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

Among securities, a significant segment of the market received such a tool as GKOs. 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 this abbreviation - the State Defense Committee of the USSR, the decipherment of which has nothing to do with the world of finance and means the 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 nominal value was raised to one million rubles quite quickly.

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 redeemed 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 an auction in the secondary market or at their initial placement.

Who can buy short-term government bonds?

Individuals and legal entities can be GKO holders. 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 state short-term bonds of state short-term bonds authorized to conduct all transactions with them only through dealers, which are the major 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 a 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 decoding of the name of this financial instrument, as we have already mentioned, is "state short-term bonds". Therefore, they were released on short terms at twelve, six and three months. In 1997, the issuer (the Ministry of Finance of the Russian Federation) changed the structure of the issuances of such instruments as short-term bonds, leaving only six months and twelve months in circulation. Since the GKO, whose decoding focuses on short terms of operation, are 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 volume 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 and regular 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 to cover more than fifty percent of the federal budget deficit. In the ninety-sixth year, proceeds from the cycles of emissions of short-term bonds amounted to more than fifty trillion rubles.

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

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

• The Ministry of Finance of the Russian Federation (Russian Federation), which is the issuer and determines the price of primary placement of bonds at auctions, forms a weighted average price, and also affects the volumes of output.
• The Central Bank of the Russian Federation (Russian Federation), which is an authorized agent of the Ministry of Finance for the 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, a professional participant of trades that has concluded a contract with the Central Bank of the Russian Federation, which services operations with state short-term bonds. 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 issue, 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 to maintain the required custodial actions for short-term bonds).