MARKET PROFILE RUSSIA

Transcription

1 1 MARKET PROFILE RUSSIA 2018 FIVE YEARS OF OPERATION AS RUSSIA'S CSD

2

3 CONTENTS КEY EVENTS 4 SECURITIES SETTLEMENT INFRASTRUCTURE 6 Financial Instruments 7 Market Participants 9 Central Securities Depository (CSD) 13 Regulatory bodies and legal framework of the Russian securities market 15 Safekeeping and Settlements 18 Corporate Actions and Taxation 20 Cash Payment Settlements 22 Trade Repository Services for OTC Repo and Derivative Trades 22 Information Services 23 Communication Standards and Connectivity 24 MARKET IN FIGURES 25

4 KEY EVENTS

5 Key Events SECURITIES SERVICES Launch of new cash & securities settlement services: Prioritization (DVP and FOP) Linked transactions DVP-1 transactions via the correspondent account with the Bank of Russia NSD s UIT Unit Centralized Platform Tajikistan s CSD link with NSD First results of corporate actions reform: high season of 2017 AGMs successfully completed Launch of e-voting service: AGM of Sberbank and EGM of Moscow Exchange NSD issued and placed first blockchain-based commercial bonds PAYMENT SYSTEM Mandatory RTGS settlement for trades worth more than RUB 100 million leads to the growth of cash transfers via RTGS Launch of open source API solution project for cash settlement participants CLEARING AND COLLATERAL MANAGEMENT SERVICES Collateral management system (CMS) services for on-exchange repo with the Bank of Russia CMS for inter-dealer repos. Integration of the CMS platform with Bloomberg TRADE REPOSITORY Format and logical control service: establishment of additional checks of the reported transactions parameters INFORMATION CENTER Nsddata.ru a single point of access to corporate information (API NSD) Bank of Russia accredits NSD s Valuation Center. Its product is distributed via Bloomberg, Cbonds, Thomson Reuters, Interfax, and Moscow Exchange New option for corporate information disclosure via authorized agencies NSD s Valuation Center adopts new methodology of bond valuation IT SERVICES Development of a product concept for exchanging financial messages via NSD s local network

6 6 Market Profile Russia SECURITIES SETTLEMENT INFRASTRUCTURE Financial Instruments Market Participants Central Securities Depository (CSD) Regulatory bodies and legal framework of Russian securities market Safekeeping and Settlements Corporate Actions and Taxation Cash Payment Settlements Trade Repository Services for OTC Repo and Derivative Trades Information Services Communication Standards and Connectivity

7 Securities Settlement Infrastructure 7 FINANCIAL INSTRUMENTS The list of securities traded on the Russian market includes all main securities types: Equities; Fixed income instruments; Other securities (Instruments of mutual funds market, Russian depositary receipts, ETFs, Mortgage-backed securities, promissory notes, etc.). Derivatives are considered to be contracts according to the Russian legislation and are not recognized as securities. EQUITIES Equities are issued by joint stock companies. All joint-stock companies are divided into public and non-public companies. Only shares of public joint stock companies are subject to public offering and exchange trade. The register of shareholders is kept by registrars. The issuer has the right to change the registrar and transfer the register to another registrar. The entity cannot keep the register on its own. All shares are dematerialized and are registered in electronic format. All new issues must be registered with the Bank of Russia. Exchange and commercial bonds are not registered by the Bank of Russia, identification codes for such bonds are allocated by the exchange and the CSD. In order to execute a public offering (IPO) procedure, the issuer must complete the following steps: Decision on the securities issuance; Registration of the securities; Publication of the prospectus; Placement of the securities; State registration of the issue report. There are two ways of additional share issues placement: 1. An individual ISIN code is assigned to a new issue that circulates on the market separately from the primary issue. After three months from the state registration of the issue report of the additional share issue it is joined to the primary one and both issues become fungible, or 2. The new issue is assimilated with the primary issue under the same ISIN at the stage of placement if certain criteria are met: Public offering of the new additional issue; Primary issue is traded on the exchange; Additional new issue shall be paid in cash or other listed securities; The issuer notifies the Regulator of the placement results. According to the Russian legislation, shares can be divided into two broad types: Common shares; Preferred shares *. There is no difference between common and preferred shares in settlement, clearing, and other market practices. This classification is in line with the international practice. With common shares investor obtains rights to receive dividends, vote at shareholder s meetings on all agenda items (unlike preferred shares) and for a general claim over company s assets in liquidation. Preferred shares should not exceed 25% of the registered capital. If the dividend on preferred shares was not fully paid, those shares gain full voting rights. Such preferred shares retain voting rights until the dividend is paid. The company charter may have a provision for the conversion of preferred shares of a specific type into common shares or into preferred shares of other types. The conversion of preferred shares into bonds or other types of securities is prohibited. In case the equities are CSD securities type, the CSD nominee securities account will be opened in the register, and in this case the registrar may open nominee securities account only for the CSD. If the equities are non-csd securities, both the CSD and a local custodian can open a nominee securities account in the register. Foreign investors may either keep their equities in their owner securities account with the registrar or transfer them to the nominee securities accounts of either a local custodian or a CSD opened in the register. Meanwhile, a local custodian/csd ** would open a securities account for such investors in its books. Foreign investors need to consider some minor restrictions and thresholds monitoring when purchasing equities of particular companies, including financial institutions, insurance companies, and strategic enterprises. For further information, please see part 3 of the Market Profile (tables ). FIXED INCOME INSTRUMENTS The main types of the fixed income instruments on the Russian market are: Government bonds; Corporate bonds, exchange-traded bonds, eurobonds; Sub-federal and municipal bonds; Commercial bonds; Bank of Russia bonds; Fixed income exchange-traded funds (ETFs); Mortgage participation certificates. About 1% of bonds are issued in the dematerialized form and are * Preferred shares might differ in the order of dividend payment, type, and other specific attributes according to the issuer s decision. ** Such accounts should be operated by a Russian professional market participant.

