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Bank “National Clearing Centre“

Bank “National Clearing Centre“. 2008. National Clearing Centre ( NCC ). NCC was established on October 24 , 2005 , as a closed joint-stock company NCC’s shareholders are : Moscow Interbank Currency Exchange, 99 . 329% National Depository Center, 0 . 671% The shareholders ’ equity :

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Bank “National Clearing Centre“

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  1. Bank “National Clearing Centre“ 2008

  2. National Clearing Centre (NCC) • NCC was established onOctober 24, 2005,as a closed joint-stock company • NCC’s shareholders are: Moscow InterbankCurrency Exchange, 99.329% National Depository Center, 0.671% • The shareholders’equity: • The shareholders’equityis 1,735billion rubles (~EUR 49 million). • The shareholders’equityplus retained earnings as of November 1, 2008, are 2,073billion rubles.

  3. NCC in the MICEX Group • Organization of trade: foreign currency, government securities, bonds, derivatives. • Clearing in government securities markets, stock and futures markets) • Technological project support and development of new IT products MICEX NCC National Mercantile Exchange • Clearing operations and trade results settlements • Government intervention inthe grain market • Trade: petroleum products, grain MICEX Settlement House MICEX Stock Exchange NDC • Organization of trade in stocks, corporate andmunicipal bonds,units in mutual funds, futures • Funds transfer • Depository operations Regional currency and stock exchanges Novosibirsk Saint Petersburg Yekaterinburg Samara Nizhni Novgorod Rostov-on-Don Vladivostok

  4. NCC’s Operating Principles • NCC operates as the central counterparty • controlof executed transactions collateralization • control offulfillment of obligations based on PVP and DVP principles • ongoingmaintenance of NCC’s liquidity, including liquidity suppliers engagement • NCC takes risks associated with possible failure by clearing participants to fulfill their obligations

  5. Basic Elements of NCC’s Risk Management System • Limitationof traded instrument price fluctuations • Preliminary depositing of participants` funds • Availability ofguarantee funds • Fixing of various types of limits • Setting requirements for the clearing participants` financial standing and control over it • Mechanism forthe substitution of an unfair participant by the Bank of Russia • MICEX’s 2.6 billion ruble guarantees • NCC’s capital

  6. From December 10, 2007,National Clearing Centre operates as the central counterparty in the MICEX FX market

  7. NCC TODAY • NCC’s total balance as of November 1, 2008, is 184,3 billion rubles • USD- and EUR-denominated account balance as of November 1, 2008, in the ruble equivalent exceeds 32,1 billion rubles • The total number of clearing participants is 413 • 233 banks participate in the USD 4,62 million Risk Covering Fund • The shareholders’equityplus retained earnings are 2, 073 billion rubles, including 1,735 billion rubles of the shareholders’equity

  8. Volumes of Trade in the Foreign Exchange Market with/without Central Counterparty

  9. Correspondent Banks • JPMorgan Chase Bank, New York • The Bank of New York, New York • Deutsche Bank, Frankfurt/Main • VTB Germany, Frankfurt/Main • BELVNESHECONOMBANK, Minsk • PRIVATBANK, Dnepropetrovsk • Bank TuranAlem, Almaty

  10. NCC’s Regional Settlement Diagram Nizhni Novgorod Saint Petersburg Novosibirsk Vladivostok Moscow Samara Yekaterinburg Rostov-on-Don

  11. Development of NCC’s Clearing Operations • Introduction of the central counterparty in the REPO government securities market • Upgrading of risk management system • Broadening the range of services provided • Extension of clearing to other financial market segments

  12. NCC in the REPO Government Securities Market • NCC operates as the central counterparty • Dealsare concluded under the following terms: • full or partialpreliminary collateralization for the first part of repo; • partialpreliminary collateralization for the second part of repo; • Repo deals are concluded uponmatchingof dealers` requestsand confirmations from NCC • The first and second parts of repo deals are settled upon transaction settlement requests received from dealers and NCC

  13. Improvement of Risk Management System in the FX Market • Setting of the exchange rate fluctuation limits and preliminary depositing standards depending on the external market situation adjusted for the current composition of two-currency basket: - symmetricincrease of the exchange rate fluctuation limits with respect to the central rate of the current trading day and a proportionate increase in preliminary depositing standards; - non-symmetric settingof the exchange rate fluctuation limits with respect to the central rate of the current trading day towards the external market trend without changingpreliminary depositing standards. • Increase of the Risk Covering Fund amount • Setting of various modes of operations performed by trade participants depending on the assessment of the current market volatility and the status of their open positions • Insurance of the NCC operational risks • Extension of Risk Management System to various financial market segments • Establishing of the Risk Committee and arranging of its functioning

