Payments in Russia: the background for revisal 4th Ruble Forum 08 October 2008 By Anna Zolotova Head of Correspondent Banking and Development of Settlement Procedures

Contents Overview of Russian settlement system features Subjects to revisal Interim solutions MICEX Settlement House as settlement services provider Contact details of the MICEX Settlement House

Overview of Russian settlement system features The system currently in use is batch-based, having 5 batch sessions per day: Payment processing cycle for Moscow region: Tomorrow received by Bene 18:00 4th batch 16:00 payment 20:00 4th session results 20:00 4th session results Russian Correspondent Bank Beneficiary Bank Ordering Customer Beneficiary The Bank of Russia

Overview of Russian settlement system features Considerable time is taken by full payment processing cycle Most payments are processed in the 4th or the 5th sessions and, therefore received in a beneficiary bank at about 20:00 or 22:00 Moscow time respectively, which is too late in the context of liquidity management The geographic time lag for non-Russian customers aggravates the above mentioned problems

Overview of Russian settlement system features The BESP system recently introduced by the Bank of Russia is purposed to provide RTGS between its participants But There are a number of the system technical shortcomings, due to which it is still not complying general RTGS principles. At the moment (as of 22 September 2008) the system involves only 369 participants (including branches), and the biggest Russian banks are not yet live in the system.

Overview of Russian settlement system features The system uses specific format standard for payment orders : No use of code input in bank name fields (like SWIFT BIC and IBAN used in SWIFT standards) No intermediary bank field is available Only Russian language is accepted: This creates one of the biggest difficulties to non-Russian banks accessing the Russian market through their Russian correspondent banks.

Overview of Russian settlement system features There is a requirement to indicate special currency control codes for payments with a non-Russian counterparty involved: Foreign banks have to explore purposely the special Bank of Russia’s rules and regulations that specifies the relevant requirements Due to the possibility of varying interpretation of the codes description given by the Bank of Russia, foreign banks often indicate the codes incorrectly.

Overview of Russian settlement system features RECEIVED = 202 GENERAL FINANCIAL INSTITUTION TRANSFER Destination MICURUMMAXXX Session/Sequence1464/455959 date rcvd08-OCT-2008 12:10 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Originator BANKGB2LAXXX BANK LONDON,UNITED KINGDOM Session/Sequence1111/111111 date send08-OCT-2008 09:10 :20 : 111111KT111 :21 : 111111KT111 :32A : 081008 RUB 100 000 000.00 :57D : /RU0445000000.30101810700000000111 OAO RUSSIAN BANK MOSKVA :58A : /30101810111110000111 BANKRU2P :72 : /NZP/ {vo052080} //SOGL. DOG-RA N 1 //NDS NE OBLAGAETSa Currency Control Code

Subjects to revisal The regulatory normative base The current technological base and software The settlement system ideology There is no need to “reinvent the wheel”, we should use the accumulated experience of the international banking practice and further keep pace with it.

Interim solutions The Bank of Russia’s working group for development of its payment system is keeping its awareness of the above listed challenges and setting up the relevant missions The language problem solution is provided by ROSSWIFT in “SWIFT-RUR” formats, whereby the special Latin crypt should be used in a SWIFT payment order, which is further translated into Cyrillic, however this way requires significant modification of a foreign bank’s software, as well as involving of Russian-speaking staff Russian banks with wide customer base and network of domestic correspondent banks offer their customers settlements through that network using international payment standards via SWIFT/telex or client-bank system.

MICEX Settlement House as settlement services provider MICEX Settlement House is working on a technological solution that would provide a simple ruble settlement instruction input for non-Russian banks, organize STP for these settlements and offer customers real time on-line account monitoring capabilities This development is combined with an initiative for co-operation between MICEX and ICAP

MICEX Settlement House as settlement services provider To date the number of MICEX Settlement House’s customers achieved 722 organizations including the biggest Russian financial institutions and foreign banks’ subsidiaries

MICEX Settlement House as settlement services provider Settlements Safety and Reliability is achieved by the following: The MICEX SH is a financial institution specializing in settlements The MICEX SH maintains obligatory liquidity ratio at the minimum level of 100%, does not effect any investment activity thus does not carry any credit or other market risks Back-up procedures are in place for all data E-documents exchange is protected by certified encryption mechanism Alternative communications channels are provided Settlement procedures are fully automated

MICEX Settlement House as settlement services provider Main financial figures as of 01 October 2008 (in millions): Total balance – RUB 114 972 (USD 4 452) Equity – RUB 1 993 (USD 77) Funds in the Bank of Russia and correspondent accounts with prime foreign banks - RUB 114 108 (USD 4 419) Daily average turnover of correspondent account with the Bank of Russia – RUB 209 091 (USD 8 098) Daily average turnover of customers’ accounts – RUB 395 127 (USD 15 303)

Contact details of the MICEX Settlement House 1/13 Sredny Kislovsky Pereulok, building 8, Moscow 125009, Russia tel: +7 095 705 96 19, fax: +7 095 745 81 22 SWIFT: MICURUMM Теlex: 485391, 485393 MICU RU http://www.rpmmvb.ru zolotova@ch.micex.com

Thank you for your attention!