DISCLOSURE BY NSD INFORMATION ON COMPLIANCE WITH … · 2015. 4. 1. · By 1 April 2013, NSD had completed ... Clearstream Banking S.A. (hereinafter – Clearstream), as well as in

Disclosure by NSD Information on Compliance with the Principles for Financial Market

Infrastructures

1

DISCLOSURE BY NSD INFORMATION ON COMPLIANCE WITH THE PRINCIPLES FOR FINANCIAL MARKET INFRASTRUCTURES

Moscow, 2015


Infrastructures

2

CONTENTS

I. MAIN PROVISIONS ........................................................................................................... 3 II. SERVICES PROVIDED BY NSD ........................................................................................... 5 III. CORPORATE GOVERNANCE ............................................................................................. 7 IV. LEGAL AND REGULATORY FRAMEWORK ......................................................................... 8 V. OBSERVANCE OF PRINCIPLES .......................................................................................... 10

Principle 1. Legal Basis............................................................................................................... 11 Principle 2. Governance ............................................................................................................ 15 Principle 3. Framework for the Comprehensive Management of Risks .................................... 18 Principle 4. Credit Risk ............................................................................................................... 21 Principle 5. Collateral ................................................................................................................ 24 Principle 6. Margin .................................................................................................................... 24 Principle 7. Liquidity Risk ........................................................................................................... 25 Principle 8. Settlement Finality ................................................................................................. 32 Principle 9. Money Settlements ................................................................................................ 36 Principle 10. Physical Deliveries ................................................................................................ 38 Principle 11. Central Securities Depositories ............................................................................ 39 Principle 12. Exchange-of-Value Settlement Systems ............................................................... 44 Principle 13. Participant-Default Rules and Procedures ........................................................... 46 Principle 14. Segregation and Portability .................................................................................. 49 Principle 15. General Business Risk ........................................................................................... 50 Principle 16. Custody and Investment Risks .............................................................................. 53 Principle 17. Operational Risk ................................................................................................... 55 Principle 18. Access and Participation Requirements ............................................................... 59 Principle 19. Tiered Participation Arrangements ...................................................................... 63 Principle 20. FMI Links ............................................................................................................... 65 Principle 21. Efficiency and Effectiveness ................................................................................. 68 Principle 22. Communication Procedures and Standards ......................................................... 71 Principle 23. Disclosure of Rules, Key Procedures and Market Data ........................................ 72 Principle 24. Disclosure of Market Data by Trade Repositories ............................................... 76 VI LIST OF PUBLICLY ACCESSIBLE SOURCES

VII GLOSSARY ................................................................................................................................. 78


Infrastructures

3

This “Disclosure by NSD Information on Compliance with the Principles for Financial Market Infrastructures” (hereinafter – the Disclosure) is developed in accordance with the order of the Bank of Russia No. OD-607 dated 09.04.2014 "About the assessment method for the degree of conformity to the Bank of Russia's recommendations by systemically important payment system operators, involved payment infrastructure service providers and associated systemically important payment systems" and based on the procedure defined in the document "Principles for Financial Market Infrastructures: Disclosure Framework and Assessment Methodology" issued by the Committee on Payment and Settlement Systems of the Bank for International Settlements and the Technical Committee of the International Organization of Securities Commissions.

1

NSD performs the functions of the following financial market infrastructures: central securities depository (CSD); securities settlement system (SSS); systemically/nationally important payment system (PS); trade repository (TR). Unless otherwise expressly specified in the text of the Disclosure, the provisions of the Disclosure are applied to every financial market infrastructure whose functions are executed by NSD.

I. MAIN PROVISIONS

National Settlement Depository (hereinafter – NSD, the Company) is the central securities depository of the Russian Federation, a part of the Moscow Exchange Group. The Company operates in accordance with the Articles of Association. An entry regarding the state registration of the Company is made in the Unified State Register of Legal Entities, Principal State Registration Number: 1027739132563.

NSD is the infrastructure institution of the Russian financial market that performs a wide range of functions (types of activity) pursuant to:

Status of Central Securities Depository assigned by the order of FFMS dated 06.11.12 No. 12-2761/PZ-I.

Certificate No. 004 of Registration of a Payment System Operator dated 26.12.2012, issued by the Bank of Russia.

Professional Securities Market Participant Licence No. 177-12042-000100 dated 19.02.2009 to conduct depository activities, issued by the Bank of Russia.

Licence No. 3294 dated 26.07.2012 to conduct banking transactions issued by the Bank of Russia.

Licence No. 077–00004–000010 dated 20.12.2012 to conduct clearing activities issued by the Bank of Russia.

Statements of the Bank of Russia's Financial Markets Service on NSD's start of repository functions.

NSD is also Russia's National Numbering Agency and the Substitute Numbering Agency for the CIS, authorised to assign the international ISIN, CFI and pre-LEI/LEI codes. The Company is a direct participant in the Bank of Russia Real Time Gross Settlement System (RTGS).

The majority shareholder of NSD is Open Joint Stock Company "Moscow Exchange" (99.997%). For the full structure of NSD shareholders, visit our website at https://www.nsd.ru/ru/about/structure/shareholders/. With the Shareholders Agreement with respect to NSD that the shareholders have entered (https://www.nsd.ru/ru/about/structure/agreement/), the broad representation of securities market participants in NSD's share capital gives NSD's customers an opportunity to participate in the development of NSD's product range and tariffs, i.e., establish control over the price and quality characteristics of NSD's services.

The Company acts in strict accordance with the applicable legislative provisions and the terms and conditions of existing contracts and agreements. NSD monitors changes in legislation that impact its activities. NSD takes all necessary actions to revise and make internal documents consistent with existing legislation on a regular basis.

NSD's risk management system is aimed at ensuring total performance reliability of all of NSD's information systems and services as a central securities depository, securities settlement system, systemically/nationally important payment system and trade depository. To that end, NSD applies a comprehensive approach to identify, assess, minimise and control risks during its operation. Risk management is used in all business processes and at all of NSD's levels, including directors and staff and a risk-based audit.

1 Extracts from the document quoted in this Disclosure correspond to the Russian version attached to the Bank of Russia's order No.

OD-607 dated 09.04.2014. Extracts from the document quoted in this Disclosure

https://www.nsd.ru/ru/about/licences/




https://www.nsd.ru/ru/about/structure/shareholders/

https://www.nsd.ru/ru/about/structure/agreement/


Infrastructures

4

NSD's Supervisory Board approved the Risk Management System Development Strategy for 2014-2015. This Strategy is one of the functional strategies and is based on NSD's key strategic initiatives, and it takes into account the results of the risk management system audit performed by KPMG in 2012.

NSD's risk management system is continually being improved, in particular, thanks to interaction with other companies of the Moscow Exchange Group, professional consulting service provided by the Thomas Murray rating agency, external independent audit and interaction with financial market participants.

Key principles of risk management:

risk management in accordance with regulatory acts of authorities, as well as with consideration for best international practices and standards;

continuity and flexibility of the risk management process: performance of measures to manage risks on an ongoing basis, from the start to finish of every business process at all of its stages;

application of unified methodological approaches to identify, analyse, assess, monitor and control risks;

integration of the risk management system into the management decision-making process;

involvement of all company employees in the risk management process;

centralisation of risk management functions in one department – the Risk Management Department;

provision of the Risk Management Department's functional independence from other organisational departments.

NSD is a non-bank credit institution that performs infrastructure functions for the Russian financial market. In that context, NSD does not provide loans or bank guarantees, does not take deposits from individuals and entities, executes client's payment documents only to the extent of account balances in a client's accounts and holds client's funds deposited in correspondent accounts in the Bank of Russia and the top, highly reliable banks of the more developed markets, as well as in other readily obtainable assets. Risk management is performed in accordance with the "Regulation on NSD's Risk Management" (approved by NSD's Supervisory Board on 08.06.2011), the "NSD Risk Management Rules for risks associated with central securities depository activities" (approved by NSD's Supervisory Board on 16.10.2012), the "Regulation for the Risk Management Department," the "Regulation for the Risk Management Committee of NSD's Executive Board," and other internal documents concerning individual risk types and risk management tools.

II. SERVICES PROVIDED BY NSD

Services of the central securities depository (CSD) and the securities settlement system (SSS): NSD carries out depository activity, including settlement depository activity, in accordance with the Federal Law No. 39-fz "On the Securities Market" dated 22.04.1996 subject to specifics provided by the Federal Law No. 414-fz "On the Central Securities Depository" dated 07.12.11 and the Bank of Russia's regulatory acts based on this federal law.

The status of central securities depository was assigned to NSD by the Russian Federal Financial Markets Service's Order No. 12-2761/PZ-I dated 06.11.12.

By 1 April 2013, NSD had completed the conversion of most of its nominee's accounts to nominee's securities accounts, thereby starting to execute the functions of the Central Securities Depository. Acting as a central securities depository, NSD provides safekeeping and accounting for a full range of Russian securities (shares, all types of bonds, investment units of unit investment funds, mortgage participation certificates, Russian depository receipts), as well as a wide range of foreign securities (depository receipts, shares and bonds of foreign issuers).

Clients of NSD as a central securities depository and a securities settlement system are the following:

• professional participants of the Russian securities market for whom NSD opens owner's securities accounts, nominee's

accounts, trustee's securities accounts, and trade securities accounts;

http://base.consultant.ru/cons/cgi/online.cgi?req=doc;base=LAW;n=166224




http://www.cbr.ru/sbrfr/archive/fsfr/ffms/ru/press/releases/printable.php@id_3=8793&year_3=2012&month_3=11.html

http://www.cbr.ru/sbrfr/archive/fsfr/ffms/ru/press/releases/printable.php@id_3=8793&year_3=2012&month_3=11.html


Infrastructures

5

• clearing houses for which NSD opens clearing securities accounts;

• foreign central depositories and international clearing-and-settlement systems for which OSD opens foreign nominee's

accounts;

• issuers for whom NSD opens issuer accounts and treasury securities accounts;

• security holders – non-professional participants (legal entities/residents and non-residents) for whom NSD opens owner's securities accounts, provided that authority to send instructions on transactions for such accounts will be transferred to professional securities market participants or the Bank of Russia.

NSD ensures the interaction of the Russian securities market's infrastructure with foreign market infrastructures. NSD has accounts in the international clearing-and-settlement systems Euroclear Bank S.A./N.V. (hereinafter – Euroclear) and Clearstream Banking S.A. (hereinafter – Clearstream), as well as in the central depositories of CIS countries (Kazakhstan, Belarus, Ukraine and others) for foreign securities accounting and settlement. To provide foreign central depositories and international clearing-and-settlement systems with access to Russian settlement infrastructure, NSD has opened foreign nominee's accounts for Euroclear, Clearstream, the Austrian Central Securities Depository and the central depositories of the following CIS countries: Armenia, Belarus, Ukraine, Kyrgyzstan and Kazakhstan.

SETTLEMENT SERVICES OF THE CENTRAL SECURITIES DEPOSITORY

NSD provides a wide range of settlement and depository services in the Russian and international financial markets. In the Russian market NSD's primary target is to provide settlement services for the Moscow Exchange Group's markets.

NSD is:

• a settlement depository that settles securities trades on the trading platforms of CJSC "MICEX Stock Exchange" and OJSC "Moscow Exchange." NSD settles trades both during the placement of securities on trading platforms and during their circulation in the secondary market;

• a settlement institution that settles the cash leg of trades made by trading participants in exchange markets of the Moscow Exchange Group in Russian roubles and in foreign currencies.

NSD also acts as the settlement depository of the Saint-Petersburg Currency Exchange. According to agreements between NSD and the Bank of Russia, NSD acts as the settlement center of the formal securities market (FSM) and is the organisation authorised to provide payment settlement for credit and deposit operations of the Bank of Russia conducted in the trading system of OJSC "Moscow Exchange."

In addition to managing exchange trading, NSD is rapidly developing OTC services.

In the Russian market:

• settlements on conditions of free of payment delivery for all types of securities received for safekeeping, including to be settled in the security holder registers or in other depositories;

DVP settlements using the trading bank accounts opened with NSD, and bank accounts opened in foreign banks like Citibank N. A., New York, JP Morgan Chase Bank N. A., New York Deutsche Bank Trust Company Americas, New York.

• registration of charge over securities;

In the foreign markets:

• foreign securities transactions to be settled in the international clearing-and-settlement systems Clearstream and Euroclear;

• foreign securities transactions to be settled in the central depositories of CIS countries;


Infrastructures

6

The execution of transactions in NSD's accounts opened in the international clearing-and-settlement systems Clearstream and Euroclear is one of the priority areas of growth of NSD's services. The following securities serviced by NSD are recorded in NSD's accounts opened in Clearstream and Euroclear:

• bonds of the Russian Federation's external bond loan;

• corporate Eurobonds and foreign government bonds;

• ADR and GDR;

• shares of foreign issuers;

• units of foreign unit investment funds.

These securities can be a subject of any depository transactions allowed by the Terms and Conditions of NSD's Depository Operations, provided that these transactions do not contradict the conditions of securities issuance and trading. NSD services securities of issuers from more than 40 countries worldwide.

NSD has accounts in 9 central depositories and international clearing-and-settlement systems, as well as correspondent banking accounts in a number of top foreign and Russian banks.

In 2014 the international rating agency Thomas Murray, specialised in ratings of infrastructure financial organisations and risk management, as well as in studies of securities accounting and custody in global industry, maintained the rating for NSD at AA-, which means a very low risk level with a "stable" outlook.

Payment System Services

NSD's Payment System (PS) provides its participants with funds transfer services. The primary target of NSD PS is the transfer of funds: - when the Bank of Russia conducts transactions on the open market or refinances credit institutions; - for on-exchange trades transactions, including transactions on the Moscow Exchange; - for OTC transactions. NSD is the payment system operator and exercises functions of all payment infrastructure service providers, i. e., provides operational services, payment clearing services and settlement services independently (without involvement of third parties). For the most part, NSD PS participants transfer funds using electronic payment tools (such as telebanking systems). The funds are transferred by NSD PS in real time. NSD, acting as NSD PS operator, monitors and analyses risks in real time, as well as ensures a guaranteed level of uninterrupted service operation.

Services of the Trade Depository

NSD, in accordance with provisions of the Bank of Russia Directive No 3253-U dated 30.04.2014 and the Terms and Conditions for Providing Trade Repository Services, provides to OTC market participants who enter into repo contracts and foreign currency swap contracts, contracts for derivative financial instruments, and other contracts for securities and foreign currency made during OTC trades, under terms of the general agreements, the following repository services:

I. Repository Service (registration of OTC transactions);

II. Service of Basic Notifying Party and Notifying Party for the Bank of Russia's repo transactions with a securities basket (reporting to NSD's Repository information about repo contracts between market participants and the Bank of Russia made during OTC trades, using the Bloomberg information system and NSD collateral management systems (CMS)).