8 8 Market Profile Russia registered in the electronic form. The register of such bondholders is kept by registrars. About 99% of bonds are issued in the form of so-called global certificates which are immobilized with National Settlement Depository (NSD). Both on-exchange and OTC trading is possible. Investors may either keep their bonds on their owner securities account with the CSD or transfer them to a nominee securities account of a custodian with the CSD, which has to open a securities account for such investor in its books for this purpose. Private investors cannot open such accounts with NSD. GOVERNMENT BONDS Government bonds are issued by the Ministry of Finance. There are two types of the government bonds on the market: Federal Loan Bonds (OFZ) and Eurobonds of the Russian Federation. FEDERAL LOAN BONDS (OFZ) OFZ are mid- to long-term government bonds denominated in roubles. There are three OFZ types: with fixed coupon rate, with variable coupon rate and zero-coupon (discount) bonds. Prior to 2012, OFZ bonds were only traded in a specific sector of stock exchange and followed specific safekeeping and settlement rules. After liberalization of the government bond market in early 2012, OFZ trading was moved to the main trading sector of Moscow Exchange, and henceforward the settlement rules became the same as those in place for corporate bonds or any other securities on the market. OFZ can now be traded both onexchange and OTC (table 3.2.1). Starting from February 2013, transactions with the Russian sovereign rouble bonds can be settled via the ICSDs, namely Clearstream and Euroclear (table 3.2.2). Due to liberalization of the local government bonds market, external influence on the OFZ market environment, and then on other segments of the rouble-denominated debt market grew significantly in 2013 and EUROBONDS OF THE RUSSIAN FEDERATION: Eurobonds of the Russian Federation are long-term bonds which are issued and settled like all other Eurobonds. They are typically issued in USD and RUB but may be issued in other currencies (table 3.2.3). CORPORATE, SUB-FEDERAL AND MUNICIPAL BONDS, EXCHANGE- EXCHANGE-TRADED BONDS, EUROBONDS, EUROBONDS, COMMERCIAL COMMERCIAL BONDS Corporate, sub-federal and municipal bonds are issued by local entities, federal regions and municipalities, respectively. The issuing process is the same as the one used for equities (please see section EQUITIES ). Corporate bonds are usually placed and traded on Moscow Exchange. They may also have additional features, including put options, early redemptions, floating coupon rates and partial redemptions. Clearstream and Euroclear announced the launch of settlement with local rouble-denominated corporate and municipal bonds in January This important stage of the Russian financial market development was preceded by considerable work on improving the securities settlement infrastructure. In particular, amendments to the Tax Code of the Russian Federation were adopted (came into force on January 1, 2014). This development significantly simplified the disclosure standards for the taxation purposes for the bonds issued after 1 January In May (for the first time in the Russian infrastructure) and September 2016, the Ministry of Finance placed its sovereign Eurobonds worth $1.75 and $1.25 billion respectively, in June and September 2017, the Ministry of Finance placed its sovereign Eurobonds worth $1.00, $2.00 and $1.40, $2.50 billion respectively, where NSD acted as the head depository and a tax agent. This proves that the level of NSD s technology and services development is sufficient to meet the high demands of issuers and investors (table 3.2.4). Exchange-traded bond is a debt security that allows the issuer to attract additional financial resources for any term using a simplified issuance procedure designed for a wide range of investors. The maturity of exchange-traded bonds is not defined. The issue of exchange-traded bonds does not require state registration, this function is performed by the exchange that assigns an identification code to the issue and authorizes its listing in accordance with the listing rules. The requirements for the exchange-traded bonds prospectus are less demanding as compared to those set for the prospectus of other listed bonds. Exchange-traded bonds can circulate both on the on-exchange and OTC markets. OTHER SECURITIES SHARES OF MUTUAL FUNDS Shares of mutual funds (the shares) represent the portion of an investment fund s assets managed by an asset management company. The shares are issued in a dematerialized form and the register of holders is maintained by either a specialized registrar or a specialized depository. Investors may keep their shares on their owner securities account with either a registrar or a specialized depository, and also transfer them to a nominee securities account of a local custodian or a CSD which would open an owner securities account for such investor in its books. The shares may be issued, traded and redeemed by an investor via services provided by asset management companies. The shares may be traded OTC and on-exchange (if listing is specifically allowed under the fund s asset management rules, in this case only nominee securities account of the CSD shall be opened by the registrar of investment fund shareholders) (table 3.3.1). RUSSIAN DEPOSITARY RECEIPTS Russian depositary receipts (RDRs) are securities certifying investor s rights to a certain number of foreign securities. RDRs are generally similar to other types of depositary receipts (ADRs, GDRs), are issued in dematerialized form and may be traded both OTC and on-exchange. There has only been one RDR issue so far: an RDR on RUSAL shares which were originally traded on the Hong Kong Stock Exchange.

