Current status and development of MICEX currency market Sergey Savitsky., Vice-president of MICEX 2010 October

2 Structure of MICEX currency market $10,6 billion – average daily volume on MICEX currency market on 2010

3 MICEX currency market share on the Russian OTC market (USD/RUB)

4 Spot-swap structure USD/RUB on MICEX currency market

5 MICEX currency market share on the Russian OTC market (EUR/RUB)

6 Spot-swap structure EUR/RUB on MICEX currency market

Perspective trends of MICEX currency market 1. Two-level access scheme to FX MICEX trade 2. Organization of CNY/RUB trade on MICEX currency market 4. New risk-management system on MICEX currency market 7 3. Adaptation of MICEX currency market to conditions of the raised influence on volatility by trading program complexes (robots)

Two-level access scheme to FX MICEX trade National clearing center Client deals MICEX trade system Market participant Trade information orders Market participant

9 Market participant can take upward of one registration code. Additional registration code can be used for operations on behalf of bank and at the expense of the client. Market participant can take only one registration code for one client. Market participant responsible for his obligations to MICEX/NCC. Two-level access scheme to FX MICEX trade: conceptual issues of the project Counter orders could be matched: orders of bank and it’s client; orders of bank’s clients. For every registration code: reports of payment obligations are compiled; settlements are accomplished after clearing procedure; depositing money resources are considered. After 25 October 2010 banks will be afforded an opportunity to give an access to FX MICEX trade to their clients.

10 Organization of CNY/RUB trade on MICEX currency market - instrument – CNYRUB_TOD; - instrument lot – 1000 CNY; - exchange rate – n RUB for 10 CNY; - trades time – 10:00-11:00 (Moscow time); - 100% depositing of funds; - it is intended to effect settlements in CNY via a commercial bank-resident of Russian Federation. Terms of CNY/RUB trades: Current development of bilateral relations between Russia and China offers favorable conditions for the creation of initial liquidity of trading in. The creation of a new instrument CNY/RUB on MICEX currency market is a promising strategic area of development. Its goals are : - determining direct exchange rate of CNY/RUB; - providing banks and businesses with CNY and RUB liquidity for the purpose of using Russian and Chinese national currencies in cross-border payments.

11 Adaptation of MICEX currency market to conditions of the raised influence on volatility by trading program complexes (robots) - creating a mechanism for setting a hold-on period to support orders entered by robots in the trading system during a certain period of time; - decreasing the accuracy of the quotation; - increasing minimum lots for instruments of MICEX currency market. The following approaches can help to reduce the influence of robots on market volatility and improve the transparency of MICEX currency market for participants that do not use robots: Banks’ use of specialized trading software complexes in trading on currency markets (including MICEX currency market) is a global trend. On the one hand, this leads to an increase in market liquidity, On the other hand, this leads to increase in the volatility of exchange rates.

12 New risk-management system on MICEX currency market (New RMS): main principles Unified collateral in USD, EUR and RUB for trading instruments of currency pairs USD/RUB, EUR / RUB and EUR/USD; extending the limit of net operations to trading in currency pairs EUR/RUB and EUR/USD. Portfolio approach: exchange rate risks for all transactions concluded on MICEX currency market are assessed jointly. Opposite positions are evaluated based on the price of swap. Unified position in rubles and foreign currencies. A participant’s final obligations for USD, EUR and RUB will be the same for all instruments with TOD settlement date. Following the results of trading, participant will receive a certificate with unified final obligations for USD, EUR and RUB. Assets pledged as collateral are registered at discount. Adaptive rate of collateral may change during and after trading, considering changes in the volatility.

13 New RMS: principles In the course of trading or at the end of trading in instruments with TOM settlement date, central rates and borders of the price range are determined, after which the «mark to market» procedure takes place. After the «mark to market» procedure, a participant may be sent a «margin call» in the case of insufficient collateral. Participant may execute the «margin call» till 16:00 on T+1 day in three ways: - by transferring additional collateral to NCC; - by performing requirements/obligations for TOD instrument; - by reducing the position in TOD instrument in trading. If the participant fails to execute the «margin call», its position will be forcibly closed by NCC. Changing the additional session: - if a participant fails to perform its obligations, exchange rate risks will be closed in the market; - shortage of liquidity will be covered either from NCC’s own funds or involving the Bank of Russia.

14 New RMS: working with participants in tarding For participants, launch of new RMS will mean the following changes: - changes in the interface of the participant’s workplace; - changes in the algorithm of settlements: participants will have to respond to «margin calls»; - changes in reporting documents (exchange certificates). To adapt participants to innovations, in January, MICEX intends to launch test stand that will feature fully functional model of trading and clearing system MICEX currency market with the new RMS. Basing on the analysis of participants’ readiness, MICEX will decide on the final launch of new RMS. Participants will be able to adapt their programs to new RMS. Software vendors will be sent requirements regarding the improvement of their software.

Address: 13, B. Kislovsky Per., Moscow, Telephone: (495) (495) Contacts 15