  14. Modes of Operations • A participant will have the opportunity to operate depending on the assessment of the current market volatility and the status of his open market positions: • Basic mode: the participant’s operations are not limited, for collateral fully covers potential exchange rate risks associated with his positions; • Limited mode: withthe scale of the participant’s potential losses reaches the amount of collateral, the participant will have the opportunity to operate only for closing the existing positions; • Position close-out mode: if the participant fails to allocate collateral or its amount is not sufficient, the participant’s operations are put on hold and his positionis closed out during the trading session.

  15. NCC’s Services Development • Setting the limits of EUR-denominated net operations • Currency band regulation • Online matching of clearing participants’ positions • Intraday crediting of clearing participants to facilitate their obligations’ settlement • Maintaining a single ruble-denominated position of participants in exchange markets • Offering clearing participants an opportunity to settle securities transactions in foreign currency • Offering participants an opportunity to execute transactions in the stock market • with partial preliminary collateral • Creating a single clearing participant’s “portfolio” to settle operations in various financial market segments • Beginning of operation in the interbank credit market

  16. REGULATION OF CLEARING OPERATIONS

  17. Today’s Regulatory Framework for Clearing Operations • Clearing operations are governed by: - Federal Law No. 39-FZ of April 22, 1996 “On the Securities Market”, which defines clearing and clearing operations only in the securities market; - Resolution of the Federal Commission for the Securities Market No. 32-ps of August 14, 2002, which only defines ordinary, multilateral and centralized clearing in the execution of securities transactions; - Regulations of the Central Bank of the Russian Federation No. 219-P of March 25, 2003 and No. 220-P of March 25, 2003, which govern clearing in the government securities market. • Standards applied to clearing in the securities market are used for clearing in the currency and government securities markets.

  18. Improvement of Clearing Laws in Russia • The central counterparty’s (CCP) legal statusdefining will allow to introduce the CCP in the financial market as an independent infrastructural entity which concludes transactions for clearing purposes without being a trade participantand is rewarded for rendering clearing services. • Determination of the legal status of deposited and blockedfunds (property) of clearing participants for securing their obligations will allow to reduce the risk they litigate the use of the above-mentioned funds by the CCP. • Introduction of separate legal status and usage mode for clearing accounts to prevent them from being used in the bank account mode envisioned by the Civil Code of the Russian Federation, includingunconditional cash debiting upon the clearing participant’s request.The clearing institution needs to have the right to withhold the clearing participant’s funds until its obligations are fully fulfilled.

  19. Improvement of Clearing Laws in Russia (contd) • Amendment to the Laws “On Joint-Stock Companies” and “On Limited Liability Companies” stating that the standard for major and related-party transactions will not apply to transactions concluded in the course of organized trade, which will reduce the risk of litigation of the above-mentioned transactions by market participants, including transactions with the CCP. • Establishing the possibility and procedure for using assets of the Risk Covering Fund and guarantee fundsin full volume. • Introduction ofthe procedure for the fulfillment of obligations by the clearing participant in case of his bankruptcy or license withdrawal will allow to terminate the obligations of such participant only after their fulfillment. • Establishing legal grounds and procedures for the cancellation of clearing service agreement will allow to cancel such agreement by mutual consent between the parties rather than at any time as provided for by Chapter 39 of the Civil Code of the Russian Federation.

  20. Improvement of Clearing Laws in Russia (contd) • Establishment by law of the procedure and new way for termination of obligations in the course of clearing will allow a clearing institutionto define and terminate the obligations of clearing participants. None of the ways for termination of obligations currently envisioned by the Civil Code of the Russian Federation allows the clearing institution which is not a party in the transaction to terminate the clearing participant’s obligations. This does not allow to conduct ordinary or multilateral clearing operations. Clearing with the CCP is not envisioned by laws of the Russian Federation. Centralized clearing operations can only be performed using the assignment of rightswhich requires the consent from the other party in the transaction. The clearing centre has to track the rights and obligations of the party so as not to become the all-in-one debtor and creditor in the result of assignment.

  21. National Clearing Centre Thank you for your attention! Our address: Russia, 125009, Moscow, Bolshoy Kislovsky Pereulok, 13 Telephone: +7 (495) 782 97 94 E-mail: info@nkcbank.ru Internet:www.nkcbank.ru

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