9 Securities Settlement Infrastructure 9 ETF Exchange traded fund (ETF) is an instrument of foreign investment funds that reflects the dynamics of a certain asset, including index, bonds, equities, and others. In April 2013, Moscow Exchange launched the trades with the first foreign ETF. PROMISSORY NOTES Promissory notes are issued in physical form. Promissory notes are commonly used in banking activities and as a means of payment. Since 2012, due to legislation changes promissory notes may not be recorded on securities accounts with a local depository. IDENTIFICATION OF SECURITIES The following securities identifiers are used on the Russian market: State registration number allocated by the Bank of Russia and the Ministry of Finance during the security issue process. The unique code of the issue (identification number) of exchange-traded bonds is assigned by Moscow Exchange. The unique code of the issue (Identification number of issue) of commercial bonds is assigned by the CSD. All numbers/codes reflect the type of security and the unique code of the issue. The structure of the code may vary according to the instrument type. ISIN code is accepted by most of the settlement institutions in Russia, registrars may also use the State registration numbers. All the Russian securities actively traded onexchange already have ISIN codes *. ISIN codes are allocated by NSD acting in the capacity of the National Numbering Agency (NNA) for the Russian market. CFI codes and ISIN codes are required for recognition of a foreign instrument as a security permitted for operations on the Russian market. Both codes can be allocated with the assistance of NSD. Other identification codes may exist on the market, including stock exchange identifiers and other internal codes allocated by local custodians. * Under the former legislation, one ISIN code could be assigned to each particular security type belonging to the issuer. As of now, practically each issue of securities is assigned its own ISIN code. MARKET PARTICIPANTS THE FOLLOWING INDIVIDUALS/ORGANISATIONS PARTICIPATE ON THE RUSSIAN SECURITIES MARKET: CENTRAL SECURITIES DEPOSITORY (CSD) legal entity servicing on-exchange and OTC transactions with all types of debt and equity securities of Russian issuers and providing settlement services to professional market participants of Russian securities market, may open foreign nominee securities accounts for ICSDs and foreign CSDs (please see part 4); REGISTRARS legal entities maintaining registers of share owners and providing basic settlement services; CUSTODIANS legal entities providing safekeeping and settlement services; BROKERS AND DEALERS legal entities trading securities and derivatives on behalf of their clients and on their own behalf; EXCHANGES legal entities providing trading facilities; CLEARING ORGANIZATIONS legal entities providing clearing and netting facilities for market participants; ASSET MANAGERS legal entities providing asset managing services for client s portfolios of securities; SPECIALIZED DEPOSITORIES (Fund Administrators) legal entities that control the socially important markets of collective investments; TRADE REPOSITORIES legal entities registering and safekeeping data on repo and derivative trades concluded on the OTC market; INVESTORS. All market participants act on the basis of licenses issued by the Federal Financial Markets Service or its successor the Central Bank of the Russian Federation *. There are specific requirements (including capital requirements) for every license type and there are certain limitations for combinations of licenses held by professional participant. * On September 1, 2013, the FFMS was abolished by Presidential Decree No. 645 dated July 25, The functions of regulating, licensing, controlling, and supervising financial markets were transferred to the Central Bank of the Russian Federation. REGISTRARS Registrars are professional Russian securities market participants, allowed to maintain the shareholder register of joint-stock companies. Registrars carry out the following functions: Maintain the register of owners of securities; Open and maintain clients accounts; Maintain records of property rights on securities; Perform other functions according to Russian legislation.

