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Russian derivatives regulations – developments and remaining challenges

Russian derivatives regulations – developments and remaining challenges. Andrei Murygin Partner 10 September 2013. Repositories – reporting and close-out netting. NSD and NP RTS announced availability of reporting facilities for repos and FX swaps – reportable from 5 November 2013

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Russian derivatives regulations – developments and remaining challenges

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  1. Russian derivatives regulations – developments and remainingchallenges Andrei Murygin Partner 10 September 2013

  2. Repositories – reporting and close-out netting • NSD and NP RTS announced availability of reporting facilities for repos and FX swaps – reportable from 5 November 2013 • Impact: close out netting will become available for repos and swaps • Announcement of reporting facility for DFIs and “other agreements involving securities and foreign currency” expected before November 2013 • Works as extension of transition period for reporting of derivatives and spot trades until July 2014 • Close out netting for derivatives will effectively be postponed too, unless both parties agree to report before statutory obligation arises • Foreign banks’ reporting obligation – applicable?

  3. Collateral • “Contracts for payment of floating margin amounts” are included in the basic DFI list in the 2011 Russian Master Derivatives Documentation; • 2011 Form of Margin Agreement - collateral is treated as a separate derivatives transaction • FSFM proposes adding Credit Support Agreements into the list of DFIs • Improves chances of inclusion of collateral in Close out Amount; • Does it improve enforceability of collateral in the absence of statutory recognition of margin payments in the SML? • Civil Code or SML changes necessary: timing unclear

  4. Curing discrimination of foreign players - Civil code changes needed • Article 1062 (2) : change is needed to ensure equal protection of derivatives with non-Russian professional counterparties • November 2012 – Duma indefinitely postponed the proposed changes to the Civil Code • Timing of such changes is uncertain

  5. Court practice – adverse cases • Unicredit case – 2013 repeat case of 2012 loss • Easy fix: specific termination clauses can be dealt with in the documentation • Larger impact: unpredictable interpretation of international-style provisions of Russian and ISDA derivatives documentation • VAS discussions of possible clarifications on derivatives • Possibility of adding termination if a professional party acted in bad faith • Possibility of professional party’s disclosure obligation and suitability tests

  6. Questions • ?

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