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Growing the Russian Ruble globally – an e-initiative?

Russian Money Market : Modern Opportunities conference 18 November 2010, Moscow Darryl Hooker, Global Emerging Markets Manager, ICAP Electronic Broking/EBS

Agenda

1 2 3 4 E-trading in growth markets Ruble FX market overview IRSF objectives and 2010 IRSF survey findings Ruble trading dynamics on the EBS platform 2

E-trading in growth markets

• Growth markets need the efficient price discovery and effective execution capabilities that come with electronic trading • Customers require innovative products, tailored to their specific needs • Both global/offshore and local/onshore requirements need to be addressed 3

2010 Ruble trading statistics

• Russian FX average daily volumes dropped in 2008 but stabilised in 2009-10 – – – – Overall Russian FX market volume (Oct 10): USD 53.8 bn* MICEX volume (Oct 10): USD 8.8 bn* USD/RUB ADV in UK (Apr 10): USD 11.5 bn** (all FX instruments) USD/RUB ADV in UK (Apr 10): USD 2.6 bn** (spot) • New enhanced derivatives legislation – – Changes in tax, securities and banking laws Aimed at development of domestic derivatives market *Source: National Foreign Exchange Association, Russia (most recent report: 22 October 2010) **Source: UK FXJSC Semi-Annual FX Turnover Survey (most recent report: April 2010) – all FX instruments 4

Key Ruble challenge: settlement

• Russian payment system – currently poses a challenge to the efficient settlement of the Ruble • To address this, the International Ruble Settlement Forum (IRSF) was established by ICAP in 2007 and co-hosted with MICEX • IRSF objective: facilitate commitment between all correspondent Ruble banks in Russia to use BESP – RTGS created by the Central Bank of Russia • The forum is now a regular event, held twice a year 5

•

7 th International Ruble Settlement Forum – survey findings (1)

Are you reassured by progress BESP is making towards RTGS?

– Yes/somewhat = 82% • Will RTGS be available before 2013? – Yes = 90% • Will ALL Ruble trades ultimately be settled by BESP?

– Not sure = 73% – – – Barriers include: – Lack of mandatory participation – Existence of parallel payment systems Lack of ‘critical mass’ in BESP approach Technology/infrastructure costs BESP tariffs 6

•

7 th International Ruble Settlement Forum – survey findings (2)

Are SWIFT and the CBR aligned in terms of their approach to and agreement on timing for the SWIFT initiative?

– Yes = 70% • Are you confident that CBR will progress with CLS?

– – Not sure = 70% Yes = 30% • When will the Ruble become CLS settled?

– – Before 2014 = 70% Before 2015 = 20% 7

7 th International Ruble Settlement Forum – survey findings (3)

What should BESP do to encourage full uptake of their service?

“An industry standard is required for the settlement of RUB FX deals which dictates the use of BESP.” “CBR should enforce it if they want to be taken seriously as an international financial centre.” “Give economic stimulus and improve technology reliability.” “Reduce costs. CBR to make uptake mandatory.” “Lower the pricing for the usage of BESP. Increase pricing for other systems.”

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7 th International Ruble Settlement Forum – survey findings (4)

% agreeing with each statement BESP will become the main settlement system for the Ruble Banks will offer Prime broking services for the Ruble Moscow will be a major financial centre

22 43 80

The Ruble will become a recognised G8 currency The Ruble will become a reserve currency

11 22

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Ruble counterparty growth on EBS

Ruble ADV and counterparty growth trends – Nov 2008 to Oct 2010

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Ruble regional make/take ratios

Offshore price making has increased from 36% to 49% 11

Currency pair development on EBS Ruble currency pair/trading opportunities development – Aug 2008 to Aug 2010 August 2008 USD/RUB (100%)

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EBS: Orderly ruble market development

• Recent ACI Russia Survey regarding pip increments delivered the following results (% of respondents) 0.0001

27%

Pip increment / % respondents

0.0005

38% 0.0010

20% • • 73% = increments should be 5/100 kopeks or greater 38% (largest single group) = 0.0005

• EBS applied this parameter on 18 October 2010 • Delivering unique, proactive value to the market 0.0025

15% Manual and API trading (banks and PTCs) • • Wholesale market appeal minimum lot size of USD 1m MQL and fill ratio may be applied to optimize trading opportunities for all market participants 13

Thank you

[email protected]

0207 029 9129

ICAP plc 2 Broadgate, London EC2M 7UR +44 (0)20 7000 5000

www.icap.com

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