NFEA view on RUB settlements for foreign banks

Dmitry Piskulov, Ph.D. (Econ.) Chairman of the Committee for Professionalism, Ethics and Education

London 16Apr08 National Foreign Exchange Association, Russia 1

About NFEA

• • • • • • Established: October 1999 in Moscow as non-commercial organization; Membership: legal entities (local and global banks and brokers) working on/related to Russian spot/forward foreign exchange and money markets.

Management: the Board (26 market practitioners), 4 co-chairmen, 2 Commitees (on Market Indices; for Professionalism, Ethics & Education) 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: MosIBOR (2001, RUR interbank % rates), RIBER (2004, USD/RUB), MosPrime Rate (2005, RUB money market reference rate) Projects in progress: Forwards and Derivatives Master Agreement (joint project with ARB and NAUFOR) Examination for ACI Certificates International cooperation and working contacts: ACI-The Financial Markets Association ISDA (inclusion of MosPrime rate into ISDA definitions 2006) London 16Apr08 National Foreign Exchange Association, Russia 2

RUB global challenges

1) RUB to become international (global) currency (political target) within 10-15 years: • Payment (invoicing) currency • Reserve currency • Accounting currency (2) Moscow to become one of world leading financial centers (pricing of RUB assets within Russia) London 16Apr08 National Foreign Exchange Association, Russia 3

Importance of RUB settlements

Continued, uninterrupted RUB settlements is crucial element for RUB to become international currency

• RUB is already going global (cash + derivatives trading in London, less NY, Tokyo) + new RUB products soon • Increased interest of foreign players (banks, institut.investors) London 16Apr08 National Foreign Exchange Association, Russia 4

RUB on-shore market

Cash market (daily volumes): sharp increase

• FX cash (tod, tom, spot) = 85-90 bln.$ • Interbank cash depo(unsecured)= 16-20 bln.$

Forwards & Derivatives (monthly volumes, beginning of 2007):

• FX derivatives • Interest rate derivatives: • FI & Equity derivatives: = 50-52 bln.$ =2-3 bln.$ London 16Apr08 National Foreign Exchange Association, Russia 5

SOLUTIONS

Long-term

: • BESP (Central Bank’s operated RTGS)

Short-term

• Bilateral netting arrangements by London banks • Concentration of RUB correspondent accounts of London banks with one correspondent Russian bank with large overdraft facility (such as Sberbank)

similar to USD account of Russian banks with BONY in 1990-2000s

London 16Apr08 National Foreign Exchange Association, Russia 6

P roposals for RUB RTGS (BESP) by NFEA banks

BESP should be regarded by CBR as national infrastructure project but not a commercial (aimed at promotion of RUB on global markets)

• Reduce cost of a payment in BESP • Obligatory participation of major banks from fixed date (i.e. 01 Jan 2009) • Enable back-valuation of payments • Ease security requirements London 16Apr08 National Foreign Exchange Association, Russia 7

Solutions other than BESP

• Netting agreements: reduce risks • Correspondent banks (i.e. Sberbank – the largest) RUB correspondent account program for foreign banks:  All documentation in English  Account manager available until 7 p.m. GMT  Overdraft facility for intraday and overnight  Possibility of urgent payments after cut-off time (till 8 p.m. MMT) at extra fee London 16Apr08 National Foreign Exchange Association, Russia 8

New RUB products globally

In 2007-2008 we expect: • RUB Repos in London • Securities (equity) lending (Russian issuers) • Credit derivatives in RUB • Global equities/IPOs on Russian exchanges London 16Apr08 National Foreign Exchange Association, Russia 9

Contact Details

13 Bolshoy Kislovskiy Per., Moscow, 125009, Russia, Tel.+7 (495) 705-9693, Fax: +7(495) 705-9675.

www.nva.ru

, www.nfea.ru

@ The Copyright National Foreign Exchange Association, 2008. All rights reserved. Any reproduction is only permitted with prior consent of NFEA.

London 16Apr08 National Foreign Exchange Association, Russia 10