At the present time NSD's Repository also provides services of contract registration for a wider range of financial instruments (23 types) that require regulatory reporting as of 01.01.2015.

https://www.nsd.ru/ru/services/repository/

http://repository.nsd.ru/versioned/current/reference/products



Infrastructures

7

Furthermore, the participants have access to additional conversion tools to convert different formats (XLS, CSV, CSV-bulk, DBF) to repository format (FpML). The capability to test Repository software (trial operations) is available to the participants as a separate service. NSD provides informational support to participants on its website. Also, there is a special technical portal for repository message formats. Basic principles of pricing for the above-mentioned services of NSD are defined in the Marketing and Pricing policies, approved by customer committees and confirmed by NSD's supervisory board. NSD's Fee Schedules are available to the public and can be found on NSD's website.

III. CORPORATE GOVERNANCE

NSD seeks to serve the interests of its clients, regulatory authorities and financial market participants. NSD adheres to the key principles of corporate governance stated by the Organisation for Economic Cooperation and Development (OECD) and reflected in the Shareholders Agreement with respect to NSD, under which the corporate governance system should ensure:

the equitable treatment of shareholders; the observance of concerned parties' rights established by law; the timely and accurate disclosure of information on all material matters regarding NSD, including the financial

situation, performance, ownership and governance of NSD; and the strategic guidance and efficient monitoring of NSD governance by the General Meeting of Shareholders and

Supervisory Board of NSD. In accordance with NSD's Articles of Association, the Company has the following governance bodies:

General Meeting of Shareholders, an upper management body. General Meetings are convened at least once a year;

Supervisory Board, an upper management body exercising management functions during the periods between General Meetings. The Supervisory Board members are elected by the General Meeting of Shareholders for the term of one year. The Supervisory Board activities are supported by specialised committees: The Budget Committee, the Nomination and Remuneration Committee, the Technological Policy and Development Committee, and the Audit Committee;

The Chairman of the Executive Board (chief executive officer). The Chairman of the Executive Board is appointed by the General Meeting of Shareholders;

The Executive Board (collegial executive body). The Executive Board members are appointed by the Supervisory Board.

Corporate governance structure can be found on NSD's website: https://www.nsd.ru/ru/about/structure/struct/

The Company is committed across the board to the principle of delineation of employees' authorities and responsibilities during the performance of important tasks within business processes. This principle is documented in the Company's statutory documents, including employees' job definitions, and implemented in executed procedures and employees' information system access rights. Authority for the most important tasks is granted to the heads of respective organisational departments. Internal control for compliance with the principle of delineation of employees' authorities, as well as a review of conformance to the requirements of applicable law and regulatory authorities, is exercised by the Internal Control Department, independent from the Executive Board. Corporate governance structure can be found on NSD's website at: https://www.nsd.ru/ru/about/structure/org_struct/

IV. LEGAL AND REGULATORY FRAMEWORK

The legal and regulatory framework for NSD activities includes the following:

http://repository.nsd.ru/testing/testing


http://repository.nsd.ru/

https://www.nsd.ru/ru/fees/general/


https://www.nsd.ru/ru/about/structure/struct/

https://www.nsd.ru/ru/about/structure/org_struct/


Infrastructures

8

Civil Code of the Russian Federation; Tax Code of the Russian Federation; Arbitration Procedure Code of the Russian Federation; Civil Procedure Code of the Russian Federation; Labour Code of the Russian Federation; Federal Law No. 414-fz "On the Central Securities Depository" dated 07.12.11 (hereinafter – FL "On the Central

Securities Depository"; Federal Law No. 39-fz "On the Securities Market" dated 22.04.1996 (hereinafter – FL "On the Securities Market"; Federal Law No. 395-1 "On Banks and Banking Activities" dated 02.12.1990 (hereinafter – FL "On Banks and

Banking Activities"); Federal Law No. 161-fz "On the National Payment System" dated 27.06.2011 (hereinafter – FL "On the National

Payment System"); Federal Law No. 7-fz "On Clearing and Clearing Activities" dated 07.02.2011 (hereinafter – FL "On Clearing and

Clearing Activities"); Federal Law No. 402-fz "On Accounting" dated 06.12.2011 (hereinafter – FL "On Accounting"); Federal Law No. 229-fz "On Enforcement Proceedings" dated 02.10.2007 (hereinafter – FL "On Enforcement

Proceedings"); Federal Law No. 208-fz "On Joint-Stock Companies" dated 26.12.1995 (hereinafter – FL "On Joint-Stock

Companies"); Federal Law No. 115-fz "On Combating Legalisation (Laundering) of Illegally Gained Income and Financing of

Terrorism" dated 07.08.2001; Regulatory acts of the Bank of Russia; Regulatory acts of the Federal Tax Service of the Russian Federation;

NSD applies the following national and international standards in its operations: National standards International standards

For its depository activities

Regulatory acts of the Bank of Russia Recommendations of the Committee on Payment and Settlement Systems (CPSS) and International Organization of Securities Commissions (IOSCO)

For payments and settlements

For payments and settlements in Russian roubles NSD applies the standards defined in the Bank of Russia's regulatory documents concerning settlements in the Bank of Russia payment system

For payments and settlements in foreign currency NSD applies the international standards of the SWIFT system

For accounting and reporting

The Bank of Russia's Regulation No 385-P "On the Rules of Accounting in the Credit Institutions based in the Russian Federation" dated 16.07.2012

International financial reporting standards (IFRS)

For risk management Regulatory documents of the Bank of Russia

The Basel Committee on Banking Supervision recommendations (Basel II, Basel III)

ISO 31000 – series of risk management standards

Recommendations of the Committee of Sponsoring Organizations of the Treadway Commission (COSO): Enterprise risk management. Integrated framework. (Enterprise risk management – ERM)

CPSS IOSCO recommendations For IT GOST R ISO/IEC 20000

"Information Technology. Service Management"

GOST 34.XXX "Set of Standards for Automatised Systems"

Technical standards for the flow of

ISO 15022 – international SWIFT messaging standard

ISO 20022 – international messaging standard for the financial industry

Extensible Markup Language (XML) 1.0 (Fifth Edition)


http://base.consultant.ru/cons/cgi/online.cgi?req=doc;base=LAW;n=169456;fld=134;from=169453-8;rnd=0.4192798346150078


















Infrastructures

9

documents in an electronic digital format with digital signature using electronic communication formats developed by the Professional Association of Registrars, Transfer

2

Agents and Depositories.

Recommendations for the development of software requirements specification (IEEE 830) during the preparation of functional and other software specifications.

For information security management

GOST R ISO/IEC 1799-2005 "Code of Practice for Information Security Management"

Set of the Bank of Russia Standards for Information Security in the Russian banking system's members

ISO 27001 – international standard for information security

BS 7799 – British Standards Institution, code of practice for Information Security Management

For maintaining business continuity

Recommendations for the structure and content of the action plan for maintaining business continuity (Bank of Russia Regulation No 242-P dated 16.12.2003) -

ISO 22301 – business continuity management

BS 25999 – British Standards Institution, business continuity management

BS 25777 – British Standards Institution, IT service continuity management.

NSD has always paid great attention to conformance to the requirements of the Bank for International Settlements and International Organization of Securities Commissions (CPSS-IOSCO). No less than once every two years NSD orders an operational audit from one of the leading global auditors to ensure conformance to international standard ISAE-3402. The report on the operational audit can be found on NSD's website at https://www.nsd.ru/ru/about/structure/audit/

V. OBSERVANCE OF PRINCIPLES

Principle Evaluation of observance of Principle PRINCIPLE WEIGHT

Principle 1. Legal Basis Broadly observed 8%

Principle 2. Governance Fully observed 7%

Principle 3. Framework for the Comprehensive Management of Risks

Fully observed 7%

Principle 4. Credit Risk Fully observed 3%

Principle 5. Collateral N/A -

Principle 6. Margin N/A -

Principle 7. Liquidity Risk Broadly observed 7%

Principle 8. Settlement Finality Fully observed 4%

Principle 9. Money Settlements Broadly observed 4%

Principle 10. Physical Deliveries N/A -

Principle 11. Central Securities Depositories Fully observed 7%

Principle 12. Exchange-of-Value Settlement Systems Fully observed 5%

Principle 13. Participant-Default Rules and Procedures Broadly observed 3%

Principle 14. Segregation and Portability N/A -

Principle 15. General Business Risk Fully observed 7%

Principle 16. Custody and Investment Risks Broadly observed 5%

Principle 17. Operational risk Fully observed 8%

Principle 18. Access and Participation Requirements Broadly observed 5%

Principle 19. Tiered Participation Arrangements Partly observed 4%

Principle 20. FMI Links Fully observed 2%

Principle 21. Efficiency and Effectiveness Fully observed 4%

Principle 22. Communication Procedures and Standards Fully observed 3%

Principle 23. Disclosure of Rules, Key Procedures and Market Data

Broadly observed 4%

2

http://cbr.ru/credit/Gubzi_docs/main.asp?Prtid=Stnd






https://www.nsd.ru/ru/about/structure/audit/


Infrastructures

10

Principle 24. Disclosure of Market Data by Trade Repositories

Fully observed 3%

Final evaluation of observance of Principles Broadly observed

Disclosure by NSD Information on Compliance with the Principles for Financial Market Infrastructures

11

Principle 1. Legal Basis. An FMI should have a well-founded, clear, transparent and enforceable legal basis for each material aspect of its activities in all relevant jurisdictions. A sound legal framework ensuring FMI activities in all relevant jurisdictions is a fundamental requirement for overall FMI stability. This principle should be considered in conjunction with other principles. Applies to FMI: CSD, SSS, PS, TR

Key Considerations Comments regarding observance of the Key Considerations

Key consideration 1 The legal basis (regulatory environment, FMI rules, procedures and contracts) should provide a high degree of certainty for each material aspect of an FMI's activities in all relevant jurisdictions.

Most NSD activities are performed within the jurisdiction of the Russian Federation. The legal basis enabling a high degree of legal certainty for substantial aspects of NSD business in Russia as a professional securities market participant, including as CSD, SSS, PS and TR, is the following sources with sufficient, clear, and well-defined provisions that comprehensively and in detail regulate key aspects of NSD business: - norms of the laws of the Russian Federation; - normative legal documents and acts of the Bank of Russia, governmental authorities and administrative bodies of the Russian Federation; - local normative legal documents and acts of NSD produced in full conformance with the requirements of Russian legislation; - standard forms of contractual instruments entered into between NSD and its clients and counterparties, which meet the requirements of Russian legislation and NSD's local regulatory framework. Local normative legal documents and acts, as well as the standard contractual framework of NSD regulating its activities as CSD and PS, contain all required provisions that provide a legal basis for securities immobilisation, securities dematerialisation, delivery of book-entry securities, and settlement finality, including as a result of netting participants' obligations. NSD's rules and procedures specify the moment when a participant may not cancel settlement based on the results of netting, and they contain required provisions that prohibit the inclusion of a bankrupt participant in settlements on cash and securities, both for payments in NSD's accounting system and external payments. Standard agreements and other NSD documentation regulating its activities as a TR contain required provisions regulating the procedure for maintaining a register that contains information about contracts entered into between general agreement parties, the account protection procedure, procedures of reporting to concerned parties, and the disclosure and non-disclosure of contract register information. A list of the main laws, normative legal documents and documentation applied by NSD can be found in the following table:

Aspect of business Regulatory documents

Rights and investments in financial instruments FL "On the Securities Market" FL "On Joint-Stock Companies" FL "On the Central Securities Depository" Regulation on Depository Activity in the Russian

Federation (approved by Resolution of the Federal Commission for the Securities Market No. 36 dated








12

16.10.1997) Procedure for the opening and keeping of securities

accounts and other account types by depositories (approved by the Russian Federal Financial Markets Service’s order No 12-78/pz-n dated 30.08.2012)_

Terms and Conditions of NSD's Depository Operations NSD Clearing Rules

Settlement Finality FL "On Clearing and Clearing Activities"

FL "On the Payment System" FL "On the Securities Market" FL "On the Central Securities Depository" Provision on the specifics of the procedure for opening

and closing trading securities accounts and clearing securities accounts, as well as conducting transactions on these accounts (approved by the Russian Federal Financial Markets Service’s order No. 12-12/pz-n dated 15.03.2012)

NSD Clearing Rules NSD Payment System Rules Terms and Conditions of NSD's Settlement Services

FMI systems interactions (interoperability) Agreement for E-Document Flow E-Document Flow Rules

Non-disclosure mode FL "On the Central Securities Depository" FL "On the Securities Market" Agreements entered into with clients

Netting

FL "On Clearing and Clearing Activities"

NSD Clearing Rules

Placement of certificated securities and conducting transactions with them (immobilisation) Accounting of book-entry securities (dematerialisation)

FL "On the Securities Market"

Terms and Conditions of NSD's Depository Operations

FL "On the Securities Market" Terms and Conditions of NSD's Depository Operations






https://www.nsd.ru/ru/documents/depo/

https://www.nsd.ru/ru/documents/clearing/












https://www.nsd.ru/ru/documents/calc/payment_system/

https://www.nsd.ru/ru/documents/calc/

https://www.nsd.ru/ru/documents/workflow/

https://www.nsd.ru/ru/documents/workflow/



https://www.nsd.ru/ru/documents/








13

Settlements in the DVP system (delivery versus payment mechanisms)


Settlements in the PVP system (payment versus payment mechanisms)

NSD is developing documents that provide for the possibility of settlements in the PVP system

Settlements in the FOP system (free of payment delivery mechanisms)


Injunctive remedies used in the context of repository activities

FL "On the Securities Market"

Terms and Conditions of NSD's Depository Operations

Procedures in case of default on obligations NSD Clearing Rules

Novation Civil Code of the Russian Federation

Information services Contract for Information Services

Terms and Conditions of Information Services

Repository Services FL "On the Securities Market"

Terms of Repository Services Agreement

Terms and Conditions of Repository Services

The Central Bank of Russia Instruction No 3253-U "On the Procedure for the maintenance of a register with contracts entered into on the terms of the general agreement (unified contract), deadlines for reporting of data required for this register maintenance, as well as reporting of the register with contracts entered into on the terms of the general agreement (unified contract) to the Central Bank of the Russian Federation" dated 30.04.2014

In order to ensure compliance of the local regulatory framework with the requirements of the effective laws of the Russian Federation, NSD regularly monitors for updates of laws of the Russian Federation, normative legal documents, and acts of the Bank of Russia, governmental authorities and administrative bodies that affect any aspect of NSD business. NSD's legal department is directly involved in the updating of the regulatory framework. Where necessary, legal reviews are performed, such as in order to determine how adopted changes will affect current NSD business, and counsel's opinions are prepared. For the purposes of further clarification of law enforcement practice, NSD is in continual contact with the Bank of Russia and other appropriate official bodies of the Russian Federation.