10 10 Market Profile Russia Registrars activity is exclusive and may not be combined with any other business. Each issuer must have its register kept by a single registrar. Each issuer may choose to change registrars, and transfer the register from one registrar to another. The registrar provides services to issuers based on contract concluded with the issuer, and the relevant legislation. Registrars are allowed to open owner, nominee, trustee, deposit, treasury account for the issuer and other types of accounts according to the Russian legislation. Registrars are not entitled to conduct banking activities and therefore may not open bank accounts. Opening an account with the registrar and settling transactions in its books is governed by the relevant legislation (no contract is signed between the registrar and registered person / legal entity). Registrars may only process FOP transactions. They carry out transactions between accounts based on the transfer instructions sent by the deliverer. No matching instruction from the receiver is required for such operations. For CSD accounts a matching instruction from the CSD is required. The Federal law on CSD stipulates that since accounts are opened with registrars by the CSD, only No Change of Beneficial Ownership (NCBO) transactions may be processed by registrars. There is an exception only for inheritance and redemption of shares by the issuer, etc., if provided by law. Registrars gather the lists of shareholders for specific corporate actions upon requests of the issuers in order to fulfil legislative requirements. They send requests to nominees and the CSD and add the information they receive about shareholders to their list. Registrars also act as an intermediary between the issuer and registered persons / legal entities, transferring official information with regard to corporate actions. The Bank of Russia is responsible for supervising, regulating and monitoring all Russian registrars. There are 35 (as of August 2018) registrar licenses on the Russian securities market. The number of registrars on the market is gradually falling due to the ongoing process of consolidation. CUSTODIANS Custodians are professional Russian securities market participants providing settlement and safekeeping services for local and foreign investors. Custodians perform the following functions: Opening and maintaining securities accounts; Safekeeping of securities, providing settlement services (including pledging and blocking of securities); Providing information regarding corporate actions and assisting clients in the performance of their rights; Providing additional services which improve the quality of the core custody services. Custodian activity may be combined with clearing or broker, dealer and asset management activities. Custodians may open owner and nominee securities accounts with the CSD, registrars *, foreign custodians or clearing organizations. If a custodian has its own portfolio of securities, it must be strictly segregated from securities of its clients, both internally and externally. Custodians may open owner, nominee, pledgee and trustee accounts for their clients. Starting July 1, 2012, custodians may also open nominee securities accounts for foreign entities **. A custodian may also open bank accounts if they have a banking license issued by the Bank of Russia. Custodians are allowed to hold all types of securities that exist on the Russian market. They may conduct both FOP and DVP transactions. Transactions between custody accounts require matching instructions from both counterparties. Custodians inform their clients about corporate actions, after receiving official information from issuers and registrars or after obtaining it from other sources (CSD, information agencies, mass media). Custodians disclose the lists of shareholders of a specific security at the request of CSD or registrar. Custodians provide services related to participation of their clients in voluntary and mandatory corporate actions. The Bank of Russia is the main regulator for Russian custodians. The Bank of Russia also oversees the custodians that have a banking license. BROKERS AND DEALERS Brokers are professional market participants trading in the name of and on behalf of their clients, or in their own name but on behalf of the client. Under the Russian legislation, brokerage activity may be combined with custody, dealer and asset management activities. It is also possible for banks to obtain a brokerage license and thus open brokerage accounts for their clients. Russian brokers provide a wide range of services for both local and foreign clients, including on-exchange and OTC trading and access to foreign markets. Dealers are professional market participants trading securities at their own expense and on their own behalf. Dealer licenses are usually acquired by banks and investment companies for their own investment and trading activity. There are 372 broker and 406 dealer licenses on the Russian market (as of December 2017) (table 3.4.1). * This is only true until the law on CSD comes into full effect and CSD will open nominee accounts with all registrars for CSD securities. ** Previously, it was only possible to open owner securities account for foreign custodians due to the lack of foreign nominee principle on the Russian market.

