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ING Financial Markets

RuONIA Overnight Index Swap Market in Russia. ING Financial Markets. November 2010 Moscow. CONTENTS. I. RuONIA background. History, current state and future prospects Comparison with MosPrime. II. RuONIA OIS: issues and solutions. Legal, calculation and discount curve

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ING Financial Markets

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  1. RuONIA Overnight Index Swap Market in Russia ING Financial Markets November 2010 Moscow

  2. CONTENTS • I. RuONIA background • History, current state and future prospects • Comparison with MosPrime • II. RuONIA OIS: issues and solutions • Legal, calculation and discount curve • Settlement, liquidity and market-making • III. Appendix: OIS market comparison • Comparison of EONIA, SONIA and RUONIA

  3. Calculation Average daily volume Deals that are too large Remaining deals method: calculated excluded bucketed Non-representative buckets Remaining volume If too low, criteria eased Volume-weighted formula excluded calculated and last 2 steps repeated applied RUONIA BACKGROUND • RuONIA and OIS history: • Much preparatory work over last 2 years • Calculation methodology agreed July 2010 • CBR started publishing RuONIA from 8th Sep • First offshore 1 week RuONIA OIS trade DB London – EBRD • First locally booked 1 week trade (ING – EBRD) 13th Oct • First locally booked 1 month trade (ING – EBRD) via ICAP 11th Nov • First locally booked 3 month trade (ING – EBRD) via ICAP 15th Nov • What is RuONIA: • Rouble-denominated • Trade-weighed overnight rate index • Based on actual money market deposits • Participants are (currently) 31 banks of highest credit quality that cover more than 50% of the interbank market • Organizational bodies are the Central Bank of Russia (CBR) and the National Foreign Exchange Association (NFEA) European EONIA OIS market • Future development: • Interest from participants; regular meetings: NFEA, ICAP etc. • Daily RuONIA OIS fix, similarto the NFEA daily FX swap fix • RuONIA OIS central clearing through MICEX • OIS curve has the potential to become very important: the curve of choice for the regulator and participants Source: ECB

  4. RUONIA MOSPRIME COMPARISON MosPrime against RuONIA MosPrime – RuONIA basis RuONIA is not a replacement of MosPrime It is an additional benchmark with its own properties • MosPrime: offer rate at which banks are ready to lend • RuONIA: rate of ACTUAL trades done • Benefit of full protection from manipulation • However, timing disadvantage (published 5 pm next day) • Basis is 27bp on average and has a tendency for tightening

  5. OIS ISSUES AND SOLUTIONS ISSUES LEGAL ISSUE SOLUTION • Legal uncertainty • - Few RISDA agreements has been signed so far • - RISDA lacks some sections needed for OIS trading • - Uncertain implementation, esp. netting and default clause • Standardized documentation • - Long Form Confirmation based on ISDA/RISDA – to sign • - Term Sheet – to exchange • To request RuONIA contributors to put in place at least 10 agreements with each other • Online trade matching service CALCULATION ISSUE SOLUTION • Difficulty in agreeing cashflows with precision • Specialized online service • Calculating cashflows for individual trades / whole portfolios • Possible providers: CBR, MICEX, Bloomberg, Reuters • Developed markets services: DTCC, triOptima SOLUTION DISCOUNT CURVE ISSUE • Need for discount curve for derivatives trades • Firm agreement as to which curve to use • - To start with MosPrime • - To introduce OIS points on the curve gradually • To offer quotes for OIS up to 3 months • Regular meetings to evaluate quality of data used

  6. OIS ISSUES AND SOLUTIONS (2) SETTLEMENT ISSUE SOLUTION • Shortage of knowledgeable support staff • Accounting/settlement systems not ready • Inconsistent accounting among banks • To issue accounting recommendations • - To confirm that P&L is calculated as discounted MTM • Third party clearing (MICEX or expert bank like ING) LIQUIDITY AND MARKET-MAKING ISSUE SOLUTION • Lack of liquidity so far • To nominate 5 or 10 of 31 RuONIA contributing banks to offer firm OIS quotes • Introduction of experienced OIS brokers services

  7. APPENDIX OIS MARKETS COMPARISON SOLUTION

  8. APPENDIX OIS MARKETS COMPARISON (2) SOLUTION

  9. Q&A

  10. THANK YOU!

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