February 2013 DEVELOPMENT OF REPO WITH THE CCP

Transcription

1 February 2013 DEVELOPMENT OF REPO WITH THE CCP

2 Repo operations on Moscow Exchange REPO with CCP Comments RUB trn 62% % 69.8 REPO market is one of the largest market segment of the exchange by turnover and the key market used by domestic market participants to manage liquidity 30% The Bank of Russia employs money market to provide the banking system with liquidity 5% 25.0 More than 500 trading s REPO transactions RUB trn Repo with CCP Inter-dealer Repo 113,7 81% 19% ,3 48% 52% Repo with the Bank of Russia (incl. basket Repo by NSD 221,8 2% 34% 65% ,4 10% 24% 66% 211,8 31% 19% 49% H2016 Share of REPO with CCP in interdealer REPO and REPO with CCP, % 127,9 55% 21% 24% 1H2016 Market participants are able to make inter-dealer REPO transactions (with and without CCP) and REPO with the Bank of Russia Eligible collateral for REPO transactions: Shares Depositary receipts and shares of foreign issuers Sovereign, corporate and other bonds Eurobonds Repo with the CCP is a key segment of the MOEX repo market 2 Source: Moscow Exchange

3 Repo with CCP: Objectives Creation of a mechanism for safe trading in money Transactions without establishing bilateral credit limits by counterparties 3

4 Major benefits Market participants do not need to establish bilateral credit lines; a single limit is imposed for the CCP Anonymous trades are available Standard discounts are employed Execution of trades is quick and convenient Online market repo rates for cash and securities are backed by orders and trades Minimisation of cash and securities assigned for settlement as a result of obligations/claims netting across all repo trades with the CCP and T+ trades Reduction of demands on the market participant s capital (balance sheet netting of all trades) A unified and reliable risk management system (ship criteria, margin requirements, sufficient guarantee funds, and the CCP s capital allow a high credit limit to be established for transactions with the CCP) Repo market liquidity is boosted There is a single counterparty for all market participants (the CCP ensures settlement of repo trades to the non defaulting party) 4

5 Main trading parameters The CCP (National Clearing Centre) is the counterparty to all trades Off order book (direct) trades Order book trades Repo with CCP Eligible securities: OFZ (Russian Federation Government bonds) Shares Bonds Eurobonds Коды расчетов (в рублях, долларах США и Евро): Y0 (T0)/Yi, i - from 1 to 7 days Y1/Yj, j - from 2 to 7 days Y0/Y1 Y0/Y1W 7 days Y0 Delivery at 17:00 for transactions executed before 16:00; at 19:00 for transactions executed after 16:00 T0 - prompt delivery of the first part of a repo trades Y1 - delivery on the next day at 17:00 period: 9:30 19:00 10:00 19:00 Clearing and settlement: 17:00-18:00 for the first clearing pool; 9:00-20:00 for the second clearing pool Inter-dealer repo Securities available from: from 17:00 for the first clearing pool; from 20:00 to 20:30 for the second clearing pool 5

6 Risk parameters The Exchange sets the following parameters for each securities issue each trading day: Settlement price Market risk rate Calculated repo rate Interest risk rate Settlement price: Settlement price for shares is calculated based on closing prices in the modes T0 and T+ Settlement price for bonds is calculated based on trading results for all bonds of a particular issuer using the model static Z-spread Market risk rate: Determined based on the underlying security s historical volatility Calculated repo rate: Determined based on the market rates of inter-dealer repo trades and repo trades with the CCP executed on the previous trading day Interest risk rate: Calculated per a security based on a repo rate historical volatility and restricted by a lowest interest risk. 6

7 Risk parameters Interest risk: Risk associated with a possible change in the repo rate Three levels of the interest risk rate are calculated for different position sizes The market risk is determined by a net short or long position: Market risk rate 1* up to RUB 1 bn (the position can be liquidated within a short period having no material effect on the security market price); Market risk rate 2* RUB1 bn RUB 5 bn (the position can be closed within few days); Market risk rate 3* over RUB 5 bn (closing out the position can have a significant effect on the security market price). * Parameters for bonds 7

8 Translation of discounts Terminal Micex Trade SE Risk parameters Moscow Exchange s website ( Money market / Repo with the Central Counterparty / Instruments NCC s website ( Stocks: section Risk Management / Stock Market / Risk Parameters for stocks (in Russian) Bonds: section Risk Management / Stock Market / Risk Parameters for bonds (in Russian) 8

9 Indicators Repo with the CCP Calculated based on anonymous orders for repo with the CCP + non-anonymous orders for repo with the CCP Bonds Stocks 12:30 MOEXREPO MOEXREPOEQ 19:00 MOEXREPOE MOEXREPOEQE Money Market Indicators % 15,0 13,5 12,0 10,5 9, MOEXREPO RUONIA The Bank of Russia key rate 9