11 Securities Settlement Infrastructure 11 STOCK EXCHANGES The main stock exchange on the Russian financial market is Moscow Exchange (MOEX) which processes vast majority of onexchange operations. MOEX was created after the merger of two major Russian exchanges: MICEX (Moscow Interbank Currency Exchange) and RTS (Russian Trading System) in The Moscow Exchange Group now unites a number of companies providing wide range of exchange, settlement and clearing services: Moscow Exchange; National Settlement Depository; National Clearing Centre; National Mercantile Exchange. The Moscow Exchange Group s share of the total value of local onexchange securities and derivatives trading is about 99.9%. Other organizations licensed as professional securities market participants authorised to carry out activities for the organization of trading in securities and / or the stock exchange: Stock Company Saint-Petersburg Currency Exchange (SPCEX SC), PJSC Saint Petersburg s Exchange. These stock exchanges share of the total value of securities and derivatives trading is about 0.1%. The following markets are present on Moscow Exchange: Securities (Equity & Bond) Market; Derivatives Market; FX Market; Money Market; Precious Metals Market. EQUITY & BOND MARKET (EQUITIES, BONDS, SHARES OF MUTUAL FUNDS, DEPOSITARY RECEIPTS AND ETFS) MAIN MARKET SECTOR Equities, bonds, shares of mutual funds, and foreign securities (equities, Russian depositary receipts, bonds and ETF shares) are available for on-exchange trading on the Main Market. There are a number of trading modes available for market participants in the sector, including Main trading, Negotiated trades, Block trading, Repo modes and others. In the Main Market 1,875 securities from 664 Russian issuers are available for trading every day. Trading is available from 9:30 to 19:00. National Clearing Centre acts as the CCP for purchase and sales transactions in the Main Market sector (tables ). DERIVATIVES MARKET Derivatives are traded on the Derivatives Market of Moscow Exchange. The market trades a wide range of futures and options (index, equities and commodities). Clearing is performed by the National Clearing Centre, which also acts as a CCP. The trading is conducted during two sessions: from to and from 19:00 to 23:50 (tables ). FX MARKET The FX Market of Moscow Exchange is one of the key segments of the Russian financial market. The participants in the market can trade a wide range of currencies, including USD, EUR, CNY, GBP, HKD, TRY and the CIS currencies. The market also provides facilities for currency swap contracts. The National Clearing Centre acts as a clearing house and a CCP on the market. The trading hours vary depending on the currency traded and are scheduled from 10:00 to 23:50 (table 3.5.9). PRECIOUS METALS MARKET On October 21, 2013 Moscow Exchange launched precious metals spot-trading in gold (GLD) and silver (SLV). Platinum and palladium trading is due in the future if there is interest from market participants. Prices for precious metals are quoted in RUB per gram. Trades are settled in RUB. Precious metals are traded from 10:00 to 23:50 MSK with standard value date TOM. TOD and LTV (with value dates from T+2 up to 6M) are available for off book trades only. Value dates for swap deals with precious metals are: O/N, TOM/SPT, 1W, 1M, 6M. Precious metals trading is conducted on the FX Market s trading platform. The National Clearing Centre acts as the central counterparty and clearing house. Trading members enjoy the high-efficiency and reliable risk management system of FX Market, unified positions with currency instruments, and existing registration codes. In 2014, risk transfer (risk balancing) between derivatives market and FX market was launched and trading members and clearing members statuses became available (regulatory and technical readiness to service clearing members (non-trading members)). MONEY MARKET The REPO market has been part of Moscow Exchange since 2002; it includes direct REPOs with the Bank of Russia and Federal Treasury, reverse REPOs with the Bank of Russia (modified REPOs), inter-dealer REPOs and REPO with CCP. Repo with CCP is a type of on-exchange repo trade whereby the CCP (National Clearing Centre) acts as the trading participant s counterparty. Bank of Russia deposit and credit operations on Moscow Exchange consist of deposit and credit transactions made by the Bank of Russia with credit organizations residents of the Russian Federation through the Moscow Exchange Electronic Trading System. For Bank of Russia deposit operations, Moscow Exchange provides credit organizations with the opportunity to make deposit transactions, that is, placing funds with the Bank of Russia at an interest rate established by the Bank of Russia. For the Bank of Russia credit operations, or collateral credit operations, Moscow Exchange provides credit organizations with the opportunity to obtain credit from the Bank of Russia on the guarantee of their own securities (or against blocking of those securities).

12 12 Market Profile Russia The VEB deposit operations were started in 2009, the Federal Treasury deposit operations in 2012, the Pension Fund of the Russian Federation in 2013 and Agency for Credit Guarantees in 2014 (table ). ASSET MANAGERS Asset managers are professional Russian securities market participants managing combined and segregated clients accounts. Depending on the type of management provided, assets can be invested in various types of securities, both Russian and foreign, currencies, real estate, commodities, or deposited in banks. There are 252 asset manager licenses that have been issued by the Bank of Russia (as of August 2018). SPECIALISED DEPOSITORIES (FUND ADMINISTRATORS) The main function of specialized depositories is to safekeep assets and to control the socially important markets of collective investments. Since 1995, clients of specialized depositories have included: Joint stock investment funds, unit investment trusts and their asset management systems (1995); Non-state pension funds and their asset management companies (2000 in respect to pension reserves; 2003 in respect to pension assets); The Pension Fund of the Russian Federation (2003); Mortgage pool management companies (2003); Rosvoyenipoteka (2004); Self-regulatory organizations (2007); State corporations (2010); Insurance companies (2015). Currently, 30 specialized depositories operate in Russia. Among the largest specialized depositories, in terms of the value of controlled property, are CJSC VTB Specialized Depository, JSC INFINITUM Specialized Depository, LLC LDK Garant, JSC United Specialized Depository, JSC DK REGION, and CJSC First Specialized Depository. Securities custody and record keeping; Safe custody of assets; Recording operations with assets; Controlling and approving transactions with property; Calculating net asset value; Maintaining the register of UIT unit holders; Preparing mandatory and additional reports. For the Russian collective investment market, control by specialized depositories is mandatory. Any investors, including foreign ones, may authorize the specialized depository to control the state of assets, their composition, and the structure s compliance with their funds investment declarations. This way, reliable control over the activities of asset management companies is provided. TRADE REPOSITORIES The trade repositories collect and maintain information on OTC repo and derivative contracts submitted by parties to such trades in the contracts registry and transmitting the contracts registry to the Bank of Russia (the regulator) on a daily basis. Reporting is mandatory for all professional market participants; corporates are required to report if only certain trade volume thresholds are exceeded. As of Q1 2018, there are 2 trade repositories on the Russian market operating under licenses issued by the Bank of Russia. NSD operates the largest trade repository by the number of reported trades, trade volumes and number of participants, being recognized as systematically important institution by the Bank of Russia in September INVESTORS In order to trade on Moscow Exchange, investors must choose a brokerage firm or bank authorized to trade on its markets. The services offered and the alternatives for accessing the market will differ depending on each broker s profile (table 3.6.1). As of the end of 2017, the five leading specialized depositories counted more than 90% of pension funds, approximately 90% of insurance companies, and 80% of unit investment trusts as their clients. The key task of the specialized depository is to protect financial investments from losses resulting from errors and deliberate violations of legislative requirements or investment declarations by market participants. Specialized depositories accomplish their tasks by performing the following functions:

