Moscow, 11Feb10National Foreign Exchange Association, Russia 1 RUB on global markets and in Russia in 2009 Dmitry Piskulov, Ph.D. (Econ.) Chairman of the Committee for Professionalism; ICAP, Senior Adviser

What RUB markets? Mainly OTC markets: interbank, less between Investment firms On-shore (within Russia) + off-shore (outside Russia) = Global RUB markets RUB Instruments: Foreign exchange (cash TOD,TOM) swaps + outright forwards Interbank deposits Derivatives (NDFs, IRS, CCS, FRA) OTC Equities (potentially for non-residents) Moscow, 11Feb10National Foreign Exchange Association, Russia 2

Where RUB markets? Main locations: Russia (Moscow, St.Petersburg): cash (spot) FX UK (London) + Europe: RUB FX and IR derivatives USA (NY) Asia (Tokyo, HK, Dubai) Main participants: -Banks -Investment companies -Institutional investors (hedge funds) Moscow, 11Feb10National Foreign Exchange Association, Russia 3

Moscow, 11Feb10 National Foreign Exchange Association, Russia 4 Why RUB markets important Plans of Russian political and economic authorities: Concept of Moscow as International Financial Center (adopted) to compete with Dubai, Shanghai, Mumbai; Strategy of development of Russian financial market till 2020 – focus on securities, forwards and derivatives instruments, clearing infrastructure: RUB to become international (regional) reserve currency Shortcomings of above programs: Focus on the securities markets Negligence of RUB settlements Access for foreigners?

Russian on-shore FX mkt 2007 RankCountry2007 ADT, $ bln.Share of global % 1United Kingdom1, % 2USA % 3Switzerland % 4Japan % 5Singapore % 6Hong Kong SAR % 7Australia % 8France % 9Germany992.5 % 10Denmark862.2 % 11Canada601.5 % 12Russia501.3 % 13Belgium481.2 % Moscow, 11Feb10 National Foreign Exchange Association, Russia 5

Moscow, 11Feb10National Foreign Exchange Association, Russia 6 Domestic FX market in Sep 09 Domestic OTC market average daily turnover (ADT) in bln. US$ by BIS methodology (Bank of Russia) Total ADT, US$ bln. of them: CCY /RUB Cross-border of CCY/RUB FX spot$27.8$ 22.0$11.6 Outright forwards $0.66$ 0.49$0.28 FX swaps$19.7$ 14.3$5.3 Total:$48.3$31.6$13.0 FX options$0.09$0.07$0.04

Moscow, 11Feb10National Foreign Exchange Association, Russia 7 Crisis on FX interbank markets FX average daily turnovers dropped globally in 2008 but began to rise by end of 2009 MonthUK marketRussian market* Apr 08$ 1,696 bln. Jul 08$119 bln. Apr 09$ 1,269 bln.$53.7 bln. Oct 09$ 1,549 bln.$ 54.2 bln. Change %- 8.7%-54%

Moscow, 11Feb10National Foreign Exchange Association, Russia 8 RUB markets outside Russia Turnover: $11-12 bln. daily (FX, MM, IRD) Link Moscow-London (transactions done in Moscow in the name of London HO) Number of banks (dealing codes) ( according to ICAP EBS: banks that entered RUB SSI) Active: 50 (already dealt in EBS) Potential: 140 (entered RUB SSI in EBS) Increase in participants and thus global volumes subject to settlements solution!

RUB instruments outside Russia More RUB derivatives than cash products FX swaps FX spot NDFs Outright forwards Interest rate swaps (IRS) FX options Cash deposits Currency swaps (incl. CCS) Forward rate agreement (FRA) Moscow, 11Feb10National Foreign Exchange Association, Russia 9

RUB FX in London Source: UK FXJSC semi-annual survey, January 2010 Moscow, 11Feb10National Foreign Exchange Association, Russia 10 Oct 08Apr 09Oct 09 Percentage of RUB in total UK FX 0.7% USD/RUB turnover$10.9 bln.$8.6 bln.$10.8 bln. Rank of RUB Total ADT of UK market, $bln. $1699 bln.$1356 bln.$1549 bln

Volumes of RUB FX instruments in London InstrumentsApr 2009Oct 2009 FX swaps$4.0 bln$6.1 bln FX spot:$1.8 bln NDF$1.2 bln.$1.3 bln. FX options$0.5 bln$1.2 bln Outright forward$0.9 bln$0.3 bln Ccy swaps$0.14 bln$0.1 bln Total:$8.6 bln$10.8 bln Moscow, 11Feb10National Foreign Exchange Association, Russia 11 UK FXJSC: Average daily volumes in 2009

Global banks RUB trading Global banks – main promoters of RUB instruments RUB FX pricing and execution hub location: struggle between Moscow and Head office:  in London: 30%  in Moscow: 60%  other (NY,Tokyo, Vienna, Helsinki, Dubai, Hong Kong): 10% Moscow, 11Feb10National Foreign Exchange Association, Russia 12

Moscow, 11Feb10National Foreign Exchange Association, Russia 13 Prospects of RUB as international currency Infrastructural prerequisites for global RUB trading (tasks for Russian authorities, CBR): 1.Promotion of RUB instruments in global electronic trading platforms (such as EBS, Reuters, Bloomberg etc.) 2.To remove obstacles in RUB clearing and settlements for international participants: - RTGS (BESP of CBR) - CLS Bank clearing currency (next ZAR, MXN) 3. Monitor RUB global trading volumes

Moscow, 11Feb10 National Foreign Exchange Association, Russia 14 About NFEA Established: October 1999 in Moscow as non-commercial organization; Membership: legal entities (local and global banks and brokers) working on/related to Russian spot/forward foreign exchange and money markets. Management: the Board (28 market practitioners), 4 co-chairmen, 3 Committees (on Market Indices; for Professionalism, Ethics & Education; on Legal Affairs) Projects up to date: – , 2006: Elaboration of Standards (Code of Conduct and Rules to Conduct Operations (Committee for Professionalism, Ethics & Education), –Market indices: MosIBOR (2001, RUR interbank % rates), RIBER (2004, USD/RUB), MosPrime Rate (2005, RUB money market reference rate) Projects in progress: -NFEA FX SWAP RATE – new index for USD/RUB and EUR/RUB forwards -Standard Documentation on Russian OTC derivatives transactions (Russian analogue of ISDA Agreement) – completed in Legal documentation on syndicated loans; International cooperation and working contacts: -ACI-The Financial Markets Association -ISDA (inclusion of MosPrime rate into ISDA definitions 2006)

Moscow, 11Feb10National Foreign Exchange Association, Russia 15 Contact Details 13 Bolshoy Kislovskiy Per., Moscow, , Russia, Tel.+7 (495) , Fax: +7(495) The Copyright National Foreign Exchange Association, All rights reserved. Any reproduction is only permitted with prior consent of NFEA.