https://www.nsd.ru/ru/documents/inf_services/pred_inf_cb/

https://www.nsd.ru/ru/documents/inf_services/pred_inf_cb/


https://www.nsd.ru/ru/documents/rep/











14

Where necessary, in addition to the updating of NSD's local regulatory framework and contractual instruments, current business processes and technologies are modified. NSD's local regulatory framework is subject to periodic assessment and checks as part of scheduled and unscheduled audits by the Bank of Russia, as the authorised authority for financial markets and tax authorities. Certificates of the performed audits do not contain conclusions and recommendations that indicate an inconsistency of NSD's local regulatory framework with the requirements of the laws of the Russian Federation or that this framework must be modified or revised. NSD also performs operations within foreign jurisdictions. Legal certainty for aspects of NSD business (as CSD, SSS and PS) within foreign jurisdictions is maintained at an adequate level by means of: - an assessment of a jurisdiction's legislation and applicable standards of international law. Such assessment (if required) is made with the involvement of external highly experienced legal advisers who are specialised in the legislation and law enforcement practice of such jurisdiction; - on-line monitoring of applicable legislation updates; - detailed legal review of contractual instruments to be entered into and adherence to their provisions, procedures and practices; - legal support of NSD business within foreign jurisdictions by the external legal advisers. The list of foreign jurisdictions where NSD is conducting its business includes, in particular: Kingdom of Belgium, in the context of NSD activities as CSD, SSS, PS. Grand Duchy of Luxembourg, in the context of NSD activities as CSD, SSS, PS. USA, in the context of NSD activities as CSD, SSS, PS. Republic of Kazakhstan, in the context of NSD activities as CSD, SSS, PS. Azerbaijan, in the context of NSD activities as CSD, SSS. Republic of Belarus, in the context of NSD activities as CSD, SSS. Ukraine, in the context of NSD activities as CSD, SSS. Austria, in the context of NSD activities as CSD, SSS. Armenia, in the context of NSD activities as CSD, SSS. Kyrgyz Republic, in the context of NSD activities as CSD, SSS. including in coordination with the following institutions:

Bank Clearstream Banking S.A., Euroclear Bank Bank of New York Mellon, Brussels branch office Central Securities Depository of the Republic of Kazakhstan The National Depository Center of the Republic of Azerbaijan


15

National Central Securities Depository of the Republic of Belarus The National Depository of Ukraine Austrian Central Securities Depository The Central Depository of Armenia CJSC Central Depository of the Kyrgyz Republic CJSC

Key Consideration 2 An FMI should have rules, procedures and contracts that are clear, understandable and consistent with relevant laws and regulations.

Working NSD rules, procedures and contract instruments are clear and understandable for users of these documents and conform to applicable statutes of the RF law, normative legal documents and acts of appropriate Russian official bodies. Rules and procedures are approved by NSD management bodies in accordance with their powers defined by NSD’s Articles of Association. Changes, amendments and new revisions of such documents as NSD Clearing Rules, Terms and Conditions of NSD's Depository Operations, as well as a number of other documents mentioned in respective RF laws must be agreed upon by the Bank of Russia. In addition, certain documents must be reviewed and approved by the NSD Customer Committee (for example, Risk Management Rules for risks associated with central securities depository activities, Terms and Conditions of NSD's Depository Operations and others). Local normative legal documents that contain rules and procedures by type of NSD business: CSD, SSS, PS and TR, can be found on the NSD official website at: https://www.nsd.ru/ru/documents/

Key Consideration 3 An FMI should be able to articulate the legal basis for its activities to relevant authorities, participants, and, where relevant, participants' clients.

NSD defines the legal basis for its business in contracts entered into with its clients and counterparties, as well as in its internal normative legal documents, some of which form an integral part of the concluded contracts. These contracts and documents determine the rights and obligations of NSD and its clients, as well as responsibility, and they regulate communications between NSD and its clients, the settlement of accounts, the amount of NSD service fees and other essential provisions. Provisions of these documents have been prepared in accordance with the current legislation of the Russian Federation. Texts of the contracts and internal documents that form the legal basis of NSD business are available to the public (including the relevant authorities, participants and participants' clients) on the NSD website.

Key Consideration 4 An FMI should have rules, procedures and contracts that are enforceable in all relevant jurisdictions. There should be a high degree of certainty that actions taken by the FMI under such rules and procedures will not be voided, reversed or subject to stays.

NSD provides services to its clients, including foreign clients, on the basis of model contracts to be entered into in accordance with Russian legislation. The terms and conditions of certain model contracts are contained in the current legislation of the Russian Federation (essential terms of the depository contract are defined in the FL "On the Securities Market"). Certain internal documents are attachments to contracts and must be agreed upon/registered by the Bank of Russia. A high degree of certainty in NSD activities is provided, among other things, by the presence of the legal department with a number of highly skilled legal experts who are well experienced in the legal support of all of NSD's activities: CSD, SSS, PS, TR. Functions of the legal department include maintenance of well-defined, transparent NSD rules and procedures, in particular for its transactions within foreign jurisdictions, as well as their conformance to the norms of the law. Most transactions conducted by NSD are subject to the norms of the RF laws. When carrying out transactions withing foreign

https://www.nsd.ru/ru/documents/


16

Principle 2. Governance. An FMI should have governance arrangements that are clear and transparent, promote the safety and efficiency of the FMI and explicitly support the stability of the broader financial system, other relevant public interest considerations, and the objectives of relevant stakeholders. In the context of the review of this principle, it is important to note that if the FMI is wholly owned or controlled by another legal entity, it is also necessary to review that entity's management mechanisms to prevent their negative influence on the observance of this principle by the FMI. Considering that the governance involves the processes that allow an organisation to set objectives, determine problem-solving solutions and monitor accomplishment of the objectives, this principle should be considered in conjunction with other principles. Applies to FMI: CSD, SSS, PS, TR

Key Considerations Comments regarding observance of the Key Consideration

Key Consideration 1 NSD's objectives and main areas of activity are stated in the Development Strategy approved by the NSD Supervisory Board. NSD's

jurisdictions, NSD is governed by the contracts concluded with foreign institutions, which can be drawn up in accordance with foreign legislation. When choosing counterparties, NSD: a) makes a selection in accordance with rigorous criteria; b) makes a decision to invite foreign advisers individually for each transaction/dispute, depending on the circumstances (involvement of foreign advisers is optional). NSD works on a permanent basis with representatives of foreign institutions where NSD has accounts, including obtaining clarification in case of any questions. NSD activities have not been found to violate the law by a court within any jurisdiction where NSD conducts business. The terms and conditions of existing contracts have not been found as invalid/inconsistent with the legislation of the Russian Federation or foreign legislation. The NSD has no legal liability on the basis of a foreign court decision.

Key Consideration 5 An FMI conducting business in multiple jurisdictions should identify and mitigate the risks arising from any potential conflict of laws across jurisdictions.

NSD continually conducts activities aimed at avoiding a conflict of laws in different jurisdictions (monitors events and documents of counterparties in foreign jurisdictions that have respective contract/correspondence relations with NSD). If a conflict is identified with RF legislative provisions and/or NSD internal documentation provisions, NSD analyses possible actions in order to avoid the conflict of legal norms. For an explanation of foreign legislation or foreign court practice, NSD invites foreign advisers with the appropriate expertise, as needed. When acting as the client of an international accounting system, NSD is governed by the existing contract and legislation of the respective jurisdiction where this international accounting system operates.

Evaluation of observance of Principle Broadly observed


17

An FMI should have objectives that place a high priority on the safety and efficiency of the FMI and explicitly support financial stability and other relevant public interest considerations.

strategic development goals place high priority on NSD's security and efficiency, financial stability, customer satisfaction and other aspects representing the public interest. In order to assess the achievement of objectives, NSD uses a wide range of data received in the context of risk management activities, reliable market data, financial indicators, key performance indicators (non-financial data, settlement statistics, etc.), qualitative assessments, information from clients and survey data.

Key Consideration 2 An FMI should have documented governance arrangements that provide clear and direct lines of responsibility and accountability. These arrangements should be disclosed to owners, relevant authorities, participants, and, at a more general level, the public.

The structure of NSD management bodies is clearly defined in: the FL "On Joint-Stock Companies," the FL "On the Central Securities Depository," the Shareholders Agreement, and NSD’s Articles of Association, and it can be found on the NSD website: https://www.nsd.ru/ru/about/structure/agreement/; https://www.nsd.ru/ru/about/structure/agreement/ https://www.nsd.ru/common/img/uploaded/files/licenses/ustav_nsd.pdf. The approaches to corporate governance formalised in the Shareholders Agreement were developed at the initiative of the regulatory authority and with its active participation.

Key Consideration 3 The roles and responsibilities of an FMI's board of directors (or equivalent) should be clearly specified, and there should be documented procedures for its functioning, including procedures to identify, address and manage member conflicts of interest. The board should review both its overall performance and the performance of its individual board members regularly.

The responsibilities of the NSD Supervisory Board and the Rules and Procedures of the Supervisory Board are well-defined in NSD’s Articles of Association and the Regulation on the NSD Supervisory Board. The members of the Supervisory Board must adhere to the Articles of Association and NSD's internal documentation, in particular, the Code of Professional Ethics. The members of the Supervisory Board, when exercising their rights and conducting official duties, should serve the interests of NSD, exercise their rights and conduct their duties to NSD reasonably and in good faith. There are clear procedures to eliminate a conflict of interest in the Supervisory Board. The main procedure involves reporting information about persons whose transactions can be recognised as interested party transactions (in accordance with the FL "On Joint-Stock Companies" chapter 11, and NSD's Articles of Association). The members of the Supervisory Board inform NSD about the participation of any Supervisory Board member in the management bodies of other legal entities (in accordance with NSD's Code of Professional Ethics). Based on this information, a list of persons whose transactions can be recognised as interested party transactions (hereinafter – List of Persons) is compiled. A member of the Supervisory Board who has interest in a transaction does not vote during the transaction's approval. Also, possible conflicts of interest (including in the Supervisory Board) are regulated in accordance with the NSD-approved List of Actions aimed at preventing a conflict of interest when conducting professional activity on the securities market. This List defines particular procedures intended to prevent a conflict of interest. The members of the Supervisory Board are members of the Supervisory Board's Committees.



https://www.nsd.ru/common/img/uploaded/files/licenses/ustav_nsd.pdf



https://www.nsd.ru/ru/about/csd_disclosure/int_docs


18

NSD has the following Committees

The Audit Committee's role is to ensure the efficient work of NSD's Supervisory Board in organising the internal control and external audit system, as well as the risk management system at NSD;

The Budget Committee's role is to improve the efficiency of NSD's Supervisory Board by ensuring proper control over the way funds are received and spent at NSD. The Committee thoroughly prepares materials to be considered at NSD’s Supervisory Board meetings relating to financial planning and financial resource management at NSD.

The Nomination and Remunieration Committee's role is in-depth analysis of matters relating to the recruitment, assessment and remuneration of NSD's senior managers, including Supervisory Board members, the Chairman of the Executive Board, Executive Board members, and members of the Internal Audit Commission, and preparation of materials related to these matters for consideration at Supervisory Board meetings;

The Technological Policy and Development Committee's role is to analyse the development of NSD's automatised systems and to make recommendations to the Supervisory Board and the Executive Board on matters related to technological policy in the area of creation, maintenance, operation and development of such systems.

Structures of the committees of the Supervisory Board can be found on the NSD website at https://www.nsd.ru/ru/about/structure/supervisory_board/ In accordance with NSD’s Articles of Association, the Supervisory Board conducts a self-assessment of its performance on an annual basis as part of NSD's corporate governance assessment. The self-assessment is based on the methodology recommended by the Bank of Russia (in its Letter No. 11-T dated 07.02.2007). The self-assessment involves a questionnaire completed by the Supervisory Board members and individual interviews held by the Chairman of the Nomination and Remuneration Committee with some of the Supervisory Board members to elaborate on their comments and suggestions. The final self-assessment report is presented for review and approval at a meeting of the Supervisory Board.

Key Consideration 4 The board should contain suitable members with the appropriate skills and incentives to fulfill its multiple roles. This typically requires the inclusion of non-executive board member(s).

The members of NSD's Supervisory Board have the skills and expertise required to discharge their responsibilities, in particular, in the areas of depository activities, information technology, on-exchange trading, clearing, transaction and market risk management, corporate governance, banking services, international activities of a CSD, strategic management, registrar business and others. NSD provides comprehensive incentives for its directors. Remuneration payable to the directors comprises basic fixed remuneration and supplementary remuneration. The structure of the Supervisory Board includes one executive director and other non-executive directors.

https://www.nsd.ru/ru/about/structure/supervisory_board/


https://www.nsd.ru/ru/about/structure/supervisory_board/


19

5 of 15 Supervisory Board members are independent. The criteria for independence are defined in the Shareholders Agreement, as well as in the Regulation on NSD's Supervisory Board, approved by the Resolution of the General Meeting of Shareholders of NSD. Information about independent directors can be found on the NSD website at https://www.nsd.ru/ru/about/structure/supervisory_board/nez_dir/

Key Consideration 5 The roles and responsibilities of management should be clearly specified. An FMI's management should have the appropriate experience, a mix of skills, and the integrity necessary to discharge their responsibilities for the operation and risk management of the FMI.

Roles and responsibilities for the members of the Executive Board are well-defined in the Articles of Association, as well as in the Regulation on NSD's Executive Board. The members of the Executive Board have the required knowledge and expertise to discharge their responsibilities, including the responsibility to manage risks. Nominees for the positions of the Executive Board's members are agreed upon by the Bank of Russia. Performance of the Executive Board's members is assessed at least annually using Key Performance Indicators (KPI), assessments of financial results and an evaluation of quality level. A decision on the KPIs of Executive Board members is made together with members of the Supervisory Board's Nomination and Remuneration Committee and the Chairman of NSD’s Executive Board. The Executive Board's performance report is submitted to NSD's Executive Board for approval on a quarterly basis.

Key Consideration 6 The board should establish a clear, documented risk management framework that includes the FMI's risk tolerance policy, assigns responsibilities and accountability for risk decisions, and addresses decision making in crises and emergencies. Governance arrangements should ensure that the risk management and internal control functions have sufficient authority, independence, resources and access to the board.

The company has a clear, documented risk management system. The Supervisory Board has approved, amongst others, the following documents in the area of risk management:

Regulation on Risk Management; Risk Management Rules for risks associated with central securities depository activities; Business Continuity Policy.

The above-mentioned documents define key principles and tools for risk management, as well as roles and responsibilities in the course of risk management and the decision-making procedure used in cases of crisis and emergency. The Supervisory Board also approved the Risk Management Development Strategy for 2014-2015 and the maximum permissible cumulative risk level for NSD. The Risk Management Department and the Internal Control and Internal Audit departments have sufficient authority, independence, resources and access to the Supervisory Board to support effective performance of their duties. These aspects are subject to the regulations on the departments, as well as internal documentation concerning risk management and internal control.

