Russian derivatives regulations – developments and remaining challenges Andrei Murygin Partner 10 September 2013

1 Repositories – reporting and close-out netting ―NSD and NP RTS announced availability of reporting facilities for repos and FX swaps – reportable from 5 November 2013 ―Impact: close out netting will become available for repos and swaps ―Announcement of reporting facility for DFIs and “other agreements involving securities and foreign currency” expected before November 2013 ―Works as extension of transition period for reporting of derivatives and spot trades until July 2014 ―Close out netting for derivatives will effectively be postponed too, unless both parties agree to report before statutory obligation arises ―Foreign banks’ reporting obligation – applicable?

2 Collateral ―“Contracts for payment of floating margin amounts” are included in the basic DFI list in the 2011 Russian Master Derivatives Documentation; ―2011 Form of Margin Agreement - collateral is treated as a separate derivatives transaction ― FSFM proposes adding Credit Support Agreements into the list of DFIs ―Improves chances of inclusion of collateral in Close out Amount; ―Does it improve enforceability of collateral in the absence of statutory recognition of margin payments in the SML? ― Civil Code or SML changes necessary: timing unclear

3 Curing discrimination of foreign players - Civil code changes needed ― Article 1062 (2) : change is needed to ensure equal protection of derivatives with non-Russian professional counterparties ―November 2012 – Duma indefinitely postponed the proposed changes to the Civil Code ―Timing of such changes is uncertain

4 Court practice – adverse cases ―Unicredit case – 2013 repeat case of 2012 loss ―Easy fix: specific termination clauses can be dealt with in the documentation ―Larger impact: unpredictable interpretation of international-style provisions of Russian and ISDA derivatives documentation ―VAS discussions of possible clarifications on derivatives ―Possibility of adding termination if a professional party acted in bad faith ―Possibility of professional party’s disclosure obligation and suitability tests

5 Questions ?