year, from the sale of state short-term bonds, net receipts to the budget amounted to almost thirty trillion rubles. This allowed us to cover more than fifty percent of the federal budget deficit. In the ninety-sixth year, the proceeds from the cycles of short-term bond issues amounted to more than fifty trillion rubles.

Who are participants of the short-term bonds turnover market?

The abbreviation GKO, the decoding of which we considered above, has a wide range of market participants. The main subjects are:

• Ministry of Finance of the Russian Federation (Russian Federation),which is the issuer and determines the price of initial placement of bonds at auctions, forms a weighted average price, and also affects the volumes of issue.
• The Central Bank of the Russian Federation (Russian Federation),who is an authorized agent of the Ministry of Finance on issues of placement of T-bills. Also, the Central Bank of Russia conducts and organizes auctions for the initial placement of bonds, participates in secondary auctions, operates with securities in open markets.
• The dealer, that is, having concluded a contract with the Central Bank of the Russian FederationA professional participant of trades that serves transactions with GKOs. A dealer can either conclude deals at his own expense, or be a broker, performing transactions on behalf of his clients.
• An investor, that is, a physical and / or legal entity that is not a dealer and acquires state short-term bonds on the basis of a contract concluded with a certain dealer.
• Depositaries. T-bills, the decoding of which implies a non-cash form of issuance, possess a two-level system that consists of a sub-depository (in fact, it is a dealer) and the head depository (an organization that concluded an agreement with the Central Bank of the Russian Federation for the maintenance of the required custodial activities for short-term bonds).