Key Consideration 7 The board should ensure that the FMI's design, rules, overall strategy and major decisions reflect appropriately the legitimate interests of its direct and indirect participants and other relevant stakeholders. Major decisions should be

NSD's Supervisory Board ensures that NSD's design, growth strategy, service policies and key decisions reflect the legitimate interests of its shareholders, users of NSD's services, and other relevant stakeholders. This is guaranteed primarily by the law "On the Central Securities Depository," which contains specific requirements for the design and client service policies, as well as for the approval procedure for internal documentation. The Shareholders Agreement defines specific requirements for the organisation of the Supervisory Board, as well as requirements for the NSD's commissions and committees. These requirements ensure respect of the interests of NSD's shareholders, users of NSD's services, and other relevant stakeholders.


https://www.nsd.ru/ru/about/csd_disclosure/int_docs_ou/


https://www.nsd.ru/ru/about/csd_disclosure/int_docs_ou/


20

clearly disclosed to relevant stakeholders and, where there is a broad market impact, the public.

In order to take into account the interests of NSD's shareholders, users of NSD's services, and other relevant stakeholders, NSD's management organises customer committee meetings, focus groups, periodic customer satisfaction studies, public hearings and targeted surveys. NSD publishes decisions of the Supervisory Board and the General Meeting of Shareholders on its website www.nsd.ru and in the Interfax news feed. Structures of the customer committees, as well as the decisions of these committees, are published on the NSD website. NSD's management approved the List of Actions aimed at preventing a conflict of interest when conducting professional activity on the securities market. This List defines particular procedures intended to prevent a conflict of interest when NSD conducts professional activity on the securities market. NSD's Code of Professional Ethics also contains provisions concerning a conflict of interest. A conflict of interest is identified by means of regular inspections of NSD's activity made by the internal control unit, the drawing up of acts based on the results of these inspections, and Action Plans with a report on corrective actions.

Evaluation of observance of Principle Fully observed

Principle 3. Framework for the Comprehensive Management of Risks. An FMI should have a sound risk management framework for comprehensively managing legal, credit, liquidity, operational and other risks. In reviewing this principle, an expert should take into account how the different risks that affect FMIs and are posed by FMIs are interdependent and interact. Therefore, this principle should be considered in conjunction with other principles. Applies to FMI: CSD, SSS, PS, TR


Key Consideration 1 An FMI should have risk management policies, procedures and systems that enable it to identify, measure, monitor and manage the range of risks that arise in or are borne by the FMI. Risk management frameworks should be subject to periodic review.

NSD has developed a risk management system that makes it possible to identify, measure, monitor and manage risks arising in NSD or borne by NSD. In accordance with the Regulation on NSD Risk Management, the basic NSD risks are transaction, legal, reputation, strategy, credit, market and liquidity risks. These risks, collectively or individually, can result in system risk. There are a number of policies and procedures implemented in NSD to regulate the risk management process, to include:

Regulation on Risk Management; Risk Management Rules for risks associated with NSD central securities depository activities; Transaction Risk Management Policy; Regulation on Legal Risk Management; Reputation Risk Management Policy;

http://www.nsd.ru/


21

Regulation on Strategy Risk Management; Credit Risk Evaluation Method; Currency Risk Evaluation Method; Interest Risk Evaluation Method; Portfolio Risk Evaluation Method; Liquidity Risk Evaluation Method; Procedures for individual risk management tools (collection and analysis of information about losses, monitoring of

Key Risk Indicators, self-assessment, etc.).

To receive information about the risks of other FMIs, a unified database of risk events and a unified register of the Moscow Exchange Group's risks are maintained. The process of policy and procedure development involves an analysis of existing relevant regulatory acts of the Bank of Russia, international practices and standards, and analogous methodological documentation at the group level. Subsequently, a draft of methodological documents is submitted for discussion and approval by concerned NSD departments, and it is also sent to the Bank of Russia's Financial Stability Department. Internal documentation is agreed upon with NSD's management bodies according to their power defined in the NSD's Articles of Association and regulations on these management bodies. The scope of a document is defined in the text of each document. Documentation is reviewed as the need arises. An internal and external audit is performed on a regular basis to evaluate the effectiveness of the risk management system (rating audit by Thomas Murray, operational audit). The risk management system is considered to be one of the key aspects of NSD activity in the context of the annual corporate governance assessment. Additionally, the effectiveness of risk management in the CSD is assessed on a bi-annual basis, and the results of this assessment are reported to the Risk Management Department, NSD's Executive Board, the Audit Committee and NSD's Supervisory Board.

Key Consideration 2 An FMI should provide incentives to participants and, where relevant, their customers to manage and contain the risks they pose to the FMI.

To create incentives for risk management and mitigation, NSD conducts a number of activities, such as:

1. setting the criteria with which NSD clients must comply in NSD's contracts; 2. defining clients' liability for violation of service conditions in NSD's contracts; 3. operating NSD customer committees and focus groups, participants of which have the opportunity to influence NSD's

activities. For this purpose, one of the areas of activity for customer committees and focus groups is the examination of risk management issues;

4. publishing information about the risk management system on the official NSD website. There is a special "Risk Management" section on the website where an operational audit report and the results of a rating audit by Thomas Murray are published.

Key Consideration 3 An FMI should regularly review the material risks

NSD regularly monitors material risks to which NSD or its counterparties are exposed. For example, special aspects of "Moscow Exchange" OJSC and "National Clearing Centre" CJSC (hereinafter – NCC) activities are taken into consideration during business

https://www.nsd.ru/ru/about/structure/risk_men/


22

it bears from and poses to other entities (such as other FMIs, settlement banks, liquidity providers and service providers) as a result of interdependencies and develop appropriate risk management tools to address these risks.

continuity assessment. Also, since NSD incorporates several FMIs within the same legal entity, there is a unified risk management system that takes the connectivity of these FMIs into account. NSD measures and monitors its risks on a regular basis and has implemented several processes for these purposes: self-assessment of key areas of activities, analysis of risk events, risk monitoring by means of Key Risk Indicators, as well as in real time for NSD PS, and analysis and evaluation of risks for NSD's business processes, new projects and products. To manage risks arising from interdependence with other institutions, NSD uses a number of tools, including day-to-day control over key events of a transaction day, monitoring of counterparties' financial health, monitoring of Key Risk Indicators and others. The effectiveness of risk management tools is assessed taking into account survey feedback from clients and counterparties, arrangements with the regulatory authorities, and audits. The list of risk management tools is reviewed on an annual basis. Actions aimed at managing NSD's risks are listed in the relevant internal documentation of NSD.

Key Consideration 4 An FMI should identify scenarios that may potentially prevent it from being able to provide its critical operations and services as a going concern and assess the effectiveness of a full range of options for recovery or orderly wind-down. Where applicable, an FMI should also provide relevant authorities with the information needed for purposes of resolution planning.

NSD works on the identification of scenarios that could interrupt its critical operations and services. Basic scenarios that could interrupt NSD's critical operations are failures of IT systems and communication channels, as well as inaccessibility of NSD's head office. To prevent such scenarios, NSD has implemented a data backup procedure and built a standby data center, standby office and alternative communication channels to transfer data in the "manual" mode. In addition, NSD has prepared Recovery Instructions, built a structure of the software and hardware package (backup, mirroring), created an IT Maintenance Department, secured the availability of software source codes, etc. NSD has prepared the Plans for Business Continuity and Recovery. In the area of financial health improvement, NSD has prepared and approved the Financial Stability Recovery Plan. This Plan considers Basic, Negative and Extreme scenarios of NSD's financial stability, early-warning signals, and required response actions to improve financial health and maintain NSD's business continuity. NSD provides the relevant authorities with information required to plan solutions on a regular basis.



23

Principle 4. Credit Risk. An FMI should effectively measure, monitor and manage its credit exposure to participants and those arising from its payment, clearing and settlement processes. An FMI should maintain sufficient financial resources to cover its credit exposure to each participant fully with a high degree of confidence. In addition, a CCP that is involved in activities with a more complex risk profile or that is systemically important in multiple several jurisdictions should maintain additional financial resources sufficient to cover a wide range of potential stress scenarios that should include, but not be limited to, the default of the two largest participants and their affiliates that would potentially cause the largest aggregate credit exposures to the CCP in extreme but plausible market conditions. All other CCPs should maintain additional financial resources sufficient to cover a wide range of potential stress scenarios that should include, but not be limited to, the default of the participant and its affiliates that would potentially cause the largest aggregate credit exposure to the CCP in extreme but plausible market conditions. Applies to FMI: CSD, SSS, PS


Key Consideration 1 An FMI should establish a robust framework to manage its credit exposures to its participants and the credit risks arising from its payment, clearing and settlement processes. Credit exposure may arise from current exposures, potential future exposures, or both.

NSD has implemented mechanisms to manage credit exposures, including current and potential exposures arising from NSD's participants and NSD's payment, clearing and settlement processes. NSD determines the maximum size of a counterparty's or a group of associated counterparties' obligations to NSD, which governs (limits) NSD's credit exposure and is defined as the maximum ratio of aggregate amount of NSD credit claims to a borrower or a group of associated borrowers to the NSD's equity. To avoid credit risk:

principles of payment irrevocability, unconditionality and finality are established;

NSD's client payments are made within the limits of a client's available liquidity. Sufficiency of a payer's account balance is a prerequisite for discharge of an NSD's client obligation to transfer funds. If the payer's account balance is insufficient, funds will not be transferred;

the payment settlement in the NSD PS is made in real time. Reviewing and updating of credit risk management mechanisms are performed on a regular basis, as often as required. All changes to legislation are taken into account. Modern analytical approaches and practices are applied that are consistent with the requirements of regulatory authorities for financial markets and banking, as well as international risk management standards for financial institutions.

Key Consideration 2 An FMI should identify sources of credit risk, routinely measure and monitor credit exposures, and use appropriate risk management tools to control these risks.

NSD identifies credit risk sources and continually performs evaluation and monitoring of these risks. Credit risk is assessed in accordance with the procedure approved by the NSD Executive Board. The assessment of credit risk by NSD involves an assessment of the credit portfolio and other assets with credit risk (portfolio analysis), as well as an assessment of credit risk in regard to particular counterparties and issuers of NSD.

Based on the results of the credit risk assessment, management statements are generated that are brought to the notice of NSD management bodies.


24

NSD uses appropriate risk management mechanisms. To minimise credit risk, NSD applies the following methods: - determination of priorities (criteria) for investment of idle funds and purchase of financial instruments in order to form NSD's investment assets, in particular, based on the monitoring of financial indicators that describe the credit quality of the assets; - determination of limits for NSD treasury activities; - receivables control; - provisioning for active transactions; - settlements under DVP terms.

Key Consideration 3 A payment system or SSS should cover its current and, where they exist, potential future exposures to each participant fully with a high degree of confidence using collateral and other equivalent financial resources (see Principle 5 on collateral). In the case of a Deferred Net Settlement (DNS) payment system or DNS SSS in which there is no settlement guarantee but where its participants face credit exposures arising from its payment, clearing and settlement processes, such an FMI should maintain, at a minimum, sufficient resources to cover the exposures of the two participants and their affiliates that would create the largest aggregate credit exposure in the system.

In accordance with the provisions of Principle 4, credit risk sources in payment systems can be the existence of a significant time gap between acceptance of an order for execution and its actual execution, as well as the granting of intraday credits and overnight credits to the participants. In accordance with the rules of NSD PS to be applied in the assessment period, payment clearing and settlements in NSD PS are carried out on a gross basis in real time. Fund transfer orders of NSD PS participants are executed only if the payers' accounts have a sufficient amount of funds. Furthermore, NSD PS does not have intraday credits (overdrafts) or overnight credits for NSD PS participants or other credit types for settlement finality.

Key Considerations 4, 5 and 6 Do not apply to NSD because NSD does not act as a central counterparty.

Key Consideration 7 An FMI should establish explicit rules and procedures that address fully any credit losses it may face as a result of any individual or combined default among its participants with respect to any of their obligations to the FMI. These rules and procedures should address how potentially uncovered credit losses would be allocated, including the repayment of any funds an FMI may borrow from liquidity providers. These rules and procedures should also indicate

Key Consideration 7 is partially applicable because NSD does not have a credit portfolio due to legal restrictions. Obligations are incurred only when settlements are carried out. Credit risk is generated when settlements on the correspondent accounts are carried out. In this case an assessment of credit risk is performed on the basis of an analysis of the structure for assets that bear credit risk, portfolio quality and credit risk concentration. Rules and procedures of credit risk management are updated on a regular basis as needed, taking into account all changes to legislation and market changes. NSD determines the maximum size of a counterparty's or a group of associated counterparties' obligations to NSD, which governs NSD's credit risk and is defined as the maximum ratio of the aggregate amount of NSD credit claims to a borrower or a group of associated borrowers to the NSD's equity capital. NSD's Financial Health Improvement Plan incorporates a set of scenarios that support operation in various situations, including stress situations, and contains conditions whose occurrence make it necessary to implement an additional liquidity raising plan.


25

the FMI's process to replenish any financial resources that the FMI may employ during a stress event, so that the FMI can continue to operate in a safe and sound manner.


Principle 5. Collateral. An FMI that requires collateral to manage its or its participants' credit exposure should accept collateral with low credit, liquidity and market risks. An FMI should also set and enforce appropriately conservative haircuts and concentration limits. Applies to FMI: PS, SSS.

Principle 5 is not applied to NSD because NSD's internal regulatory documents do not contain provisions for a collateral management system, and NSD does not accept collateral and does not need collateral. Principle 6. Margin. A CCP should cover its credit exposures to its participants for all products through an effective margin system that is risk-based and regularly reviewed. Principle 6 is not applied to NSD because NSD does not act as a central counterparty. Principle 7. Liquidity Risk. An FMI should effectively measure, monitor and manage its liquidity risk. An FMI should maintain sufficient liquid resources in all relevant currencies to effect same-day and, where appropriate, intraday and multiday settlement of payment obligations with a high degree of confidence under a wide range of potential stress scenarios that should include, but not be limited to, the default of the participant and its affiliates that would generate the largest aggregate liquidity obligation for the FMI in extreme but plausible market conditions. Applies to FMI: CSD, SSS, PS


Key Consideration 1 An FMI should have a robust framework to manage its liquidity risks from its participants, settlement banks, nostro agents, custodian banks, liquidity providers and other entities.

