Presentation on theme: "DEVELOPMENT OF REPO WITH THE CCP. To create a mechanism to enable secured money trading To provide trading without establishing bilateral credit limits."— Presentation transcript:
To create a mechanism to enable secured money trading To provide trading without establishing bilateral credit limits by members Objectives 2
Market participants do not need to establish bilateral credit lines, one limit is imposed on the CCP Anonymous trades are available Standard discounts are employed Quick and comfortable execution of trades Online market repo rates for cash and securities backed up by orders and trades Minimization of cash and securities assigned for settlement as a result of obligations/claims netting across all repo trades with CCP Relief of the market participant’s capital (balance sheet netting of all trades) The unified and reliable risk management system (membership criteria, margin requirements, sufficient guarantee funds and CCP’s capital allow establishing a high credit limit for transactions with the CCP) Boosting the repo market’s liquidity The single counterparty for all market participants (the CCP ensures settlement of a repo trade to the non-defaulting party) Major benefits 3
The counterparty to any trade is the CCP (CJSC JSCB National Clearing Centre) Order book and off-order book (direct trades) trading modes Admitted securities: sovereign bonds (OFZs) July 2013 – 50 top liquid shares (only direct trades) Autumn 2013 –Bonds from the Bank of Russia’s lombard list rated not below BBB- (only direct trades); shares (order book trades) Repo term: one day Settlement code: Y0/Y1 (for all modes, settlement at 17:00) Т0/Y1 (only direct trades, prompt delivery under the first part of the repo trade) Y1/Y2 (only direct trades, trading hours 10.00-19.00 MSK, next day delivery at 17:00) Trading hours: 10:00-16:00 MSK Termination of obligations: 17:00 Settlement: 19:00 Major trading parameters 4
Settlement price: Settlement price for shares is calculated based on closing prices in the modes T0 and T+ Settlement price for bonds is calculated based on trading results for all bonds of a particular issuer using the model static Z-spread Market risk rate: It is determined based on the underlying security’s historical volatility Calculated repo rate: It is determined based on the market rates of inter-dealer repo trades and repo trades with the CCP executed on the previous trading day Interest risk rate: It is calculated per a security based on a repo rate historical volatility and restricted by a lowest interest risk. The Exchange sets the following parameters for each securities issue each trading day: Settlement priceMarket risk rate Calculated repo rate Interest risk rate Risk parameters 5
Interest risk: Risk associated with a possible change in the repo rate Three levels of the interest risk rate are calculated for different position sizes The market risk is determined by a net short or long position: – Market risk rate 1* – up to RUB1 bn (the position can be liquidated within a short period having no material effect on the security market price); – Market risk rate 2* – RUB1 bn - RUB5 bn (the position can be closed within few days); – Market risk rate 3* – over RUB5 bn (closing out the position can have a significant effect on the security market price). * Parameters for OFZs Risk parameters 6
Bonds: instruments traded and market risk rates 35 OFZ issues (Russian Federation Government bonds) OFZBreakdown by duration 0-11-33-55-1010-15 1 st tier OFZ3%4%6%8%10% 2 nd tier OFZ4%5.5%9%12%15% 3 rd tier OFZ6.5%8.5%13%17.5%22% 7
Book repo trades with CCP Trading mode: “Overnight repo with the CCP” Non-addressed orders Order book Order direction: “Buy/Sell”, “Sell/Buy” Limit and market orders Repo rate is traded Regular matching All book orders may be filled partially with the redundant repo amount and unsold securities residing on the order book 8
Trading mode: “Off order book repo trades with CCP” Off order book (addressed) trades Regular mechanism for filling orders Settlement codes : Y0/Y1 – delivery at 17:00 MSK, Т0/Y1 – a prompt delivery of the asset under the 1 st part of the repo trade is available (only for off book trades) Y1/Y2 (available only for off book trades, delivery is at 17:00 on the next day) Off book repo trades with CCP 9
Process for Executing Trades via the CCP ( 3) Registration of the orders (4) Matching and trade parameters determination (7) Registration of the trade ( 3) Registration of the orders (4) Matching and trade parameters determination (7) Registration of the trade (1) Order entry Participant 2 Participant 1 Trade The CCP (2) Verification of parameters and collateral sufficiency (5) Information on the trade parameters (6) Confirmation of the trade parameters
The first and second parts of a repo trade with the CCP are settled at 17:00 MSK. Clearing members have to deposit assets to the Delivery Accounts/Subaccounts by 17:00 MSK. Where there is an insufficiency of assets on the Accounts/Subaccounts, the required assets shall be transferred from the Trading accounts/Subaccounts (provided that the Trading Member has not submitted an application prohibiting withdrawal of assets from the Trading accounts). Assets due by the end of settlement process are transferred to the Delivery Accounts/Subaccounts. After settlement cash/securities are transferred to the Trading accounts/Subaccounts automatically (provided that the member has not filed a prohibiting application). Marking to market Online adjustment of the Single limit. If the Single limit is negative, the member is prohibited to enter orders entailing the lower Single limit. Daily checking to ensure collateral sufficiency and issuing Margin calls should the collateral is insufficient. Clearing members must execute Margin calls by 17:00 MSK. If a member has failed to execute the Margin call, mandatory closing out is applied. Clearing & settlement 11
