Payments in Russia: the background for revisal

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• 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
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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

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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
1800 4th batch
1600 payment
2000 4th session results
2000 4th session results
Russian Correspondent Bank
Beneficiary Bank
Ordering Customer
Beneficiary
The Bank of Russia
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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 2000 or 2200 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

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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.

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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.

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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 Russias 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.

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Overview of Russian settlement system features

• RECEIVED 202 GENERAL FINANCIAL INSTITUTION
  TRANSFER
• Destination MICURUMMAXXX
• Session/Sequence1464/455959 date
  rcvd08-OCT-2008 1210
• - - - - - - - - - - - - - - - - - - - - - - - -
  - - - - - - - - - - - - - - - - - -
• Originator BANKGB2LAXXX
• BANK
• LONDON,UNITED KINGDOM
• Session/Sequence1111/111111 date
  send08-OCT-2008 0910
• - - - - - - - - - - - - - - - - - - - - - - - -
  - - - - - - - - - - - - - - - - - -
• 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

Currency Control Code
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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.

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Interim solutions

• The Bank of Russias 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 banks 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.

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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

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MICEX Settlement House as settlement services
provider

To date the number of MICEX Settlement Houses
customers achieved 722 organizations including
the biggest Russian financial institutions and
foreign banks subsidiaries
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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

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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)

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Contact details of the MICEX Settlement House

• 1/13 Sredny Kislovsky Pereulok, building 8,
  Moscow 125009, Russia
• tel [phone], fax [phone]
• SWIFT MICURUMM
• ??lex 485391, 485393 MICU RU
• http//www.rpmmvb.ru
• zolotova_at_ch.micex.com

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• Thank you
• for your attention!