NSD has a reliable liquidity risk management system. Mechanisms and methods of liquidity risk management involve:

determination of limits for investment of idle funds from a perspective of timing and tools, taking into account a liquidity analysis, as well as restrictions on certain types of contracts into which the central securities depository can enter;

control over liquidity gaps and ratios, and taking measures necessary to provide a balance of assets and liabilities;

creation of potential sources of refinancing that could be used in case of a liquidity shortage, development of plans for


26

recovery of liquidity in case of an unforeseen course of events;

control and, where required, termination of previously incurred obligations (by reasons prescribed by the law or stipulated by a contract);

compliance with minimum liquidity requirements defined by the Bank of Russia for non-bank credit institutions. As of the writing of this document there was no liquidity shortage, taking into account sources of refinancing, for all dates of demand/repayment. Violations of limits for minimal liquidity ratio values defined by the NSD Executive Board were not found. The current level of NSD's balance liquidity matches the "favourable" scenario according to the Activity Plan for support of NSD's liquidity at an optimal level. NCC liquidity is the prime tool to cover NSD's liquidity shortage. NSD takes into account potential overall liquidity risk generated by an individual institution and its affiliates that have different roles in relation to NSD in the context of liquidity risk management, as well as complex stress testing of financial risks.

Key Consideration 2 An FMI should have effective operational and analytical tools to identify, measure and monitor its settlement and funding flows on an ongoing and timely basis, including its use of intraday liquidity.

To identify, assess and monitor its settlement and financial flows, NSD applies the following operational and analytical tools:

computer workstation "Bank of Russia Client,"

online banking channels with two foreign nostro correspondents,

SWIFT,

NSD settlement system – with regard to accounting of current payments. Also, NSD controls the balances of nostro accounts and registers information about executed payments/receipts.

Key Consideration 3 A payment system or SSS, including one employing a DNS mechanism, should maintain sufficient liquid resources in all relevant currencies to effect same-day settlement, and where appropriate intraday or multiday settlement, of payment obligations with a high degree of confidence under a wide range of potential stress scenarios that should include, but not be limited to, the default of the participant and its affiliates that would generate the largest aggregate payment obligation in extreme but plausible market conditions.

NSD supports a sufficient amount of liquid resources in relevant currencies to settle same-day payments and, if necessary, intraday or several-day payments on payment obligations. Information about required liquid resources is a top priority during the planning of treasury transactions. The amount of liquid resources is assessed on a daily basis. A special information bulletin is published regularly that contains comprehensive information about treasury transactions and the liquidity adequacy ratio for settlements. NSD's Risk Management Department develops stress scenarios to test liquidity and determine limits for investment assets. There is no risk of an NSD PS participant's default. Liquidity shortage is assessed on a daily basis, published in the information bulletin and calculated only for the Russian rouble. For other currencies NSD does not create open positions in accordance with the Regulation on the Investment of Idle Funds.

Key Consideration 4 Does not apply to NSD because NSD does not act as a central counterparty

Key Consideration 5 For the purpose of meeting its minimum liquid resource requirement, an FMI's qualifying liquid resources in each currency include cash

Readily obtainable assets include a security portfolio wholly consisting of securities with high reliability that can be used to attract lombard credit from the Bank of Russia. Also, swap transactions are carried out in the context of liquidity management. Additional liquid resources are not raised. In accordance with the licence issued by the Bank of Russia, NSD does not raise money on the inter-bank lending market or by using deposits.


27

at the central bank of issue and at creditworthy commercial banks, committed lines of credit, committed foreign exchange swaps and committed repos, as well as highly marketable collateral held in custody and investments that are readily available and convertible into cash with prearranged and highly reliable funding arrangements, even in extreme but plausible market conditions. If an FMI has access to routine credit at the central bank of issue, the FMI may count such access as part of the minimum requirement to the extent it has collateral that is eligible for pledging to (or for conducting other appropriate forms of transactions with) the relevant central bank. All such resources should be available when needed.

Key Consideration 6 An FMI may supplement its qualifying liquid resources with other forms of liquid resources. If the FMI does so, then these liquid resources should be in the form of assets that are likely to be saleable or acceptable as collateral for lines of credit, swaps or repos on an ad hoc basis following a default, even if this cannot be reliably prearranged or guaranteed in extreme market conditions. Even if an FMI does not have access to routine central bank credit, it should still take account of what collateral is typically accepted by the relevant central bank, as such assets may be more likely to be liquid in stressed circumstances. An FMI should not assume the availability of emergency central bank credit as a part of its liquidity plan.

NSD makes daily swap transactions with the Central Counterparty on the exchange market. Accessibility of lombard credit on request is tested on a regular basis. The Bank of Russia and NCC are reliable liquidity providers.

Key Consideration 7 An FMI should obtain a high degree of confidence, through rigorous due diligence, that each provider of its minimum required

NSD's liquidity providers are the Bank of Russia and NCC. To assess whether a liquidity provider has sufficient information and understands how to manage its liquidity risk, NSD analyses the liquidity provider, considers key statistical indicators of its activities on a regular basis, and uses a public rating assigned by an independent agency.


28

qualifying liquid resources, whether a participant of the FMI or an external party, has sufficient information to understand and to manage its associated liquidity risks, and that it has the capacity to perform as required under its commitment. Where relevant to assessing a liquidity provider's performance reliability with respect to a particular currency, a liquidity provider's potential access to credit from the central bank of issue may be taken into account. An FMI should regularly test its procedures for accessing its liquid resources at a liquidity provider.

NSD takes into account a potential liquidity provider's (NCC) access to credit at the central bank of issue by checking for an existing master loan agreement entered into between the Bank of Russia and NCC.

Key Consideration 8 An FMI with access to central bank accounts, payment services or securities services should use these services, where practical, to enhance its management of liquidity risk.

NSD has access to the accounts, payment services or services associated with securities in the Bank of Russia to make payments and settlements, as well as to manage liquidity risk.

Key Consideration 9 An FMI should determine the amount and regularly test the sufficiency of its liquid resources through rigorous stress testing. An FMI should have clear procedures to report the results of its stress tests to appropriate decision makers at the FMI and to use these results to evaluate the adequacy of and adjust its liquidity risk management framework. In conducting stress testing, an FMI should consider a wide range of relevant scenarios. Scenarios should include relevant peak historic price volatilities, shifts in other market factors such as price determinants and yield curves, multiple defaults over various time horizons, simultaneous pressures in funding and asset markets, and a spectrum of forward-looking stress scenarios in a variety of extreme but plausible market conditions. Scenarios should also take into account the design and

NSD tests the sufficiency of its liquid resources on a regular basis. Stress testing is performed using historical shocks and generated theoretical scenarios in the course of both stress testing of individual risk types and complex multifactorial stress testing of NSD's financial stability. A complex financial stress test involves an assessment of NSD's financial stability in the case of a simultaneous impact of currency, price, interest, credit and liquidity risks. The result of the stress test is a scenario with the most conservative estimation of NSD's potential losses. In order to determine the impact of aggregate radical financial loss value on NSD's capital adequacy, a projected value of capital adequacy ratio (Н1) is calculated in the context of a complex theoretical stress scenario, given that stress losses are included in the NSD capital. Stress testing of NSD's financial stability is designed to check NSD's readiness for extreme market situations and to enhance the effectiveness of strategic and operating decisions. NSD assesses its financial stability during abnormal but probable events (direct stress testing), and it determines the values of risk factors that pose a threat to financial stability (back stress testing). Stress testing of financial stability is performed using historical shock stress scenarios (for example, the liquidity crisis in 2004, "controlled depreciation of currency" in 2008-2009) and generated theoretical scenarios (defined by the stress test's


29

operation of the FMI, include all entities that might pose material liquidity risks to the FMI (such as settlement banks, nostro agents, custodian banks, liquidity providers and linked FMIs), and, where appropriate, cover a multiday period. In all cases, an FMI should document its supporting rationale for, and should have appropriate governance arrangements relating to, the amount and form of total liquid resources it maintains.

parameters). NSD's financial stability in stress conditions is characterised by simultaneous fulfillment of the following conditions: • Adequacy of regulatory capital to meet the Bank of Russia's regulatory requirements. With that in mind, losses are taken into account that impact NSD's net worth (of regulatory capital); • Adequacy of liquid funds to discharge NSD's obligations in due time and in full. Each report following the results of stress testing includes the following financial stability indicators and associated risk factors: • expected financial result (loss) of shock implementation; • estimated tier 1 capital adequacy ratio after shock simulation (regulatory tier 1 capital to risk-weighted assets); • estimated capital adequacy ratio after shock simulation (H1, regulatory capital to risk-weighted assets); • potential deficit or surplus of the equity capital over the estimated capital adequacy ratio. The following events are considered to be historical shocks that lie at the root of financial crises on the Russian market: • "Black Tuesday" on the currency market in 1994; • Financial crisis in 1998; • Interbank liquidity crisis in 2004; • "Controlled depreciation of currency" in 2008-09. Theoretical stress scenarios mean abnormal but probable events that are not associated with the above-mentioned historical crises on the Russian market; however, these events could have a sufficient effect on NSD's financial health (financial stability). Historical shocks and theoretical scenarios are used in the course of both stress testing of individual risk types and complex multifactorial stress testing of NSD's financial stability. The liquidity management approach includes ensuring sufficient liquidity to discharge obligations in due time and in full, both in normal conditions and in sudden emergency situations, without unacceptable losses and reputational risk for NSD. Stress testing of liquidity risk is based on the analysis of information about liquidity structure, financial assets and liabilities, as well as about projected cash flows expected from future business. The primary factor in estimating NSD's assets and liabilities and its resilience to changes in flows of client funds is the maturity of assets and liabilities, as well as the capability to replace liabilities at an affordable cost in case of outflow of client funds. Stress testing is performed in accordance with the Regulation on the Stress Testing Procedure to Test Economic Risks for NSD. Scenarios are revised if and when new historical data are accumulated. Management statements for stress testing are provided to NSD's Executive Board and the Audit Committee of NSD's Supervisory Board.

Key Consideration 10 NSD has implemented rules and procedures that allow it to perform settlement of payment obligations in a timely manner.


30

An FMI should establish explicit rules and procedures that enable the FMI to effect same-day and, where appropriate, intraday and multiday settlement of payment obligations on time following any individual or combined default among its participants. These rules and procedures should address unforeseen and potentially uncovered liquidity shortfalls and should aim to avoid unwinding, revoking or delaying the same-day settlement of payment obligations. These rules and procedures should also indicate the FMI's process to replenish any liquidity resources it may employ during a stress event, so that it can continue to operate in a safe and sound manner.

Thus, NSD PS Rules prescribe the particular handling of settlement documents in real time, provided that there is a sufficient amount of funds in the payer's account. In case of non-payment of a settlement document at the current date due to insufficient funds, there is no database for payments by an account holder's order. For NSD an individual default is expressed by insufficient funds in a payer's account. Joint default is not defined, plan of action is not applicable. An uncovered liquidity shortage of NSD is not permitted. With regard to settlements by a client's order in NSD PS (NSD clearing), the orders from accounts with insufficient funds have no access to the clearing pool. For timely settlements in case of default, the balance of the payer's account is monitored (technological algorithm), and settlement documents are not executed in case of insufficient funds in the payer's account. For the purposes of regulation of unforeseen or potentially uncovered liquidity shortage and prevention of transaction closing, revocation or delay of same-day settlements for payment obligations, the information bulletin with treasury transactions is published. The Executive Board approves the list of limits, The Supervisory Board – The Regulation on the Investment of Idle Funds. In accordance with NSD's methodology, an uncovered liquidity shortage is not permitted.


Principle 8. Settlement Finality. An FMI should provide clear and certain final settlement, at a minimum by the end of the value date. Where necessary or preferable, an FMI should provide final settlement intraday or in real time. Applies to FMI: SSS, CSD, PS


Key Consideration 1 An FMI's rules and procedures should clearly define the point at which settlement is final.

With regard to cash settlement (applicable to PS): Settlement finality is defined by the Rules of NSD PS. Fund transfer finality is preceded by irrevocability and unconditionality:

Irrevocability of a funds transfer within NSD PS occurs at the time funds are debited from the bank account of the NSD PS Participant-client;

Unconditionality of a funds transfer within NSD PS occurs at the time remittance is assigned by an NSD PS Participant-client and/or NSD PS Participant-beneficiary or other persons, including counter-transfer of money in a different currency, back-to-back transfer of securities or submission of documents;

Funds transfer finality within NSD PS occurs at the time funds are received into the bank account of an NSD PS


31

Participant-beneficiary; Settlement finality is confirmed for NSD by the NSD account statement, issued by the correspondent bank, and notification of consent by the central counterparty/permission for transactions through trade accounts of clearing participants. Clients can verify settlement finality through the account statements of NSD accounts. With regard to securities (applicable to CSD): Records for securities accounts asserting rights to securities shall be deemed final upon entry, i.e. they cannot be modified or canceled by the depository, except for cases where such entry is made without the assignment of the holder of the securities account, without any other document serving as the basis for the transaction, or in violation of the terms and conditions contained in such assignment or any other relevant document. Finality of records for a CSD current account in the registry occurs upon records matching in regard to the number of securities in the CSD current account. During the matching of records, the CSD shall establish conformity of the number of securities in all correspondent securities accounts and the number of securities in the CSD current account in the registry. The legal definition of records' finality is not different from the definition of finality in jurisdictions where NSD carries out its transactions. NSD provides reports (information) about the finality of records: • To clients through secure electronic communication channels. • To the regulator at his/her request.

Consistency in settlement finality as to securities against funds is provided by the implementation of clearing, i.e., the definition of enforceable obligations arising from contracts, including as a result of obligations netting, and the preparation of documents that are the basis for termination/execution of such obligations.

Key consideration 2 An FMI should complete final settlement no later than the end of the value date, and preferably intraday or in real time, to reduce settlement risk. A Large Value Transfer System or SSS should consider adopting the Real Time Gross Settlement System or multiple-batch processing during the settlement day.

With regard to cash settlement (applicable to PS): The Rules of NSD PS provide for settlements within NSD PS when providing payment services in real time not later than on the date of submission of the payment document in accordance with provisional rules of correspondent banks, unless a different term is specified in the payment document, as well as in real time operation in case of real time settlements and sufficiency of funds in the account. In the event of insufficient funds in the account, payment instruction may be fulfilled during the day of submission of the payment document, subject to the receipt of funds sufficient for the execution (for clearing settlements – in the next clearing session, for settlements under assignments of funds transfer both free from delivery of securities and versus delivery of securities – in real time, subject to the rules and procedures of correspondent banks, principal depositories, clearing houses and


32

international clearing-and-netting systems). NSD does not postpone settlements to the next business day when not provided for by the Rules of NSD PS, procedures and contracts. With regard to securities (applicable to CSD): In accordance with the Terms and Conditions of Depository Operations, NSD completes final settlements on the date of receipt of an assignment from a client or a clearing house intraday, including in real time. In the case of transactions (settlements) at the close of trading or outside the organised market, NSD receives orders from the clearing house or client and consent of the clearing house, and it carries out settlements on securities based upon the results of clearing sessions (multiple-batch processing) intraday or in real time, and in the event that no clearing is performed, settlements are carried out on the basis of clients' orders. Following settlement procedures, NSD reports to clients through electronic interaction channels (NSD EDI and/or SWIFT).

Key consideration 3 An FMI should clearly define the point after which unsettled payments, transfer instructions or other obligations may not be revoked by a participant.