12 * Calculation procedure will be given in the Clearing house’s Methodology for Guarantee fund contributions ** Launch date of this mode is under discussion Principles of admission to repo trades with CCP Market: Sector T+2Repo with CCP Clearing Member’s contribution to the Guarantee fund Execution of trades: For the account of the trading member For the account and on the instruction of clients For the account of the trading member For the account and on the instruction of clients From February 05, 2013 RUB2 mn From July 08, 2013 RUB5 mn RUB10 mn From September 02, 2013 4-6% of the average risk associated with open interest*, but no less than RUB5 mn 44-6% of the average risk associated with open interest*, but no less than RUB10 mn Only Clearing members whose own capital is more than RUB180 mn are eligible for trading in the mode “Repo with CCP – book orders”**.
1.Defaulter’s Risk Coverage Fund contribution (if available); 2.Defaulter’s Guarantee Fund contribution; 3.Defaulter’s personal clearing collateral registered by the Clearing Center; 4.Non-defaulters’ Risk Coverage Fund contributions to the extent of the Fund-covered Limit set by the Clearing Center for the Defaulter; 5.Non-defaulters’ Guarantee Fund contributions*; 6.Non-defaulters’ Risk Coverage Fund contributions*. Default waterfall Default management 13 If there are insufficient assets to fulfill obligations under the trade the mandatory closing out of positions in proportion to counterclaims is applied. * Non-defaulters’ Guarantee Fund contributions exceeding the Fund-backed Limit set by the Clearing Center for the Defaulter is used if the Defaulters’ Debt to the Clearing Center surpasses 1 (one) billion Russian roubles.
14 Disclaimer This presentation has been prepared and issued by Open Joint Stock Company “Moscow Exchange MICEX-RTS” (hereinafter referred to as the “Company”). Unless otherwise specified, the Company shall be deemed the source of all information contained in this document. Such information is presented as of the date of this document and may be changed without notification. This document is not, does not form and shall not be deemed an offer or invitation to sale or take part in subscription or an inducement to purchase or subscribe to any securities; this document or it part or the fact of its circulation does not constitute any ground either and shall neither be relied upon in connection with any offer, contract, obligation or investment decision related thereto, nor shall be deemed a recommendation regarding securities of the company. No independent assessment of the information set forth herein has been performed. This document does not contain any representations or warranties, expressed or implied, and no person should rely on information or opinion contained herein as reliable, accurate or complete. None of the Company’s employees or its subsidiaries or affiliates or their directors, officers or employees, consultants or their representatives undertake any liability (whether resulting from negligence or otherwise) directly or indirectly connected with use of this documents or otherwise arising therefrom. This presentation contains forward-looking statements. All statements contained in this presentation, save for those related to historical facts, including, without limitation, statements concerning our financial standing, business strategy, management plans and future transactions objectives are forward-looking statements. Such forward-looking statements include known and unknown risks, uncertainties and other factors which may cause our current ratios, results, achievements or production figures to differ significantly differ from those expressed or implied in such forward-looking statements, and which include, among other factors, the following: perception of market services rendered by the Company and its subsidiaries; Volatility (а) of the Russian economy and securities market and (b) highly competitive sectors in which the Company and its subsidiaries perform their activities; Changes in (a) national and international laws and tax regulations and (b) state programs related to financial and securities markets; Increase of competition on the part of new players in the Russian market; The ability to keep pace with rapid changes in the scientific and technical environment, including the possibility to use expanded functional opportunities widely used by clients of the Company and its subsidiaries; The ability to preserve continuity of the process of introduction of new competitive products and services, along with support of the competitiveness; The ability to attract new clients within the domestic market and foreign jurisdictions; The ability to increase offer of products in foreign jurisdictions; Forward-looking statements are effective only as of the date of this presentation, and we expressly waive any obligations to update or revise forward-looking statements contained in this presentation in connection with changes in our expectations or in conditions and circumstances underlying such forward-looking statements.