RUSSIA' S INFRASTRUCTURE ADVANCES (part 1)
Chairman of the Executive Board,
National Settlement Depository
Would you please tell us in a few words about the key elements of Russia's securities market infrastructure following recent changes?
Under the new Moscow Exchange brand we have integrated the National Settlement Depository (NSD), the Depository Clearing Company and the RTS Settlement Chamber, creating a de facto CSD, and the adoption of the CSD Law ensuring a legislative framework for future changes.
"Recent years have seen substantial developments in Russia's financial market infrastructure. The merger of the two major exchanges, RTS and MICEX, to form the Moscow Exchange Group, paved the way for subsequent integration of the post-trade infrastructure. "
In November 2012, the Federal Financial Markets Service of Russia (FFMS) awarded NSD status to the CSD, launching a new era in the Russian financial market's history. The new CSD - the result of 15 years of debate in Russia - is the core of the infrastructure and the new model gives multiple advantages. The CSD is a recognised and optimal form of investor access to financial markets. The most important thing is that it protects investors’ ownership rights.
What are the main achievements to date? And what remains to be done?
The NSD started to provide full-scale CSD services when it was granted NSD status rather than go through the 12-month transition period prescribed by the law. One of the key objectives was to arrange massive transfers of assets from registrars to the CSD in March 2013 and open or, to put it more precisely, to re-qualify CSD nominee accounts, with registars. As a result, in 1Q 2013, the value of assets on deposit with NSD increased from RUB12 trillion to RUB17.3 trillion; the value of shares on deposit doubled compared to the value kept by the NSD and DCC combined as of the end of 2012.
The first foreign nominee accounts were opened for the ICSDs: Euroclear Bank and Clearstream Banking. Euroclear Bank and Clearstream Banking have begun providing settlement services for trading in Russian OFZs, one of the most actively traded classes of Russian government bonds. We expect on-exchange transactions to follow. At the Exchange Forum 2013 held in Moscow early in April, the NSD signed CSD foreign nominee account agreements with Belarus Central Securities Depository, the Central Securities Depository of Kazakhstan, and the National Depository of Ukraine. These direct links with NSD will potentially allow issuers from CIS countries to place their securities on the Russian exchange, while CIS investors will be able to conduct operations on our market, provided that the assets are kept in the Belarus Central Securities Depository, the Central Securities Depository of Kazakhstan and the National Depository of Ukraine respectively. Similarly, NSD accounts opened with the above depositories give Russian investors the opportunity to effect transactions on the stock markets of Belarus, Kazakhstan and Ukraine, while keeping their CIS assets in Russia's NSD.
The creation of a trade repository is another strategic NSD project; the initial phase began on February 6 when the NSD began keeping a register of repo and OTC currency swap agreements. During a promotion period which lasts until October 31 this year, the NSD will not charge commission for repository services; this allows all participants to test the new technologies, solve operating and organisational issues, adapt their software and become comfortable with the repository at no additional expense. We plan to include other new services, including an expanded range of financial instruments, the receipt of information about transactions in different formats, and operational interactions with international trade repositories.
Finally, on April 15, NSD launched a new service related to the Bank of Russia’s OTC tri-party repo transactions with a basket of securities and collateral management, clearing and settlements. The new technology will allow the optimisation of collateral selection for repo transactions, the replacement of securities and the automatic replacement of collateral prior to corporate actions, and to hold margining on the pool of all transactions.
This will improve market liquidity and reduce the cost of carrying out repo transactions with the Bank of Russia. Collateral management, trade repository and DVP for OTC trades are our highest priority development projects for implementation in the near future.
“Collateral management, trade repository and DVP for OTC trades are our highest priority development projects for implementation in the near future.”
Will the NSD achieve recognition from international investors?
The CSD law was designed to meet the requirements of international investors. It sets out clear rules ensuring undoubted protection of assets and settlement finality. Full compliance with both SWIFT messages and the requirements of Rule 17(f)-7 of the Investment Company Act of 1940 is especially important to US fund managers and pension funds that can bring liquidity to Moscow. We are confident that our reconfigured system complies absolutely with the definition “eligible”. To confirm our confidence with recognisable independent opinion, we hired legal experts from Morgan Lewis and K&L Gates, well known and respected US legal firms which provide services to the leading US investment companies. Their expert opinion confirms that the Russian CSD law indeed meets all requirements. Perhaps more importantly as a sign of global recognition, we have received positive feedback from custodian and investment banks, CSDs and the ICSDs that Russia's securities market infrastructure now matches international legal and business standards
- The merger of the two major exchanges (MICEX & RTS) to form the Moscow Exchange Group paved the way for subsequent integration of the post-trade infrastructure.
- The National Settlement Depository (NSD), the Depository Clearing Company and the RTS Settlement Chamber, were integrated to create a de facto CSD and adopted the CSD Law.
- FFMS in Russia was awarded NSD status in November 2012 and the NSD began to provide full-scale CSD services
- In Q1 2013, the value of assets on deposit with NSD increased from RUB12 trillion to RUB17.3 trillion
- In April 2013, the NSD signed CSD foreign nominee account agreements with CIS countries
- The creation of a trade repository is another strategic NSD project
- A new service was launched in April related to the Bank of Russia’s OTC tri-party repo transactions with a basket of securities and collateral management, clearing and settlements.
- Expert opinion confirms that the Russian CSD law indeed meets international investor requirements.