With regard to cash settlement (applicable to PS): The time after which unsettled payments, transfer instructions or other obligations may not be revoked by a participant are defined in the Rules of NSD PS. The client shall be entitled to revoke outstanding payment instructions in the following cases: revocation of outstanding documents due to a lack of funds on the day of settlement, revocation of outstanding settlement documents for package processing in accordance with the rules and procedures of the correspondent bank prior to package delivery. With regard to securities (applicable to CSD):

In accordance with the Terms and Conditions of Depository Operations and Clearing Rules, revocation of assignments by their initiators is acceptable in the following cases:

- orders for the transfer of securities or admission of securities for custody and/or accounting – up to the inception of transaction, that is, until the time when changes had already been made in the depository accounts;

- matching instructions – up to the time of completion of matching instructions, and on the basis of revocation of each matching instruction – prior to the beginning of settlements on the transaction (execution of operations);

- orders to withdraw securities from custody and/or accounting – up to the moment NSD sends an order to effect the corresponding transaction to the registry holder or to a different depository.


33

The Terms and Conditions of Depository Operations and Clearing Rules do not provide for exceptions or extension of the time limit for revocation. NSD provides free access to review the specified documents and amendments thereto on the official website of NSD – www.nsd.ru.

Evaluation of compliance with Principles Fully observed

Principle 9. Money Settlements. An FMI should conduct its money settlements in central bank money where practical and available. If the central bank money is not used, an FMI should minimise and strictly control the credit and liquidity risk arising from the use of commercial bank money. Applies to FMI: PS


Key Consideration 1 An FMI should conduct its money settlements in central bank money, where practical and available, to avoid credit and liquidity risks.

NSD conducts settlements using commercial bank money in national currency, with full regard to liquidity in the central bank (Bank of Russia). NSD conducts settlements using commercial bank money in foreign currency. Currently, NSD does not use the money of the central bank (Bank of Russia) for settlements in foreign currency, since such practice in the current period is not applicable in the local financial market.

Key Consideration 2 If central bank money is not used, an FMI should conduct its money settlements using a settlement asset with little or no credit or liquidity risk.

Selection criteria of the settlement bank are defined by the laws of Russia (Regulation dated 26.04.2006 No. 129-I "On banking transactions and other transactions of non-banking credit settlement organisations, mandatory regulations of non-banking credit settlement organisations, and specific features of compliance overview by the Bank of Russia," Order dated 09.06.2012 No. 2830-U "On requirements for credit organisations and foreign banks, in which the central securities depository shall be entitled to place funds").

Key Consideration 3 If an FMI settles in commercial bank money, it should monitor, manage and limit its credit and liquidity risks arising from the commercial settlement banks. In particular, an FMI should

NSD sets and monitors compliance with strict criteria applicable to commercial settlement banks. The criteria used by NSD to select a settlement bank include credit standing, capitalisation and operational reliability. The table below sets out the allocation of settlements by organisation.

Organisation name Percentage of daily settlements

http://www.nsd.ru/


34

establish and monitor adherence to strict criteria for its settlement banks that take account of, among other things, their regulation and supervision, creditworthiness, capitalisation, access to liquidity and operational reliability. An FMI should also monitor and manage the concentration of credit and liquidity exposures to its commercial settlement banks.

Settlements with full provision of liquidity in the central bank (Bank of Russia)

99.5%

Other banks 0.5%

NSD monitors and manages the full range of concentration of risks posed by commercial settlement banks. In addition, NSD evaluates their potential losses and impact of liquidity, including stress testing. Audit reporting and market data are used for the regular monitoring of the compliance of settlement banks with the established criteria.

Key Consideration 4 If an FMI conducts money settlements on its own books, it should minimise and strictly control its credit and liquidity risks.

NSD conducts cash settlements within the system of internal cash settlements. For the assessment of credit and liquidity risk as a result of involving commercial banks, NSD uses: the VaR methodology for risk assessment, stress testing and credit rating of commercial banks.

Key Consideration 5 An FMI's legal agreements with any settlement banks should state clearly when transfers on the books of individual settlement banks are expected to occur, that transfers are to be final when effected, and that funds received should be transferable as soon as possible, at a minimum by the end of the day and ideally intraday, in order to enable the FMI and its participants to manage credit and liquidity risks.

Agreements and/or conditions for settlement services of correspondent banks define the order and terms of settlements. In the case of clients' compliance with regulations on services provided by correspondent banks, funds received shall be transferred to the account of NSD intraday. Funds received shall be transferred in real time.


Principle 10. Physical Deliveries. An FMI should clearly state its obligations with respect to the delivery of physical instruments or commodities and should identify, monitor and manage the risks associated with such physical deliveries. Applies to FMI: CSD, SSS

The Principle does not apply to NSD for the following reason.

NSD stores and records securities both in documentary form and in book-entry form. As of 31.12.2014 the share of securities in the documentary form in storage amounted to 48% (at the market value under the procedure of NSD).


35

Stored documentary securities are bonds with mandatory centralised storage. The issue of such securities has one common certificate, which may not be released to the holder of securities and is stored in the repository of NSD (immobilised). Therefore, the securities are listed on securities accounts, and physical delivery is not executed. NSD can also store securities of foreign issuers, issued in documentary form. Such securities are always immobilised and are also listed on securities accounts.

Principle 11. Central Securities Depositories. A CSD should have appropriate rules and procedures to help ensure the integrity of securities issues and minimise and manage the risks associated with the safekeeping and transfer of securities. A CSD should maintain securities in an immobilised or dematerialised form for their transfer by book entry. Applies to FMI: CSD, SSS


Key Consideration 1 A CSD should have appropriate rules, procedures and controls, including robust accounting practices, to safeguard the rights of securities issuers and holders, prevent the unauthorised creation or deletion of securities, and conduct periodic and at least daily reconciliation of securities issues it maintains.

The current rules and procedures of NSD in regard to the rights of securities issuers and holders contain the necessary provisions on rights, duties and responsibilities of NSD in accordance with the law, as approved by NSD corporate bodies and agreed upon with the Bank of Russia. The Terms and Conditions of Depository Operations of NSD and the Procedure for Interaction between Depository and Clients under the Terms and Conditions of Depository Operations of NSD are posted on the official website of NSD – www.nsd products.ru. Clients' securities are accounted by NSD separately, that is, in separate accounts opened for each client. NSD is responsible for the execution of requirements for the accounting of rights to securities in accordance with the current legislation. Depository operations of NSD are carried out as part of a separate structural unit, the Department for Operations on Securities Market, using a separate set of software; depository transactions are recorded on a permanent basis in accordance with the internal operational regulations/rules approved by NSD. The Internal Control Department examines NSD activities related to the storage of securities at least once every six months. Annual accounting (financial) reporting of NSD, as well as consolidated financial statements, shall be subject to compulsory audit by an independent auditor, the candidate for which shall be approved by the decision of the annual General Meeting of Shareholders of NSD. NSD as a central securities depository is also subject to operational audit once every two years. NSD carries out activities with securities solely on the basis of a depositor's order, filed in the prescribed form and conforming to the requirements of NSD, except in cases prescribed by the law of the Russian Federation. NSD conducts a daily reconciliation of securities processed with the data of registrars, as well as upon each deposit of securities to the current nominee account of the central securities depository of NSD. NSD does not perform these transactions without such reconciliation and/or in case of any inconsistencies. If during the day no transactions were effected on the current nominee account of of the central securities depository, reconciliation is performed at least once a day for one hour after the receipt by the Depository of the appropriate extract from the registry of securities holders. According to the Terms and Conditions of Depository Operations of NSD, the depository grants to their Clients permanent access through the electronic document management system to the information on balances of securities in securities accounts of the Client as of the current moment.


http://www.nsd.ru/

http://www.nsd.ru/


36

In the case of inconsistencies in entry reconciliation, entries are made on the current nominee account of the central securities depository, including the correction of erroneous entries in the current nominee account of the central securities depository, by a person involved in registry maintenance only upon approval of the central securities depository. Records on the current nominee account of the central securities depository in the registry, entered during the performance of transactions in the registry without entries reconciliation and/or with the discovery of inconsistencies, do not have legal force and do not entail legal consequences, including all follow-up entries in the registry. Moreover, holders of current accounts or securities accounts to which the securities arrived are not recognised as bona fide purchasers and may not be included in the list of persons authorised to exercise rights on these securities. In the case that inconsistencies for entries in the current nominee account of the central securities depository are not corrected, the data on the previous reconciliation shall be deemed correct. If it is impossible to eliminate inconsistencies in the current nominee account of the central securities depository, the central securities depository shall notify the Bank of Russia thereof.

Key Consideration 2 A CSD should prohibit overdrafts and debit balances in securities accounts.

NSD does not allow settlements in the event of insufficient securities in the relevant account. In accordance with the Terms and Conditions of Depository Operations, NSD does not fulfill orders in the event of insufficient securities in the securities account of the client. There were no cases in NSD's track record where the securities account of the client was in a negative balance.

Key Consideration 3 A CSD should maintain securities in an immobilised or dematerialised form for their transfer by book entry. Where appropriate, a CSD should provide incentives to immobilise or dematerialise securities.

NSD records the rights both for securities in book-entry form and for immobilised securities in documentary form (securities to bearer with mandatory centralised storage). The majority of securities serviced by NSD – 57% – are securities in book-entry form, and 43% of serviced securities are immobilised securities in documentary form with mandatory centralised storage. All settlements by NSD are carried out in relation to securities in book-entry form and immobilised securities in documentary form with mandatory centralised storage. With respect to immobilised securities, NSD performs the storage and accounting of rights in strict accordance with the requirements of current legislation. The list of securities for which NSD performs mandatory centralised storage is available on the official website of NSD- www.nsd products.ru.

Key Consideration 4 A CSD should protect assets against custody risk through appropriate rules and procedures consistent with its legal framework.

Rules and procedures of NSD include provisions for the protection of assets from depository risk in case of such events as negligence, misappropriation of assets, fraud, poor management, inadequate integration, etc. Regulatory documents, rules and procedures of NSD aimed at managing depository risk comply with the requirements of current legislation. NSD annually enters into agreements of integrated insurance against crimes and liability. The policy insures the activities of NSD carried out in accordance with the available licences, constituent documents and agreements, as well as:

Clearing activities;

http://www.nsd.ru/


37

Provision of related depository services;

Activities in connection with the safekeeping of securities not related to depository activity;

Services related to NSD's implementation of functions of the central securities depository. Insurance covers property interests of NSD related to:

Harm to NSD as a result of financial and electronic computer crimes (deliberate acts of employees of insurance company and third parties) and

Losses as a result of a breach by the insurer of its professional liability to third parties. Based on the agreements executed, NSD shall indemnify clients against damages caused in the event of default or improper performance of their responsibility for the safekeeping of securities and/or assertion of rights to securities, including a loss of entries on a securities account, as well as in the event of improper execution of other duties per the executed agreements.

Key Consideration 5 A CSD should employ a robust system that ensures segregation between the CSD's own assets and the securities of its participants and segregation among the securities of participants. Where supported by the legal framework, the CSD should also support operationally the segregation of securities belonging to a participant's customers on the participant's books and facilitate the transfer of customer holdings.

Current Russian legislation requires each depository to implement segregation of their own assets and securities from the assets and securities of participants (clients), as well as segregation of assets and securities of each of the participants. NSD has developed a reliable system that provides segregation of its own assets and securities from the assets and securities of their clients in strict compliance with the requirements of current legislation. Internal documents of NSD also provide for the requirement that NSD's own assets shall be separated from the assets of its participants. According to the Terms and Conditions of Depository Operations, NSD opens securities accounts on the basis of securities account agreements concluded with each of the clients. Thus, a securities account is open for a specific client, and it only lists the securities of the account holder. Current legislation requirements and NSD regulations provide for the segregation of securities of participants' clients from the securities of participants. Effecting transactions on the securities accounts of participants, NSD shall facilitate the transfer of assets of both participants and their clients.

Key Consideration 6 A CSD should identify, measure, monitor and manage its risks from other activities that it may perform; additional tools may be necessary in order to address these risks.

The list of services provided by NSD can be found in Section II "Services Provided by NSD" hereof. NSD activities involve the following risks: - Non-financial risks (operational, legal, reputational, strategic) - Financial risks (credit, market, liquidity) The table below lists measures taken in order to identify, measure, monitor and control risk data. These measures are equally undertaken in all areas of business of NSD.


38

Type of risk Definition Management specifics

Operational risk Risk of loss due to inadequacy or

violations of internal processes as a result

of inappropriate actions by personnel,

deficiencies of functioning of information

systems, or external events.

Analytical database on risk events Self-assessment of risks and controls List of risks and controls Key risk indicators Risk assessment of new products/processes Regular reporting

Legal risk Risk of NSD damages due to non-

compliance with provisions of legal

regulations and agreements,

Legal errors in the implementation of

activities, imperfections of legal system,

Violations by counterparties of legal acts

and terms and conditions of agreements.

Analysis of risks arising from differences between the Russian legislation and the legislation and normal business practices in foreign states, the residents of which enter into contractual relations with NSD

Standard form contracts Internal rules of conformance and approval by NSD of

legal documents, Formal procedure for relevant changes in the internal

documents of NSD in case of changes in legislation.

Reputational risk Risk of losses incurred by NSD as a result

of a reduction in the number of clients

(counterparties) caused by the

development of a negative public image of

the operating sustainability of NSD, quality

of services provided or business as a

whole.

Implementation of the “Know your Client” principle Monitoring of positive and negative feedback and

messages in mass media and other sources about NSD Monitoring of reliability of accounting records and other

public information provided by clients and counterparties, regulatory bodies and supervisory authorities and other stakeholders

Monitoring of changes in the legislation of the Russian Federation.


39

Strategic risk Risk of costs and damages as a result of

errors made in making decisions that

define the strategy for development and

activities of NSD.

Attracting sufficient numbers of competent internal and external experts for the development of policies

Ensuring availability of procedures for regular review of strategy and evaluation of deviations in development from the strategy adopted

Current planning for continued development of the adopted strategy, assigning tasks to strategic units in accordance with the adopted strategy

Market risk Risk of NSD damages due to adverse

changes in the market value of financial

instruments of the trading portfolio and

derivative financial instruments used by

NSD, as well as exchange rates of foreign

currencies or precious metals.

Limit policy Investment criteria of restrictions on financial tools used Early warning indicators Stress testing Risk assessment and regular reporting

Credit risk Risk of loss due to default, late or

incomplete execution of financial

obligations of the debtor to NSD in

accordance with the terms of agreement.

Allocation of assets of NSD involving credit risk Limit policy Risk assessment and regular reporting.

Liquidity risk Risk of loss as a result of NSD's inability to

meet its obligations in full.

Investment criteria and investment declaration of NSD Limits on liquidity ratios Stress testing Risk assessment and regular reporting.

The internal documents of NSD also identify additional mechanisms to reduce the risks related to matching different types of activities.


