A new pattern of clearing which involves a central counterparty(CCP) has been introduced in the MICEX currency market. The role of the CCP will be played by the specialy designed subsidiary company of the MICEX Group, Commercial Bank “The National Clearing Centre” (NCC).
“The start of the NCC business signifies a new stage in the development of the Russian exchange-based market infrastructure”, says Alexander Potemkin, President of the MICEX and Chairman of the Supervisory Board of the NCC. He stresses that the significance of the event lies with the fact that for the first time in the history of Russia's financial market a specialized clearing institution has been put into operation which is expected to provide reliable and legally transparent working conditions for all exchange market participants”.
In 2008-2009 the NCC intends to expand its clearing activities to the market for REPOs involving government securities, as well as to the stock and the derivatives markets of the MICEX.
As Viktor Utkin, NCC Chairman of the Board says “the NCC will be implementing,on a step-by-step basis, its strategic goal, which consists in providing customers of the MICEX Group with integrated clearing services. This implies, among other things, the possibility of introduction of single cash position (limits) of participants in the course of clearing flow in all exchange-based markets of the MICEX”.
The transfer, as of December 10, 2007, of clearing in the MICEX exchange-based currency market to the NCC became possible after the introduction of a new pattern of relations among participants in trading which involves a central counterparty. In this pattern the National Clearing Centre becomes a key element — a specialized organization within the Group MICEX acting as the counterparty for all transactions concluded in the course of trading. It also provides centralized clearing for the results of trading. In its turn, the MICEX will continue to organize and hold trading in the UTS and serve as a technological center.
The list of clearing services which the NCC will provide to participants in exchange-based and OTC markets includes control over the coverage for transactions, the calculation of net obligations of participants for the results of trading, informing participants about their obligations for the results of trading, control over the fulfillment of obligations on the PVP and DVP principles, the attraction of liquidity providers for the timely implementation of obligations for the results of trading and the organization of guarantee funds. Also, it is intended to provide credits to participants in the form of cash and/or securities to secure the fulfillment of their obligations for the results of clearing, open and maintain bank accounts for participants and provide banking services to participants in clearing to ensure effective management of liquidity. The NCC will also interact with international clearing and settlement centers and organize clearing services for non-residents.
The division of functions between the MICEX and the NCC resulted in the need to modernize the regulatory and contractual framework of the exchange-based currency market. An important feature which differs the new contractual framework from the existing one is the inclusion of the “Agreement on the Order and Terms of Purchase and Sale of Foreign Currency Using Centralized Clearing” (Trade Agreement). This document defines the order and the terms of operations in the UTS as well as the responsibilities of the parties in the course of concluding transactions and performing obligations. The Trade Agreement entered into force on August 8, 2007 after it had been signed of the Bank of Russia, the MICEX, the National Clearing Centre and such leading operators of the currency market as Alfa Bank, VTB Bank, Bank of Moscow, Vnesheconombank, Gazprombank, Deutsche Bank, MDM Bank, IMB, Sberbank, Citibank and Raiffeisenbank Austria.
Besides, in accordance with the Trade Agreement, the MICEX provides coverage to the amount of 2.6 billion rubles to guarantee the performance of the NCC’s obligations for transactions concluded in the UTS if the NCC fails to fulfill the corresponding obligations.
In the cause of preparative work for transition to a new order of trading in the exchange–based currency market with NCC participation, 499 market participants signed packages of documents to get access to trading and clearing services in new conditions. Therefore practically all the participants of UTS expressed their support to the NCC project making it clear there is sustainable demand for the exchange-based currency market.
As for 10 December 2007, the first NCC working day, 207 banks participated in trading in the currency market with total volume of trading that day reached US$ 5,63 bln.
Information on this subject is available in the “Currency Market/Innovations in the Organization of Trading and Settlements” section of the MICEX web site http://www.micex.ru/currency/ets_n.html at ETS
as well as on the site of the NCC in sections “Services”, “Rates”, “Requisites” and “Electronic Document Interchange” (www.nkcbank.ru).