13 Securities Settlement Infrastructure 13 CENTRAL SECURITIES DEPOSITORY (CSD) ТHE CSD LAW Extended discussions regarding the implementation of the CSD on the Russian market led to the adoption of the Federal Law of the Russian Federation No. 414-FZ On the Central Securities Depository dated December 7, The Law established: Legal status of CSD and the operational requirements; Procedure for granting CSD status; Government supervision of CSD activity. The key provisions and requirements set out in the Federal Law on Central Securities Depository: The CSD should be a non-banking credit organization and a joint-stock company; The CSD should set up users committees to oversee its activities; The Bank of Russia should approve the key internal documents of the CSD; The CSD should have a minimum capital of at least RUB 4 bln; The CSD should conduct an operating audit at least once every two years, in accordance with international standards; Specific CSD accounts should be opened with the registrars of the following CSD securities: Equities which have their prospectus registered with the Bank of Russia; Shares of mutual funds which may be traded onexchange in accordance with the asset management rules. All operations regarding the nominee securities account of the CSD in a registrar will be initiated by the matching orders from both parties; Reconciliation of equities on CSD accounts should be carried out after every transaction; All CBO transactions take place only in CSD bringing settlement finality on the Russian securities market. The Central Securities Depository may open foreign nominee securities accounts for ICSDs and foreign CSDs. The list of eligible ICSDs / CSDs is defined by FFMS s order No /pz-n of July 27, The law on CSD (and satellite law No. 415-FZ, which amended a number of existing laws to implement the law on CSD) also allows local custodians to open foreign nominee securities accounts for their foreign counterparties, except for foreign CSDs and ICSDs. On November 6, 2012, the FFMS granted the CSD status to National Settlement Depository. NATIONAL SETTLEMENT DEPOSITORY National Settlement Depository (NSD) holds the status of the Central Securities Depository of the Russian Federation and is a member of the Moscow Exchange Group. NSD was founded on June 27, The total value of securities held on accounts reached almost USD 700 bln as of December 31, In 2014, the Bank of Russia recognized NSD as the systemically important central securities depository, settlement depository and trade repository. The NSD Payment System has the status of the systemically and nationally important system. NSD offers professional participants of the Russian securities market a wide range of services on-exchange and OTC, including securities services, cash settlement services, OTC trade registration services (trade repository), collateral management, information and IT services, allocation of identification codes to commercial bonds. The Bank of Russia has assigned the status of a payment system operator to NSD under the registered name of NSD Payment System. NSD pays great attention to its risk management system. After becoming a CSD, NSD now satisfies the definition of an Eligible Securities Depository under Rule 17f-7 of the Investment Company Act of NSD has the status of a non-banking credit organization with a special type of banking license giving permissions to open banking accounts and conduct cash settlements. NSD provides storage of global certificates and depository accounting for 99.9% of corporate, sub-federal and municipal bond issues. It services 100% of transactions conducted in the federal bond (OFZ) and the Bank of Russia bond markets, more than 99% of transactions conducted in the corporate and regional bond markets, the majority of transactions involving equities, and also services shares of mutual funds and securities of foreign issuers (all CSD eligible securities). Currently, NSD has accounts with central securities depositories and international central securities depositories of 10 countries, as well as correspondent accounts with a number of the largest foreign and Russian banks. NSD performs safekeeping of securities of issuers from more than 40 countries. NSD is Russia s national numbering agency and a substitute numbering agency for the CIS, assigning ISIN and CFI codes to financial instruments. In March 2013, NSD was granted the status of pre-local Operating Unit authorized to allocate Legal Entity Identification (LEI) codes to market participants. In April 2017, NSD became a candidate LOU, the final phase of the process to receive Accredited LOU status. In the beginning of 2018, NSD successfully passed all stages of the accreditation process by the Global Legal Entity Identifier Foundation (GLEIF) and was granted Local Operating Unit (LOU) status. NSD is the first and only company in Russia and the CIS countries that has received accredited LOU status. This is a permanent status which replaced

