Bank National Clearing Centre

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Bank National Clearing Centre
2009
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National Clearing Centre (NCC)

• NCC was established on October 24, 2005, as a
  closed joint-stock company
• NCCs shareholders are
• Moscow InterbankCurrency Exchange, 99.729
• National Depository Center, 0.271
• The shareholders equity
• The shareholders equity is 1,735 billion rubles
  ( EUR 49 million).
• The shareholders equity plus retained earnings
  as of March 1, 2009, are 2,311 billion rubles.

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NCC in the MICEX Group
MICEX

• Organization of trade foreign currency,
  government securities, bonds, derivatives.
• Clearing in government securities markets, stock
  and futures markets)
• Technological project support and development of
  new IT products

NCC
National Mercantile Exchange

• Government intervention inthe grain market
• Trade petroleum products, grain

• Clearing operations and trade results settlements

MICEX Settlement House
MICEX Stock Exchange
NDC

• Organization of trade in stocks, corporate
  andmunicipal bonds,units in mutual funds,
  futures

• Funds transfer

• Depository operations

Regional currency and stock exchanges
Saint Petersburg
Yekaterinburg
Samara
Nizhni Novgorod
Novosibirsk
Rostov-on-Don
Vladivostok
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NCCs Operating Principles

• NCC operates as the central counterparty
• control of executed transactions
  collateralization
• control of fulfillment of obligations based on
  PVP principles
• ongoing maintenance of NCCs liquidity, including
  liquidity suppliers engagement
• NCC takes risks associated with possible failure
  by clearing participants to fulfill their
  obligations

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Basic Elements of NCCs Risk Management System

• Limitation of traded instrument price
  fluctuations
• Preliminary depositing of participants funds
• Availability of guarantee funds
• Fixing of various types of limits
• Setting requirements for the clearing
  participants financial standing and control over
  it
• Mechanism for the substitution of an unfair
  participant by the Bank of Russia
• MICEXs 2.6 billion ruble guarantees
• NCCs capital

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From December 10, 2007,National Clearing Centre
operates as the central counterparty in the MICEX
FX market
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NCC TODAY

• NCCs total balance as of March 1, 2009, is 707,3
  billion rubles
• USD- and EUR-denominated account balance as of
  March 1, 2009, in the ruble equivalent exceeds
  239,3 billion rubles
• The total number of clearing participants is 429
• 239 banks participate in the USD 4,7 million
  Risk Covering Fund
• The shareholders equity plus retained earnings
  are 2,311 billion rubles, including 1,735 billion
  rubles of the shareholders equity
• licensed to provide clearing services for
  securities market transactions
• licensed for banking operations

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Correspondent Banks

• JPMorgan Chase Bank, New York
• The Bank of New York, New York
• Deutsche Bank Trust Company Americas, New York
• JPMorgan AG, Frankfurt/Main
• Deutsche Bank, Frankfurt/Main
• VTB (Germany), Frankfurt/Main

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NCCs Regional Settlement Diagram
Nizhni Novgorod
Saint Petersburg
Novosibirsk
Vladivostok
Moscow
Samara
Yekaterinburg
Rostov-on-Don
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Development of NCCs Clearing Operations

• Introduction of the central counterparty in the
  REPO government securities market
• Upgrading of risk management system
• Broadening the range of services provided
• Extension of clearing to other financial market
  segments

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NCC in the REPO Government Securities Market

• NCC operates as the central counterparty
• Deals are concluded under the following terms
• full or partial preliminary collateralization for
  the first part of repo
• partial preliminary collateralization for the
  second part of repo
• Repo deals are concluded upon matching of
  dealers requests and confirmations from NCC
• The first and second parts of repo deals are
  settled upon transaction settlement requests
  received from dealers and NCC

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Improvement of Risk Management System in the FX
Market

• Setting of the exchange rate fluctuation limits
  and preliminary depositing standards depending on
  the external market situation adjusted for the
  current composition of two-currency basket
• - symmetric increase of the exchange rate
  fluctuation limits with respect to the central
  rate of the current trading day and a
  proportionate increase in preliminary depositing
  standards
• - non-symmetric setting of the exchange
  rate fluctuation limits with respect to the
  central rate of the current trading day towards
  the external market trend without changing
  preliminary depositing standards.
• Increase of the Risk Covering Fund amount
• Setting of various modes of operations performed
  by trade participants depending on the assessment
  of the current market volatility and the status
  of their open positions
• Insurance of the NCC operational risks
• Extension of Risk Management System to various
  financial market segments
• Establishing of the Risk Committee and arranging
  of its functioning

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Modes of Operations

• A participant will have the opportunity to
  operate depending on the assessment of the
  current market volatility and the status of his
  open market positions
• Basic mode the participants operations are not
  limited, for collateral fully covers potential
  exchange rate risks associated with his
  positions
• Limited mode with the scale of the participants
  potential losses reaches the amount of
  collateral, the participant will have the
  opportunity to operate only for closing the
  existing positions
• Position close-out mode if the participant fails
  to allocate collateral or its amount is not
  sufficient, the participants operations are put
  on hold and his position is closed out during the
  trading session.