10 Repo with the CCP order book trades Anonymous orders Order book Regime code EQRP (Intraday CCP repo) EQWP (7-day CCP repo) EQRD (Intraday CCP repo) EQWD (7-day CCP repo) EQRE (Intraday CCP repo) EQWE (7-day CCP repo) hours: 10:00 19:00 Limit and market orders Settlement code Y0/Y1 Y0/Y1W Settlement currency RUB USD EUR Repo rated are quoted; regular marching Any anonymous order may be filled in part with the repo amount and securities balance residing the book Maximum order size: RUB 5 bln for trades settled in RUB, USD 100 mln for trades settled in USD, EUR 100 mln for trades settled in EUR. Minimum order size: RUB settlement : RUB 1 mln for shares (RUB 100,000 for specific 27 shares); RUB 1 mln or 1,000 units for OFZs (2,000 units for OFZ SU46014RMFS5) USD and EUR settlement: USD/EUR 50,000 or 1,000 units for OFZs and Eurobonds (2,000 units for OFZ SU46014RMFS5) USD/EUR 10,000 for shares and corporate bonds 10

11 Repo with the CCP off order book trades Non-anonymous orders Regime code PSRP (neg repo with the CCP) PSRD (neg repo with the CCP) PSRE (neg repo with the CCP) Settlement code Y0 (T0)/Yi, where i is 1-7 days Y1/Yj, where j is 2-7 days Settlemen t currency RUB USD EUR hours: 9:30 19:00 Regular order filling process Ability to choose the discount out of the range given in the trade parameters; market risks of the CCP are covered by the Single Limit. Maximum order size RUB 5 bln for trades settled in RUB, USD 100 mln for trades settled in USD, EUR 100 mln for trades settled in EUR. 11

12 Early settlement for T+ trades and repos with CCP If agreed so with the end counterparty, a clearing firm is allowed to submit an early settlement request with respect to T+ trades executed on the basis of non-anonymous CCP orders and non-anonymous CCP repo orders. Such requests may be: 1. Regular. It results in changes in planned cash and security positions with respect to one T+ trade; 2. Special. It results in net changes in planned cash and security positions with respect to several T+ trades; 3. Immediate. It results in settlement (in interaction with the NSD) and net changes in planned and start-of-day cash and security positions with respect to one or several T+ trades indicated in the request. T+ trades and CCP-cleared repos may be included in any Regular, Special or Immediate settlement request together with negotiated trades and interdealer repos. 12

13 Clearing & settlement The first part of repo transactions with the CCP is settled at 18:00 and 20:00 MSK (according to a clearing pool a trade falls in). The second part of such transactions is settled only at 18:00 MSK. Clearing s must deposit assets on Accounts/Subaccounts until: 17:00 MSK if the trade is in the first clearing pool; or 19:00 MSK if the trade is in the second clearing pool. Where there is an insufficiency of assets on the Accounts/Subaccounts, the required assets shall be transferred from the accounts/subaccounts (provided that the Member has not submitted an application prohibiting withdrawal of assets from the accounts). Assets due by the end of settlement process are transferred to the Delivery Accounts/Subaccounts. After settlement cash/securities are transferred to the accounts/subaccounts automatically (provided that the has not filed a prohibiting application). Mark-to-market Online adjustment of the Single limit. If the Single limit is negative, the is prohibited to enter orders entailing lowered Single limit. Daily checking to ensure collateral sufficiency and issuing Margin calls should the collateral is insufficient. Clearing s must execute Margin calls by 17:30 pm MSK. If a has failed to execute the Margin call, mandatory closing out is applied. 13

14 Principles of admission to repo trades with CCP Admission Sector T+2 Repo with CCP At the expense of firms At the expense of and on instruction from clients At the expense of firms At the expense of and on instruction from clients Contribution to the Guarantee Fund Eligibility to trade RUB 5 mln RUB 10 mln Allowed assets for the Guarantee Fund: cash (in RUB, USD and EUR) and OFZs. The contributions are given in the amount defined for a specific market as converted to RUB. Proportion of foreign currency/ofz accepted as a contribution to the fund is not fixed. Cash received as a coupon payment is to be credited to the firm s settlement code as a contribution to the fund. OFZs can be withdrawn from the securities subaccount to the trading section through a request on security return from the Guarantee fund which request is to be submitted to the NCC Clearing Bank. 14

15 Default management In the event of a shortage of funds, open positions are closed out mandatory proportionally to claims. Default waterfall 1. Defaulter s collateral on the Equity & Bond Market 2. Defaulter s collateral on other markets 3. Defaulter s stressed collateral on all markets 4. Defaulter s Guarantee fund contributions on the Equity & Bond Market 5. Defaulter s Guarantee fund contributions on other markets 6. NCC Clearing Bank capital ( Skin in the Game ) on the Equity & Bond Market 7. Non-defaulting s Guarantee Fund contributions on the Equity & Bond Market 8. Additional NCC Clearing Bank capital ( Skin in the Game ) as decided specifically Pursuant to Article 16, Part I. General Provisions, the Clearing Rules 15

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