14 14 Market Profile Russia the temporary one (pre-lou). It confirms NSD s compliance with GLEIF s regulatory and technological requirements for a LOU. NSD is among 21 accredited Local Operating Units worldwide. Delivery versus payment (DVP) is NSD s one of the core settlement services, which covers all settlement models (DVP 1, 2, 3) operating with cash accounts opened with NSD (in RUB, USD, EUR, CNY, HKD, GBP, CHF) and cash accounts opened with the foreign banks (in USD): Citibank, N.A., New York, and JP Morgan Chase Bank N.A., New York. The value of trades in USD via foreign banks and NSD reached USD bln by the end of the It is very important indicator for NSD that DVP transactions significantly increased in recent years. Development of DVP is one of NSD s key priorities. In 2014, NSD launched electronic matching and hold&release services accompanying DVP and FOP settlement on the Russian market. Bringing into life primary measures, aimed at DVP development NSD has launched DVP settlement via RTGS system, providing an option to settle deals using central bank money. In 2013, NSD launched a flagship service to provide collateral management support for OTC transactions with the Central Bank of the Russian Federation. This provides a tool through which the Central Bank can inject liquidity into the banking system via repo transactions between the Central Bank and commercial banks. Total value of settled transactions reached USD 12 bln by the end of the In May 2015, NSD and the Federal Treasury launched a system providing liquidity to commercial banks on the basis of tri-party repo transactions. Total value of settled transactions reached USD 728 bln by the end of the The new service uses the tri-party repo scheme which proved to be in demand among market participants in respect of the Bank of Russia s repo transactions with the securities basket. NSD performs clearing and settlements functions and acts as a collateral management agent in the tri-party repo transactions. Another step in the development of these tri-party services is to support on-exchange and OTC repo transactions between two commercial banks thus providing an avenue for secured interbank lending. NSD has plans to offer a new collateral management tool, which allows market participants to utilize advantages of securities basket for OTC interdealer transactions. OPENING SECURITIES ACCOUNTS NSD opens custody accounts for resident and non-resident legal entities, Russian depositories, foreign nominee holders according to the legislation of the Russian Federation and the Bank of Russia regulations. NSD provides services to professional securities market participants. NSD s clients include major Russian banks, brokers, and financial companies. Clients may open the following types of securities accounts * : Owner securities account Nominee securities account Trustee securities account Foreign nominee securities account Trading securities account Treasury securities account Clearing securities account For any additional information about custody accounts please visit: To open a securities account with NSD, a client must: Submit a set of documents to NSD, as per the List of Documents to Be Submitted by Clients to NSD. Enter into a securities account agreement for the relevant securities account type. Standard forms for securities account agreements are available on NSD s web site. An agreement form may also be obtained at NSD s Moscow office. The specific provisions governing the opening of securities accounts for a particular type and the eligibility requirements to be met by a person/entity to open a securities account of a particular type are set out in the Terms and Conditions of NSD s Depository Operations. A client may open several securities accounts of the same type with NSD. Unless otherwise provided for by the relevant Securities Account Agreement, the number of securities accounts that may be opened for a client under the same Agreement is unlimited. There is no fee charged for the opening of the account. Fee for the maintenance is charged according to corresponding tariff of the custody services of NSD. For more information please contact Client Support Departments: * The status of the central securities depository was assigned to NSD by the Federal Financial Markets Service s Order No /PZ-I dated November 6, NSD holds professional securities market participant license No to perform depository operations issued by the Central Bank of the Russian Federation on February 19, License No to perform banking operations was issued by the Central Bank of the Russian Federation on August 4, License No to carry out clearing activities was issued by the Central Bank of the Russian Federation on December 20, The license No for the repository activities was issued by the Central Bank of the Russian Federation on December 28, 2016.

15 Securities Settlement Infrastructure 15 REGULATORY BODIES AND LEGAL FRAMEWORK OF THE RUSSIAN SECURITIES MARKET REGULATORY LEGISLATION Securities Regulation of the Russian securities market is based on laws which determine general rules governing the functioning of the Russian securities market and the subordinate laws that set special standards: The Civil Code of the Russian Federation. Russian Federal Law No. 39-FZ On the Securities Market, dated April 22, Russian Federal Law No. 208-FZ On Joint Stock Companies, dated December 26, Russian Federal Law No. 46-FZ On the Protection of the Rights and Interests of Investors in the Securities Market, dated March 5, Russian Federal Law No On Banks and Banking Activity, dated December 2, Russian Federal Law No. 115-FZ On Countering the Legalisation of Illegal Earnings (Money Laundering) and the Financing of Terrorism, dated August 7, Russian Federal Law No. 135-FZ On competition, dated July 26, Russian Federal Law No. 414-FZ On the Central Securities Depository, dated December 7, FSFM Regulation No. 36 On Depository Activity, dated October 16, FSFM Regulation No On Maintaining the Register of Owners of Registered Securities, dated August 13, Bank of Russia s Ordinance No U (dated August 16, 2016) On contract types concluded on the OTC market reportable to the trade repository on persons, submitting the above information, on terms and conditions of providing the information to the repository, additional requirements to maintain the contracts register of the repository and on terms and conditions of providing information by the repository and on terms and conditions of submitting information from the repository to the Bank of Russia. REGULATORY BODIES The regulatory structure of Russian securities market consists of the Governmental Authorities and the Self-Regulatory Organizations. The following government authorities are involved in the Russian securities market: Central Bank of the Russian Federation (Bank of Russia); Ministry of Finance of the Russian Federation (The Russian Finance Ministry); Federal Antimonopoly Service of the Russian Federation (FAS). CENTRAL BANK OF THE RUSSIAN FEDERATION The primary goal of the Bank of Russia is to ensure price stability, which implies achieving and maintaining steady and low rates of growth in consumer prices. To accomplish the main goal, the Bank of Russia is assigned with the following tasks: In cooperation with the Russian Federation Government Bank of Russia elaborates and peruses the uniform monetary policy that affects the securities market. One of the means of monetary policy realization is the Bank of Russia bonds issuing; Promotion of the stability of financial system; As a Ministry of Finance of the Russian Federation agent, Bank of Russia provides the placement, attendance and redemption of government securities; Ensuring the functioning of payment systems; Implementation of foreign exchange regulation and foreign exchange control; Regulation, control and supervision of the financial market and financial institutions and also other parties, within its competence; Ensuring a due level of protection of the rights and legitimate interests of consumers of financial services; Carrying out statistics activities in the area of monetary statistics and external sector statistics. MAIN FUNCTIONS OF THE BANK OF RUSSIA ON THE RUSSIAN SECURITIES MARKET ISSUERS Development of securities issues standards Registration of issues Registration of issue reports Registration of issue prospectuses (except for governmental, sub-federal, banks and municipal securities) Suspension of issue process in case of any violation of law Development of IPO procedures and rules for circulation of securities outside of the Russian Federation Audit of issuers PROFESSIONAL PARTICIPANTS Development of the legal basis of professional activities Setting capital requirements for market participants Issue of licenses of professional market participants Audits of professional participants Suspension or cancelation of licenses in case of violation of law

