Moscow, 20 Sep 2013 Marcus Evans ALM Conference 1

Global and Russian Derivatives market regulation 2009-13

Dmitry Piskulov, Ph.D. (econ.)

Chairman of NFEA Management Board,

Chairman of Committee for Professionalism

What is a Derivative Financial Instruments

Derivatives (according to FFMS definition)– Forwards (outright)– Swaps (all regardless the maturity. Are short-

dated FX swaps – O/N, T/N, S/N derivatives?)

– Options– Futures

• OTC or Exchange traded

Moscow, 20.09.2013 National Foreign Exchange Association, Russia 2

Regulatory reform 2009-201…?

G20 meeting in Pittsburgh, September 2009

All standardized OTC derivative contracts should be: • traded on exchanges or electronic trading

platforms, where appropriate, • cleared through central counterparties

(CCPs) by end-2012 at the latest. • OTC derivative contracts should • be reported to trade repositories (TR). • Non-centrally cleared contracts should be subject

to higher capital requirements.”Moscow, 20 Sep 2013 Marcus Evans ALM Conference

Key elements of reform

Moscow, 20 Sep 2013 Marcus Evans ALM Conference 4

• Mandatory clearing of eligible OTC derivatives using central counterparties (CCP)

Clearing• Mandatory execution of sufficiently liquid

OTC derivatives on trading platformsTrading• Reporting of all OTC derivatives to trade

repositories, Regulators access to dataReporting• Minimum requirements for margining of

uncleared OTC derivatives Margining• Timely confirmation, portfolio reconciliation,

portfolio compression, • dispute resolution for uncleared OTC

derivatives

Risk mitigation

•Pre- and post-trade access to individual quote and trade dataTransparency

New regulations and regulators• USA: Dodd-Frank Act (introduced SEF – swap

execution facility)• Europe: EMIR – European Markets

Infrastructure Regulation 2010-2016• ESMA (European Securities and Market

Authority) from 01.01.2011• BCBS + IOSCO (margining for non-centrally

cleared derivatives• Basel 3: CVA adjustment• FSB – Financial Stability Board (Report on OTC

Derivatives Reform to G20)Moscow, 20 Sep 2013 Marcus Evans ALM Conference 5

EMIR - Europe

EMIR - European Market Infrastructure Regulation

Started 15/09/2010 European Commission proposal • a reporting obligation for OTC derivatives, • a clearing obligation for eligible OTC derivatives,• measures to reduce counterparty credit risk and

operational risk for bilaterally cleared OTC derivatives, • common rules for central counterparties (CCPs) and for

trade repositories, and rules on the establishment of interoperability between CCPs.

• Last adopted document 12.07/2013

Moscow, 20 Sep 2013 Marcus Evans ALM Conference 6

CCPs & Trade repositoresCentral Counterparties (CCPs):19 in Europe• LCH.Clearnet (UK)• EuroCCP (UK)• Eurex Clearing AG (Germany)• European Multilateral Clearing Facility (NL)• CME Clearing House (US)• NCC – National Clearing Center (Russia)

Trade repositories (or Swap data repository):- DTCC (USA)- Regis-TR (European Trade Repository), Luxemburg- NSD (National Settlement Depository), Moscow- NEW: Trade Repository Group (London) of CME, ICX 7

Moscow, 01 Nov 2012 "Russian money market" Conference RIAN

8

Derivative markets statistics

Central Bank of Russia (monthly Survey of Foreign Exchange and Derivatives Market Activity)

UK Bank of England FX Joint Standing Committee (Semi-annual FX turnover surveys)

Bank for International Settlements (BIS), Basel

ISDA – International Swaps and DerivativesAssociation

NFEA Annual Surveys of Bank Derivatives (2008-2012)

Derivative regulation in Russia • Feb 2008 – Article 1062 of Civil Code (Enforceability)• 2009-2010 – Changes to FZ “On Securities Market” and

“On Bankruptcy” introducing Close-out netting• 2009, 2011 – Standard documentation for Russian

Derivatives Market (Russian ISDA) by NFEA, ARB, NAUFOR

• 2011 – definition of derivatives by FFMS• 2011 - Introductions of Trade repository (NSD) and CCP

as National Clearing Center (NCC)• Dec 2012 – start of Trade repository (NSD) to receive

reports/ Full regime only by middle 2014• Jun 2012 - clearing of OTC derivatives by Moscow ExchMoscow, 20 Sep 2013 Marcus Evans ALM Conference 9

Global derivatives amounts• Notional principal amounts outstanding, trln.US$

By underlying asset June 2011 OTC Exchanges*

December 2012 OTC Exchanges*

Foreign exchange 64.7 0.31 67.0 + 0.34 +

Interest rate contracts 553.2 53.3 490.0 - 62.2 +

Equity linked contracts 6.8 4.7 6.3 - 5.7 +

Commodity contracts 3.2 2.6 - n.a

Credit default swap 32.4 n.a. 25.0 - n.a

Other 46.5 n.a. 42.1 n.a

Total contracts 706.9 633.0

*Data for Exchange traded derivatives on Dec 2011 and Jun 2013 respectively

Moscow, 20 Sep 2013 Marcus Evans ALM Conference 10

Russian OTC FX&IR derivatives ADT bln.US$ FX derivatives IR derivatives

April 2012 $4.8 bln. $270 mln.