40

Such mechanisms include measures for ensuring the smooth functioning of hardware and software, measures taken in response to emergency situations, measures for internal financial improvement, etc.

Evaluation of compliance with Principle

Fully observed

Principle 12. Exchange-of-Value Settlement Systems. If an FMI settles transactions that involve the settlement of two linked obligations (for example, securities or foreign exchange transactions), it should eliminate principal risk by conditioning the final settlement of one obligation upon the final settlement of the other. Applies to FMI: CSD, SSS, PS


Key Consideration 1 An FMI that is an exchange-of-value settlement system should eliminate principal risk by ensuring that the final settlement of one obligation occurs if and only if the final settlement of the linked obligation also occurs, regardless of whether the FMI settles on a gross or net basis and when finality occurs.

In accordance with Clearing Rules and Terms and Conditions of Depository Operations of NSD, technical procedures for the freeze of securities, formation of obligations statements on money and orders for transfer of securities, and development of settlement documents that are transferred to settlement organisations provide for final settlement, completed upon transfer of securities after receiving the report on payment completion. Settlements are effected on both a gross basis (DVP-1) – transaction after transaction, and on a net basis (DVP-2) – net settlements only in cash, and (DVP-3) – net settlements in cash and securities. The proportion of DVP settlements is approximately 46% of settlements on the follow-up of OTC transactions. Settlement finality in cash and securities is in fact simultaneous, while the time period between freeze and final settlement on both obligations is less than 1 minute. Frozen assets are protected against claims by third parties in accordance with the law.


Principle 13. Participant-Default Rules and Procedures. An FMI should have effective and clearly defined rules and procedures to manage a participant default. These rules and procedures should be designed to ensure that the FMI can take timely action to contain losses and liquidity pressures and continue to meet its obligations.


41

Applies to FMI: CSD, SSS, PS


Key Consideration 1 An FMI should have default rules and procedures that enable the FMI to continue to meet its obligations in the event of a participant default and that address the replenishment of resources following a default.

The conditions under which NSD may declare that a participant defaulted include:

Non-payment/non-delivery of securities, delay in payment/delivery of securities;

Bankruptcy proceedings against a participant;

Revocation of licence for banking operations.

In the event of default, NSD shall take the following actions against the participant who defaulted: Suspension of transactions with securities, settlements and clearing, elimination of relevant positions. Rules and procedures of NSD in relation to default by a participant determine what actions are taken against the participant who defaulted and are automatic, which ones are discretionary, and the order in which the actions will be taken or changes will be made to the normal settlement practice. In case of a participant's default, NSD has no obligations to the contractor of such participant in the part of claims to the defaulting participant; thus, NSD suffers no liquidity deficit through the defaulting participant.

Key Consideration 2 An FMI should be well prepared to implement its default rules and procedures, including any appropriate discretionary procedures provided for in its rules.

The existing communications procedures, including, in particular, interaction through NSD EDI and/or SWIFT or through the NSD website, provide appropriate notification of all stakeholders, including regulatory and supervisory authorities, in order to eliminate the consequences of default.

Key Consideration 3 An FMI shall publicly disclose key aspects of its default rules and procedures.

The following key aspects of the rules in the field of default event management shall be publicly disclosed: circumstances in which action can be taken; the organisations/people who are entitled to take these actions; volume of action, including the mode in respect of both their own and clients' positions, funds and assets; mechanisms to regulate FMI obligations to participants performing their obligations.

Key Consideration 4 An FMI should involve its participants, relevant authorities and other stakeholders in the testing and review of the FMI's default procedures, including any close-out procedures. Such testing and review

NSD performs operation testing with participants, which can include default procedure testing. Operation testing is carried out based upon requests from participants, as well as to test NSD software modifications before installation/release. Testing covers the procedures for closing the transaction and informing the participants in the event of default. The results of operation testing are reviewed by an internal committee on changes and are taken into account when making decisions on installing enhancements in commercial versions. Decisions of the committee shall be brought to the attention of NSD management.


42

should be conducted at least annually or following material changes to the rules and procedures to ensure that they are practical and effective.

Evaluation of observance of Principle

Broadly observed

Principle 14. Segregation and Portability. A CCP should have rules and procedures that enable the segregation and portability of positions of a participant's customers and the collateral provided to the CCP with respect to those positions. Principle 14 is not applicable to NSD because NSD does not perform the functions of a central counterparty. Principle 15. General Business Risk. An FMI should identify, monitor and manage its general business risk and hold sufficient liquid net assets funded by equity to cover potential general business losses so that it can continue operations and services as a going concern if those losses materialise. Further, liquid net assets should at all times be sufficient to ensure a recovery or orderly wind-down of critical operations and services.

Applies to FMI: CSD, SSS, PS, TR


Key Consideration 1 An FMI should have robust management and control systems to identify, monitor and manage general business risks, including losses from poor execution of business strategy, negative cash flows, or unexpected and excessively large operating expenses.

NSD manages the types of general business risks cited. General business risks are managed in the framework of the procedures of strategic risk management (according to the Regulation on Strategic Risk Management and Strategic Risk Management Procedure), as well as in the process of planning and monitoring of NSD budget implementation for current and projected activities. The following methods are used to monitor business risks: market data, means of automatic notification of failures in business processes and/or operation of information systems, information messages posted in mass media and on the Internet, etc. To manage general business risks, NSD uses the following mechanisms: rules and procedures for the management of projects/costs, insurance, prearranged credit lines, training and awareness in the field of risk, consideration of recommendations of the external and internal auditor and regulator.

Key Consideration 2 An FMI should hold liquid net assets funded by equity (such as common stock, disclosed reserves or other retained earnings) so that it

NSD has liquid net assets financed by equity to be able to continue to perform critical operations and provide critical services in the event of financial risks. For the purpose of planning sufficient resources under extreme but plausible losses, NSD annually determines economic capital and


43

can continue operations and services as a going concern if it incurs general business losses. The amount of liquid net assets funded by equity an FMI should hold should be determined by its general business risk profile and the length of time required to achieve a recovery or orderly wind-down, as appropriate, of its critical operations and services if such action is taken.

establishes the limit for the aggregate level of risk. The magnitude of such risk is taken into account when planning sufficient capital of NSD and making a decision on dividends payment. Also, in the framework of the Plan of Restoration of Financial Sustainability (Recovery Plan), a set of scenarios is developed to make it possible to act in various situations, including stress situations, and conditions are determined, in the onset of which such plans shall be implemented.

Key Consideration 3 An FMI should maintain a viable recovery or orderly wind-down plan and should hold sufficient liquid net assets funded by equity to implement this plan. At a minimum, an FMI should hold liquid net assets funded by equity equal to at least six months of current operating expenses. These assets are in addition to resources held to cover participant defaults or other risks covered under the financial resources principles. However, equity held under international risk-based capital standards can be included where relevant and appropriate to avoid duplicate capital requirements.

The reserve fund of NSD is 100% cash with immediate access.

Key Consideration 4 Assets held to cover general business risk should be of high quality and sufficiently liquid in order to allow the FMI to meet its current and projected operating expenses under a range of scenarios, including in adverse market conditions.

The reserve fund of NSD is 100% cash with immediate access. Stress-testing of financial sustainability is performed regularly, taking into account a wide range of scenarios, including adverse market conditions.

Key Consideration 5 An FMI should maintain a viable plan for raising additional equity should its equity fall close to or below the amount needed. This plan should be approved by the board of directors and updated regularly.

The plan for raising additional capital has been developed and approved by the Executive Board as one of the appendices to the Recovery Plan of NSD.


44


Principle 16. Custody and Investment Risks. An FMI should safeguard its own and its participants' assets and minimise the risk of loss on and delay in access to these assets. An FMI's investments should be in instruments with minimal credit, market and liquidity risks.

Applies to FMI: PS, CSD, SSS


Key Consideration 1 An FMI should hold its own and its participants' assets at supervised and regulated entities that have robust accounting practices, safekeeping procedures and internal controls that fully protect these assets.

Cash assets are stored in accounts at correspondent banks. All active accounts are included in limit statements, and proposals for opening new accounts shall be consistent with the Risk Management Department and Legal Department of NSD. Nostro selection criteria for correspondent banks:

correspondent banks shall conform to the requirements established by the Bank of Russia (Order No. 2830-U dated 09.06.2012);

Subject to the terms of clause 1, when choosing a correspondent bank based on marketing analysis, preference is given to a financial institution with which NSD has previously had correspondent relations of other types and/or the companies of Moscow Exchange Group, where there is positive cooperation experience;

Provisional rules of procedure of the correspondent bank shall not be contrary to the existing provisional rules of procedure of NSD related to market participants and the trading system;

The economic aspect of sustainability of services provided by the correspondent bank is determined based on comparative analysis:

fee rates;

opportunities for interest earnings;

associated costs/expenditures. Information on account practices, secure safekeeping procedures and internal controls, aimed at ensuring protection of assets of the participants of the correspondent bank, is contained in the executed agreement. Securities are stored in personal accounts in shareholders registries, maintained by registrars under the licence granted by the Bank of Russia and under the supervision of the Bank of Russia, as well as in securities accounts opened in other depositories, acting under the licence of the Bank of Russia and under the supervision of the Bank of Russia. Foreign securities are stored in accounts opened at foreign central depositories and in international settlement and clearing organisations (hereinafter – foreign depositories) operating under the supervision of local regulators. When NSD enters into agreements on a safekeeping location with depositories and foreign depositories, NSD considers and analyses their documents and procedures for safekeeping security and internal controls to protect client assets of NSD.




45

Selection criteria for safekeeping locations are defined in the Federal Law "On Central Securities Depository" and in the Federal Law "On the Securities Market."

Key Consideration 2 An FMI should have prompt access to its assets and the assets provided by participants, when required.

NSD has prompt access to its cash assets through the BESP system (Bank of Russia). Access to assets located in the registries of shareholders, in Russian depositories, foreign banks and/or foreign depositories is regulated by terms of the agreement, as well as the provisions of Russian legislation and foreign legislation, as applicable to foreign safekeeping locations.

Key Consideration 3 An FMI should evaluate and understand its exposures to its custodian banks, taking into account the full scope of its relationships with each.

Risk assessment is carried out before the conclusion of an agreement with bank-counterparties, in particular on the basis of criteria for selecting bank-counterparties. In addition, in order to control risks, NSD develops and installs the limit system, as well as procedures to monitor the system in such a way as to avoid exceeding the limit level of risk set forth by regulatory instruments of the Bank of Russia. Limits on bank-counterparties and issuers of securities shall be approved by the Executive Board of NSD based on the number of approved internal documents containing relevant principles. NSD uses the services of custodian banks, both Russian and foreign. However, at the present moment NSD is closing securities accounts in Russian custodian banks in connection with legislative restrictions and is planning to complete the process in the near future. Mechanisms that an FMI uses to select and monitor services of custodian banks include a legal analysis of the situation, inclusive of services performed by third parties. The criteria under which NSD selects custodian banks include credit rating, reputation, history and experience. NSD uses the services of 14 custodian banks, including foreign depositories. NSD conducts monitoring of risks posed by its custodian banks on an annual basis.

Key Consideration 4 An FMI's investment strategy should be consistent with its overall risk management strategy and fully disclosed to its participants, and investments should be secured by, or be claims on, high-quality obligors. These investments should allow for quick liquidation with little, if any, adverse price effect.

The investment strategy of NSD is consistent with the overall risk management strategy of NSD; however, it shall not be disclosed to participants of NSD due to confidentiality requirements. This strategy provides the means for rapid liquidation of assets with minimum loss in price. The investment strategy of NSD is implemented on the basis of the following regulatory instruments:

The Federal Law "On the Central Securities Depository" and regulatory acts of the Bank of Russia

Regulation on the Allocation of Provisionally Free Funds (approved by the Supervisory Board of NSD)

Limit Statement, Regulations (approved by the Executive Board) Investments of NSD shall be secured or consist of requirements for highly-reliable obligors in accordance with the Regulation on the Allocation of Provisionally Free Funds. In order to limit credit risk on investments in securities, the Regulation prescribes the following restrictions:






46

Investment assets of NSD can be formed of public debt securities of the Russian Federation and bonds of the Bank of Russia, in both Russian roubles and foreign currency, within the limits set by the management bodies of NSD;

OTC transactions are carried out within the limits set by the bank-counterparties.

When transactions with securities are carried out through brokers, there is a limit for each counterparty;


Principle 17. Operational Risk. An FMI should identify the plausible sources of operational risk, both internal and external, and mitigate their impact through the use of appropriate systems, policies, procedures and controls. Systems should be designed to ensure a high degree of security and operational reliability and should have adequate, scalable capacity. Business continuity management should aim for timely recovery of operations and fulfillment of the FMI's obligations, including in the event of wide-scale or major disruption.



Key Consideration 1 An FMI should establish a robust operational risk management framework with appropriate systems, policies, procedures and controls to identify, monitor and manage operational risks.

NSD has introduced a management structure for operational risks based on the international practice of the "three lines of defense" model. Thanks to this model, all NSD personnel are involved in the management of operational risks (identification, assessment and reduction); the Risk Management Department acts as the provider of methodologies and tools, provides consulting support and generates management reporting; and the Internal Control Department and external audit evaluate the efficiency of the operational risk management system. In turn, the operational risk management system provides for a number of policies, procedures and risk management tools in order to identify, analyse, assess and control risks. The key tools are the following:

Analytical database on risk events (losses). Internal and external.

Monitoring of the level of risk through key risk indicators;

Monitoring of risks through key risk indicators;

Monitoring of risks of NSD PS in real time;

Self-assessment of risks and controls;

Analysis and assessment of risks in business processes, new products, projects and technology.

Key Consideration 2 An FMI's board of directors should clearly define the roles and responsibilities for addressing operational risk and should endorse the FMI's operational risk management framework. Systems, operational policies,

The Supervisory Board approved the Regulation on Risk Management and Risk Management Rules associated with the implementation of NSD activities as a central securities depository, as well as the Operational Risk Management Policy, identifying the main roles and responsibilities in operational risk management. The revision and updating of systems, policies, procedures and methods of control are carried out regularly, as necessary.


47

procedures and controls should be reviewed, audited and tested periodically and after significant changes.

The systems, operational policies, procedures and risk controls shall be regularly checked by the internal and external auditor.

In 2012, an external risk audit was conducted by KPMG. Information on the results of the audit can be found in the section "Risk Management" on the official website of NSD

An operational audit will be conducted at least once every two years. The last report on an operational audit, dated 18 November 2013, is available for review on the official website of NSD

Thomas Murray annually conducts a rating audit. According to the results of the audit in 2013, the agency confirmed the rating of NSD at level AA-, with an outlook of "stable." The next rating audit is scheduled for the IV quarter of 2014.

Key Consideration 3 An FMI should have clearly defined operational reliability objectives and should have policies in place that are designed to achieve these objectives.