16 16 Market Profile Russia COLLECTIVE INVESTMENTS Issuing licences for investment funds, private pension funds, asset management companies, specialized registrars and depositories Registration of asset management rules Setting the requirements to the structure of the assets of investment funds Setting the procedure for NAV calculation INVESTORS Protection of rights and legitimate interests of shareholders and investors in financial markets, insurers, insured persons and beneficiaries, established in accordance with the insurance legislation, as well as insured persons for mandatory pension insurance, investors and participants of a private pension fund for non-state pension provision Monitoring the compliance with legislation of the Russian Federation on combating illegal use of insider information and market manipulation MINISTRY OF FINANCE OF THE RUSSIAN FEDERATION The Russian Finance Ministry is responsible for strategic issues regarding the development of the financial market, and the preparation of draft laws and government decrees. The Russian Finance Ministry determines the procedure for the issuing of federal government securities and is responsible for registering government, municipal and regional bonds, and bonds issued by insurance companies. MinFin also prepares the regulations on minimum capital requirements for market participants and their asset structures, with the participation of the Bank of Russia. FEDERAL ANTIMONOPOLY SERVICE OF THE RUSSIAN FEDERATION The main goal of FAS is to secure competition, restrict monopolistic activities and to protect consumer s rights on the Russian market. In order to pursue its goals, Federal Antimonopoly Service: Enforces advertising legislation; Oversees foreign investors activities in strategic enterprises (see sections Restrictions on foreign investment ); Enforces anti-monopoly legislation on natural monopolies in transportation and energy sectors; Oversees M&A deals. SELF-REGULATORY ORGANIZATIONS Self-regulatory organizations (SRO) are non-governmental organizations, founded by the professional participants of the Russian securities market. They establish rules and standards that are mandatory for the members in order to protect their interests. There are currently six major self-regulatory organizations on the Russian securities market: Russian National Association of Securities Market Participants (NAUFOR). Number of participants: 413, web-site: Not-for-profit partnership National League of Management Companies (NLMC). Number of participants: 74, web-site: National Finance Association (NFA). Number of participants: 238, web-site: Professional Associations of Registrars, Transfer Agents and Depositories (PARTAD). Number of participants: 54, web-site: Ural Region Non-Profit Professional Securities Market Participant Partnership (URPSMP). Number of participants: 16, web-site: Self-Regulatory Organization Non-Profit Partnership National Associations of Non-State Pension Funds (NAPF). Number of participants: 38, web-site: The Russian National Association of Securities Market Participants (NAUFOR) brings together brokers, dealers, depositories and asset managers. The Association was established in NAUFOR sets the rules and standards for members with regard to virtually every aspect of the securities business, and strives to support the regulatory work of the federal regulators and legislators. The National League of Management Companies (NLMC) is a self-regulatory organization composed of professional securities market participants who manage investment funds, unit investment funds and pension reserves. It was established in 1996 as a non-profit partnership. Current activities of NLMC include the legislation development and improving the regulation governing the management of investment funds, unit investment funds and non-government pension funds or other forms of collective investment; developing the rules and standards of asset management, control over their execution; control over the execution of the legislation of the Russian Federation concerning the protection of rights and legitimate interests of the clients; representing the interests of management companies of investment funds, unit investment funds and non-government pension funds in the process of communication with the government authorities and regulatory bodies and third parties; advanced training for the officials and the staff of the member organizations of NLMC. The National Finance Association (NFA) is a leading organization of professional participants of the Russian securities market. It was established in January The NFA is an associate member and represents Russian participants of the securities market in the International Capital Market Association (ICMA) and in the European Financial Markets Federation (EFMF). The NFA is a trade association operating on a self-regulatory basis. Its mission is to facilitate economic growth in Russia by making the most of the securities market potential in order to provide advantageous conditions for its participants, primarily NFA members, as well as other operators and investors of the financial market. The Professional Association of Registrars, Transfer Agents and Depositories (PARTAD) was established in 1994 and given the status of a self-regulatory organization in It brings