July 2012 $4.8 bln $96 mln.

Oct 2012 $4.8 bln $186 mln.

Jan 2013 $4.1 bln. $231 mln.

Apr 2013 $6.1 bln. $250 mln.

July 2013 $4.4 bln. $207 mln.

Aug 2013 $5.0 bln. n.a

• FX derivatives: FX swaps(longer than spot), Forward outrights + NDF, FX options

• IR derivatives: Cross currency swaps, Interest rate swaps, OISMoscow, 20 Sep 2013 Marcus Evans ALM Conference

11

Russia on-shore IR derivatives

Apr 1

2

May

12

Jun

12

Jul 1

2

Aug 1

2

Sep12

Oct

12

Nov 1

2

Dec 1

2

Jan

13

Feb 1

3

Mar

13

Apr 1

3

May

13

Jun

13

Jul 1

30

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.272

0.25

0.154

0.096

0.045

0.15

0.186

0.109

0.196

0.231

0.173

0.317

0.25

0.201

0.246

0.207

CCS

IRS+OIS

Total

Very small Daily volumes (ADT), tend to rise in 2013,

bln.$

Moscow, 20 Sep 2013 Marcus Evans ALM Conference 12

Russian IRD features• Very small volumes of IRD in comparison to FX

derivatives (1000 times lower)• RUB IRD market is in London• OIS – still underdeveloped, ADT

in range from $3 to $50 mln.• Moscow Exchange interest rate futures – low

volumes• FRA almost disappeared in 2013• No available statistics on international use of

Interest rate futures and optionsMoscow, 20 Sep 2013 Marcus Evans ALM Conference 13

Russian FX market 2008-13

0

20

40

60

80

100

120

Apr 08 Oct 08 Apr 10 Apr 11 Apr 12 Apr 13

FX spot on-shore

FX swaps on shore

Total FX on-shore

London RUB FX

Moscow, 20 Sep 2013 Marcus Evans ALM Conference 14

Volumes of USD/RUB FX derivatives in London

Instrument Oct 2009 Apr 2011 Oct 2012 Apr 13

FX spot $1.9 bln $5.5 bln $8.5 bln $14.3

NDF $1.2 bln $2.2 bln $3.4 bln $4.2

Outrights $0.3 bln. $0.4 bln. $2.4 bln $5.1

FX swaps $4.3 bln $4.6 bln $5.4 bln $8.7

Ccy swaps $0.1 bln $0.4 bln $0.3 bln $0.4

FX options $1.2 bln $0.8 bln $2.0 bln $1.7

Total: $9.0 bln $13.9 bln $22.0 bln $34.4 bln.

Moscow, 20 Sep 2013 Marcus Evans ALM Conference 15

Bank of England UK FXJSC: ADT in 2008-13

Exchange traded derivatives (Russia)

ADT, US$ bln. Jan 2013 Apr 2013 Jun 2013 Equity futures 2,75 4,30 4,57 FX futures 2,06 2,76 2,83 Interest rate futures 0,008 0,022 0,066 -on short term rates 0,000004 0,000033 0,00077 - on long term (OFZ) 0,008 0,022 0,065

Options 0,35 0,54 0,62 Commodity futures 0,13 0,22 0,20 TOTAL 5,30 7,85 8,29

Source: Moscow Exchange, St.Petersburg Exchange

Moscow, 20 Sep 2013 Marcus Evans ALM Conference 16

Today NFEA indices familySince May 2005, 9 contributor banks

Since Jan 2010, 8 contributor banks

Since Sep 2010, together with CBR

29 contributor banks

Since April 2011, 9 contributor banks

Since Jan 2013, 9 contributor banks

Moscow, 19 Sep 2013 Marcus Ewans Conference 17

Moscow, 20 Sep 2013 Marcus Evans ALM Conference 18

About NFEA• Established: October 1999 in Moscow • Membership: institutional (local and global banks and brokers) operating in

Russian spot/forward foreign exchange , money markets and derivatives;• 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:

– 1999-2001, 2006: Elaboration of Standards (Code of Conduct and Rules to Conduct Operations (Committee for Professionalism, Ethics & Education),

– Market indices: MosPrime Rate (2005, RUB money market reference rate), NFEA FX SWAP RATE – new index for USD/RUB and EUR/RUB forwards

- Standard Documentation for Russian OTC derivative transactions (Russian ISDA Agreement) – completed in 2009, new version in 2011 (approved FFMS)

- RUONIA – Russian analogue of EONIA, SONIA (since Sept 2010)- ROISFIX – OIS interest rates index (since April 2011)- CLS Bank: inclusion of Rub into CLS clearable currencies (since end 2011)

• International cooperation, partners and working contacts: - EBRD (MosPrime rate, joint conferences)- ISDA (inclusion of MosPrime rate into ISDA definitions 2006)- ACI-The Financial Markets Association

Moscow, 20 Sep 2013 Marcus Evans ALM Conference 19

Contact Details

12 Bolshaya Nikitskaya st, Moscow, 125009, Russia, Tel.+7 (495) 629-9510, 629-9709www.nva.ru, www.nfea.ru; www.ruonia.ru

@ The Copyright National Foreign Exchange Association, 2012 All rights reserved. Any reproduction is only permitted with prior consent of NFEA.