Repo with the CCP (Risk Management System) December 04, 2012 Moscow Sergey Gorbachenko Head of Clearing CJSC JSCB National Clearing Centre

Main Principles of the Risk Management System 2  Collateral needed to cover a Clearing member’s positions (the Single limit) is estimated based on the online evaluation of market and interest rate risks as well as marking to market of such positions.  The worst alternative, i.e. that one with the lowest level of position coverage is chosen taking into account entered orders.  Assessment ranges for market and interest rate risks for each security is computed based on historical simulation with exponential weighting.  In order to consider the concentration risk 3 levels of market and interest rate risks corresponding with increased collateral requirement for increasing position are applied.

Concentration limits 3 Limit 1 Position size Collateral requirement Concentration limits:  applied to consider the concentration risk associated with positions.  are determined for market and interest rate risks (3 levels). Limit 2 Prohibitive level Increased level Standard level

Risk parameters 4 Term Security price Repo trade price Calculated price Lower Limit Upper Limit Calculated repo rate risk One day Risk parameters:  the calculated price (of shares and bonds that involved into trades with partial collateral): for shares – closing price on the spot market; for bonds – the comparative method (static Z-spread).  the calculated repo rate (the weighted average repo rate or the Repo rate indicator).  Market risk rate and interest risk rate (method of adaptive rates with predefined level for confidence probability and estimation horizon).  Upper and Lower limits of the Assessment range for market and interest rate risks (using the relevant Risk Rates).

Time Table for the Risk Parameters Calculation 5 Calculated price Time Price Upper Limit Lower Limit 10:0019:0023:5010:00 Number of changes is restricted as per the FFMS’s regulatory act (concerning trading suspension Calculation of risk parameters for the next day for the next day After hours trading Global markets News Calculated Price Upper Limit Lower Limit Possible change in risk parameters

Time Table for the Risk Parameters Calculation 6 Time Calculation of risk parameters for the next day for the next day 10:0010:0010:0010:0010:00 Monday TuesdayWednesday ThursdayFriday Public Holiday in the Russian Federation Changes in risk parameters are possible are possible (reduction of collateral requirements)

Life Circle of a Trade 7 Lower limit of the market risk assessment range, [RUB/security] Calculated price, [RUB/security] Upper limit of the market risk assessment range, [RUB/security] Security’s risk parameters: Securities [units]Cash [RUB] Obligations (T+2) Collateral026 Net position Single limit-10*12+126=6 Parameters of the trade: Settlement date: T+2 ( ) Direction: sell Number of securities: 10 Price: RUB10 per security Trading day on Clearing member’s positions after the trade: Interest rate risk and the concentration limits are not included in calculation of collateral (the Single limit) in this example for clarity

Life Circle of a Trade 8 Lower limit of the market risk assessment range, [RUB/security] Calculated price, [RUB/security] Upper limit of the market risk assessment range, [RUB/security] Security’s risk parameters: Securities [units]Cash [RUB] Obligations (T+2) Collateral026 Net position Single limit-10*13+126=-4 Trading day on (10:00) Clearing member’s positions: The Single limit of the Clearing member is < 0. Collateral is insufficient. At 10:00 the Margin call containing the demand to recover position coverage by 17:30 is send to the Clearing member.

Life Circle of a Trade 9 Lower limit of the market risk assessment range, [RUB/security] Calculated price, [RUB/security] Upper limit of the market risk assessment range, [RUB/security] Security’s risk parameters: Securities [units]Cash [RUB] Obligations (T+2)+5-60 Obligations (T+1) Collateral026 Net position-5+66 Single limit -5*13+66=1 Trading day on (17:30) Clearing member’s positions after the trade: The Margin call has not been executed by the Clearing member. Market risk associated with the Clearing member’s positions are to be satisfied mandatory. After the mandatory satisfaction the Single limit is >0 and collateral is sufficient. Parameters of the trade to be closed out mandatory: Settlement date: T+2 ( ) Direction: buy Number of securities: 5 Price: 12 RUB/security

Life Circle of a Trade 10 Lower limit of the market risk assessment range, [RUB/security] Calculated price, [RUB/security] Upper limit of the market risk assessment range, [RUB/security] Security’s risk parameters: Securities [units]Cash [RUB] Obligations (T+2)+5-10=-5-60+(10*90)-(10*0,2)=28 Obligations (T+0)-10+10=0+100-(10*9)=+10 Collateral026 Net position-5+64 Single limit -5*13+64=-1 Trading day on (17:00) Clearing member’s positions after the trade: There is an insufficient amount of assets for settling matured trade (there is a shortage of securities). A repo trade under which the obligations are rolled over to the next day should be executed with the Clearing member. Repo trade parameters: Term: one day Direction: buy/sell Number of securities: 10 Haircut: RUB2,Price: -0.2 RUB/security

Life Circle of a Trade 11 Lower limit of the market risk assessment range, [RUB/security] Calculated price, [RUB/security] Upper limit of the market risk assessment range, [RUB/security] Security’s risk parameters: Securities [units]Cash [RUB] Obligations (T+2)-5+28 Obligations (T+1)00 Collateral036 Net position-5+64 Single limit -5*13+64=-1 Trading day on (17:00) Clearing member’s position: The obligations termination procedure resulted in that RUB10 were credited to the cash account of the Clearing member, as: on it sold 10 securities for RUB10 each, on it bought 10 securities for RUB9 each.

Life Circle of a Trade 12 Lower limit of the market risk assessment range, [RUB/security] Calculated price, [RUB/security] Upper limit of the market risk assessment range, [RUB/security] Security’s risk parameters: Securities [units]Cash [RUB] Obligations (T+0)-5+28 Collateral536 Net position0+64 Single limit6464 Trading day on (10:00) Clearing member’s position: The Clearing member transferred 5 securities to the Collateral section

Life Circle of a Trade 13 Lower limit of the market risk assessment range, [RUB/security] Calculated price, [RUB/security] Upper limit of the market risk assessment range, [RUB/security] Security’s risk parameters: Securities [units]Cash [RUB] Obligations (T+0)00 Collateral064 Net position0+64 Single limit6464 Trading day on (17:00) Clearing member’s position: The obligations termination procedure resulted in that 5 securities were debited from the Collateral section of the Clearing member while RUB28 were credited to its cash account.

Zero Coupon Yield Curve 14 NoBondState Registration Number 1OFZ RMFS 2OFZ RMFS 3OFZ RMFS 4OFZ RMFS 5OFZ RMFS 6OFZ RMFS 7OFZ RMFS 8OFZ RMFS 9OFZ RMFS 10OFZ RMFS 11OFZ RMFS 12OFZ RMFS 13OFZ RMFS 14OFZ RMFS 15OFZ RMFS 16OFZ RMFS 17OFZ RMFS 18OFZ RMFS 19OFZ RMFS 20OFZ RMFS 21OFZ RMFS Zero Coupon Yield Curve Base, effective from The Zero Coupon Yield Curve (G-curve) calculated by the Moscow Exchange is determined on the basis of trades in government bonds. It used as a benchmark for risk-free borrowing costs on the Russian debt market. The G-curve is a continuous representation of interest rates against a term that is applied to set prices for debt instruments and manage interest rate risks. The G-curve is computed on a real time continuous basis during the trading sessions as trades in bonds included into the curve’s base are executed. Zero Coupon Yield Curve ZCYC

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