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NCCs Services Development

• Setting the limits of EUR-denominated net
  operations
• Currency band regulation
• Online matching of clearing participants
  positions
• Intraday crediting of clearing participants to
  facilitate their obligations settlement
• Maintaining a single ruble-denominated position
  of participants in exchange markets
• Offering clearing participants an opportunity to
  settle securities transactions in foreign
  currency
• Offering participants an opportunity to execute
  transactions in the stock market
• with partial preliminary collateral
• Creating a single clearing participants
  portfolio to settle operations in various
  financial market segments
• Beginning of operation in the interbank credit
  market

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REGULATION OF CLEARING OPERATIONS
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Todays Regulatory Framework for Clearing
Operations

• Clearing operations are governed by
• - Federal Law No. 39-FZ of April 22, 1996 On
  the Securities Market, which defines clearing
  and clearing operations only in the securities
  market
• - Resolution of the Federal Commission for
  the Securities Market No. 32-ps of August 14,
  2002, which only defines ordinary, multilateral
  and centralized clearing in the execution of
  securities transactions
• - Regulations of the Central Bank of the
  Russian Federation No. 219-P of March 25, 2003
  and No. 220-P of March 25, 2003, which govern
  clearing in the government securities market.
• Standards applied to clearing in the securities
  market are used for clearing in the currency and
  government securities markets.

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Improvement of Clearing Laws in Russia

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• The central counterpartys (CCP) legal status
  defining will allow to introduce the CCP in the
  financial market as an independent
  infrastructural entity which concludes
  transactions for clearing purposes without being
  a trade participant and is rewarded for
  rendering clearing services.
• Determination of the legal status of deposited
  and blocked funds (property) of clearing
  participants for securing their obligations will
  allow to reduce the risk they litigate the use
  of the above-mentioned funds by the CCP.
• Introduction of separate legal status and usage
  mode for clearing accounts to prevent them from
  being used in the bank account mode envisioned by
  the Civil Code of the Russian Federation,
  including unconditional cash debiting upon the
  clearing participants request. The clearing
  institution needs to have the right to withhold
  the clearing participants funds until its
  obligations are fully fulfilled.

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Improvement of Clearing Laws in Russia (contd)

• Amendment to the Laws On Joint-Stock Companies
  and On Limited Liability Companies stating that
  the standard for major and related-party
  transactions will not apply to transactions
  concluded in the course of organized trade, which
  will reduce the risk of litigation of the
  above-mentioned transactions by market
  participants, including transactions with the
  CCP.
• Establishing the possibility and procedure for
  using assets of the Risk Covering Fund and
  guarantee funds in full volume.
• Introduction of the procedure for the fulfillment
  of obligations by the clearing participant in
  case of his bankruptcy or license withdrawal will
  allow to terminate the obligations of such
  participant only after their fulfillment.
• Establishing legal grounds and procedures for the
  cancellation of clearing service agreement will
  allow to cancel such agreement by mutual consent
  between the parties rather than at any time as
  provided for by Chapter 39 of the Civil Code of
  the Russian Federation.

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Improvement of Clearing Laws in Russia (contd)

• Establishment by law of the procedure and new way
  for termination of obligations in the course of
  clearing will allow a clearing institution to
  define and terminate the obligations of clearing
  participants.
• None of the ways for termination of obligations
  currently envisioned by the Civil Code of the
  Russian Federation allows the clearing
  institution which is not a party in the
  transaction to terminate the clearing
  participants obligations. This does not allow to
  conduct ordinary or multilateral clearing
  operations. Clearing with the CCP is not
  envisioned by laws of the Russian Federation.
• Centralized clearing operations can only be
  performed using the assignment of rights which
  requires the consent from the other party in the
  transaction. The clearing centre has to track the
  rights and obligations of the party so as not to
  become the all-in-one debtor and creditor in the
  result of assignment.

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National Clearing Centre

• Thank you for your attention!

Our address Russia, 125009, Moscow,
Bolshoy Kislovsky Pereulok,
13 Telephone [phone] E-mail
info_at_nkcbank.ru Internet
www.nkcbank.ru