NSD has clearly defined objectives in the field of operational reliability and continuity. Such objectives include the following: to achieve business objectives in the context of emergencies, to ensure protection of NSD's business reputation. The objectives are specified in NSD's Business Continuity Policy (approved by the Supervisory Board of NSD).

Key Consideration 4 An FMI should ensure that it has scalable capacity adequate to handle increasing stress volumes and to achieve its service-level objectives.

NSD conducts stress testing of NSD systems at least once every six months and when conducting acceptance testing in case of enhancements, which may affect the capacity of PS and SSS. The ratio of data load testing to the existing volume of transactions makes it possible to draw conclusions on the adequacy of the systems' capacity. During the business day NSD performs technical monitoring of systems, which makes it possible to draw a conclusion on the adequacy of their capacity. In addition, based on requests, data received from other units of NSD, and the statistics of technical monitoring, an annual review of data systems' capacity is performed, on the basis of which proposals to upgrade technical systems are generated.

Key Consideration 5 An FMI should have comprehensive physical and information security policies that address all potential vulnerabilities and threats.

In the area of physical and information security NSD shall apply the following documents:

Security Concept of the Moscow Exchange Group;

Information Security Policy, which defines the organisation of the information security system (ISS) in light of all potentially affected parties and threats to the activities of NSD;

NSD's Access Control Instructions;

List of restricted premises of NSD;

Instructions on the use of safes in NSD;

Instructions on the organisation of works (service provision) performed by individuals acting under contractor agreements (service provision) with NSD.

The key documents on information security govern the following areas:

Appointment and distribution of functions, development of confidence in personnel;

Information security (IT security) in all stages of the life cycle of information systems (IS);

Protection of confidential information;

Protection of information in the payroll system;

Functions of the central securities depository;

Access management;


48

Password protection;

Protection from malicious software;

Use of the resources of the Internet and corporate e-mail;

Application of CIPF;

Personal data protection;

Management of vulnerabilities. NSD complies with all the requirements for technical resistance to burglary and for fire and alarm facilities of the premises of the credit organisation, in accordance with the requirements of the Bank of Russia.

Key Consideration 6 An FMI should have a business continuity plan that addresses events posing a significant risk of disrupting operations, including events that could cause a wide-scale or major disruption. The plan should incorporate the use of a secondary site and should be designed to ensure that critical information technology systems can resume operations within two hours following disruptive events. The plan should be designed to enable the FMI to complete settlement by the end of the day of the disruption, even in case of extreme circumstances. The FMI should regularly test these arrangements.

NSD has a business continuity plan, but the Plan does not provide an option for completing settlements by the end of the day on which the operational disruption occurred. At the same time, all key information systems are able to resume work within two hours after a failure. The Plan describes priority actions, mandatory actions after the emergency situation, requirements for the time and volume of recovery and the priority of recovery of business processes. The Plan also describes a Secondary Site, which is activated in case the head office or head office systems are inaccessible. The alternative channel for accepting orders in NSD is documents on paper. The Secondary Site of NSD provides for the possibility of implementing mission-critical business processes in the event of partial or complete unavailability of the head office for a period up to 30 days. The Secondary Site is tested at intervals of not less than 1 time per year

Key Consideration 7 An FMI should identify, monitor and manage the risks that key participants, other FMIs, and service and utility providers might pose to its operations. In addition, an FMI should identify, monitor and manage the risks its operations might pose to other FMIs.

NSD continuously carries out activities to identify new threats and vulnerabilities and monitor information security and possible incidents in the settlement and depository systems of NSD using SIEM. The participants of NSD PS are notified of the possible risks of unauthorised access to protected information for the purpose of transferring funds by individuals who do not possess the right to disposal of those funds, as well as the recommended measures for their reduction. As outsourcing, resources are being used to develop and support the settlement system. However, system reliability is also achieved through:

Availability of a hardware/software package (back-up, mirroring),

Availability of a special NSD unit to support the settlement system,

Availability in NSD of software source codes


49


Principle 18. Access and Participation Requirements. An FMI should have objective, risk-based and publicly disclosed criteria for participation, which permit fair and open access.



Key Consideration 1 An FMI should allow for fair and open access to its services, including by direct and, where relevant, indirect participants and other FMIs, based on reasonable risk-related participation requirements.

NSD applies certain technical and technological requirements for participation, such as registration in NSD's software and hardware package and connection to electronic channels of interaction, application of mechanisms to ensure business continuity, compliance with certain technical requirements for equipment, etc. NSD requires that the participants meet the special legal criteria set forth in the internal documents of NSD, providing the relevant participants with full access to its services. NSD provides access to NSD services and other market infrastructures, and in certain cases to indirect participants. However, NSD does not require that the participants meet the minimum financial criteria specified in the requirements for the functions and risks of NSD.

Key Consideration 2 An FMI's participation requirements should be justified in terms of the safety and efficiency of the FMI and markets it serves, be tailored to and commensurate with the FMI's specific risks, and be publicly disclosed. Subject to maintaining acceptable risk control standards, an FMI should endeavour to set requirements that have the least restrictive impact on access that circumstances permit.

NSD's requirements for Participants to have access to NSD services are based on the requirements established by the legislation of the Russian Federation and are also driven by the special risks of NSD in order to ensure the security and effectiveness of NSD activities and its role in the market it serves. The requirements set by regulatory and legal acts include, among others, requirements in the field of counteracting legalisation (laundering) of proceeds from crime and financing terrorism, licensing requirements, and requirements for constituent instruments and regulatory instruments. NSD requirements for Participants are determined by the difference between legislative regulation of different groups of Participants and the related risk management systems, and they vary depending on: - the types of services provided by NSD (services related to transactions with cash and securities or services that are not associated with a trade registry); - the legal status of the Participant and availability of licences (Participant is a Russian organisation or foreign organisation, credit organisation or non-credit organisation, licensed depository or non-licensed depository); Simplified access applies to Participants for access to NSD services that are not related to transactions with cash and securities.


50

Access parameters are reviewed depending on changes in Russian legislation that affect the criteria for participation. Requirements for participants and criteria for access to NSD services are contained in internal documents of NSD and publicly disclosed on the official NSD website.

Key Consideration 3 An FMI should monitor compliance with its participation requirements on an ongoing basis and have clearly defined and publicly disclosed procedures for facilitating the suspension and orderly exit of a participant that breaches, or no longer meets, the participation requirements.

NSD monitors participants' compliance with the criteria for access to NSD's services with the help of permanent legal analysis of information related to the participant, including data received from regulators, other state bodies and reports from the participants themselves. NSD uses timely and accurate information to monitor compliance. If necessary, NSD may apply special procedures for enhanced surveillance or the introduction of additional methods of monitoring of a participant whose risk profile is deteriorating. If there is a need to manage suspension of participation and an orderly exit of a participant who is violating the requirements for participation or no longer meets them, NSD suspends transactions on the accounts of that participant and notifies the participant, suspending its services to him/her. NSD shall not publicly disclose its decision in case of the suspension or exit of a participant. Procedures for the management of suspension and exit of participants, as contained in the internal documents of NSD, are partially disclosed on the official NSD website.


Principle 19. Tiered Participation Arrangements. An FMI shall identify, monitor and manage the material risks to the FMI arising from tiered participation arrangements.



Key Consideration 1 An FMI should ensure that its rules, procedures and agreements allow it to gather basic information about indirect participation in order to identify, monitor and manage any

NSD collects information on indirect participation (indirect participants) in case of a need to ensure compliance with the requirements of Russian law in cases and in the framework of interaction with regulators and other public authorities, to ensure compliance with the requirements of NSD internal documents, and to assess the risks of interaction with direct participants. Information is collected with the observance of legislation in the order and time-frame established by normative legal acts, and


51

material risks to the FMI arising from such tiered participation arrangements.

information is updated depending on compliance with the above requirements.

Key Consideration 2 An FMI should identify material dependencies between direct and indirect participants that might affect the FMI.

Information contained in documents received from service providers and from direct participants allows NSD to identify dependence between direct and indirect participants in certain cases, which may affect NSD.

Key Consideration 3 An FMI should identify indirect participants responsible for a significant proportion of transactions processed by FMI and indirect participants whose transaction volumes or values are large relative to the capacity of the direct participants through which they access the FMI in order to manage the risks arising from these transactions.

NSD monitors transactions on a continual basis of both direct participants and, where applicable, indirect participants who have the status of beneficiary, including the volume and number of transactions compared to the direct participants through which the indirect participants access NSD in order to manage the risks arising from these transactions.

Key Consideration 4 An FMI should regularly review risks arising from tiered participation arrangements and should take mitigating action when appropriate.

During the analysis of transactions within the AML/CFT system, as well as the identification of suspicious transactions, NSD conducts an investigation, requests the client to provide all the information on beneficiaries, and takes the necessary actions in accordance with the legislation of the Russian Federation and the Rules of Internal Control in order to comply with AML/CFT.

Evaluation of observance of Principle Partly observed

Principle 20. FMI Links. An FMI that establishes a link with one or more FMIs should identify, monitor and manage link-related risks.

Applies to FMI: CSD, SSS, TR


Key Consideration 1 Before entering into a link agreement and on an ongoing basis once the link is established, an FMI should identify, monitor and manage all potential sources of risk arising from the link arrangement. Link arrangements should be

The decision to establish/not establish new links with other FMIs may be made by an authorised person or body of NSD, the competence of which is established by internal documents of NSD. When making a decision to establish a link, NSD analyses and takes into account legal, credit, liquidity and operational risks. Organizations which NSD has established links include: Clearstream Banking S.A., Euroclear Bank SA/NV, The Bank of New York Mellon (Brussels branch), Kazakhstan Central Securities Depository (KACD), The National Depository Centre of the Republic of


52

designed such that each FMI is able to observe the other principles in this report.

Azerbaijan, Republican Central Securities Depository of the Republic of Belarus, The National Depository of Ukraine (NDU), Central Depository of Armenia CJSC, Central Depository of the Kyrgyz Republic CJSC, Austrian Central Securities Depository (OeKB). NSD conducts analyses of identified risks on an unsystematic basis. NSD analyses whether link arrangements contradict other principles on an unsystematic basis.

Key Consideration 2 A link should have a well-founded legal basis, in all relevant jurisdictions, that supports its design and provides adequate protection to the FMIs involved in the link.

Prior to establishing any links, NSD checks that there is a well-founded legal basis that supports its design and provides adequate protection in all relevant jurisdictions. NSD checks the legal basis for the organisations with which it establishes links when any changes arise.

Key Consideration 3 Linked CSDs should measure, monitor and manage the credit and liquidity risks arising from each other. Any credit extensions between CSDs should be covered fully with high-quality collateral and be subject to limits.

NSD has links with other CSDs, as well as procedures for monitoring credit and liquidity risk and managing the risks arising from established links with other CSDs. NSD does not provide any types of loans to a linked CSD.

Key Consideration 4 Provisional transfers of securities between linked CSDs should be prohibited or, at a minimum, the retransfer of provisionally transferred securities should be prohibited prior to the transfer becoming final.

Provisional transfers of securities between NSD and other CSDs have not been performed.

Key Consideration 5 An investor CSD should only establish a link with in issuer CSD if the arrangement provides a high level of protection for the rights of the investor CSD's participants.

NSD, in accordance with the Federal Law "On the Central Securities Depository" and the Terms and Conditions of Depository Operations of NSD, upon each transaction with securities in the current nominee account of the central securities depository (hereinafter – NHCD account), and in the case that in the course of the day no such transactions have been carried out, at least once a day performs reconciliation with the person managing the registry for the number of securities in the NHCD account (further – records reconciliation), and establishes a match of the number of securities in all securities accounts of NSD clients and the number of securities in the NHCD account in the registry.

In case of entry inconsistencies on a current NHCD account and failure to eliminate such inconsistencies, the data on the previous reconciliation shall be deemed correct.

Key Considerations 6, 7 and 8 Not applicable to NSD because NSD does not act as a central counterparty.





53

Key Consideration 9 A TR should carefully assess the additional operational risks related to its links to ensure the scalability and reliability of information technology and related resources.

NSD's repository takes into account additional operational risks when installing new software releases. In order to minimise such risks to participants, information on forthcoming changes is disclosed in advance (information received shall be periodically published on the NSD website and shall be disclosed at the meetings of the Repository Activities Committee and the Committee's technology working group). In addition, prior to installing new software into an industrial system, the participants of repository activities are involved in external user-testing. These measures allow participants to set up their email accounts in the system according to the new message formats, as well as make changes associated with processing, and, as a result, minimise operational risks in the transition to a new version of software.


Principle 21. Efficiency and Effectiveness. An FMI should be efficient and effective in meeting the requirements of its participants and the markets it serves.



Key Consideration 1 An FMI should be designed to meet the needs of its participants and the markets it serves, in particular, with regard to choice of a clearing and settlement arrangement; operating structure; scope of products cleared, settled or recorded; and use of technology and procedures.

NSD architecture meets the needs of participants markets that it serves. To determine and meet the needs of participants in the financial market, NSD created 4 customer committees. The Committees consist of specialists representing the interests of NSD clients, registrars, trade facilitators, and clearing and other organisations.

Committee Main tasks and functions

Customer Committee for Quality Control and Risk Management

Formulation of recommendations with regard to NSD's customer policy

Formulation of recommendations with regard to NSD's customer policy

Formulation of proposals to improve customer service and ensure its quality control

Formulation of recommendations to reduce NSD's operational risks in the implementation of services

Customer Committee for Settlement and Depository Services and Tariffs

Development of proposals to improve depository and settlement activities, including new services and products, as well as NSD's tariff model

Interaction with financial market participants to study the needs of customers and analyse new market trends.

Customer Committee for Registrar and Depository Relations

Formulation of recommendations to improve existing methods of NSD's interaction with registrars

Preparation of proposals to change the existing technology of NSD's

https://www.nsd.ru/ru/about/structure/commit/rd_fees/

https://www.nsd.ru/ru/about/structure/commit/rd_fees/

https://www.nsd.ru/ru/about/structure/commit/regdep/

https://www.nsd.ru/ru/about/structure/commit/regdep/


54

interaction with registrars, including the use of electronic documents

National Settlement Depository Customer Committee (Central Securities Depository Customer Committee)

Considers and approves NSD's internal documents, including documents that require approval of the regulator:

Terms and Conditions of Depository Operations of NSD;

Rules of Electronic Interaction (workflow), including message formats used by NSD;

Procedure for Transactions and Workflow in the implementation of depository activities of NSD.

Rules of Risk Management related to the activity of NSD;

Document establishing the Procedure of Processing Complaints and Customer Inquiries of NSD;

Tariffs for NSD services related to transactions with securities;

Tariffs for other depository services of NSD.

NSD focuses its activities on shareholders, customers and the regulator. NSD takes into account the needs of participants and markets, organising meetings of customer committees, including the International Consultative Council (ICC), as well as through regular interviews with various customer segments and service users. A study is regularly (until 2014 – 1 time a year, starting from 2014 – 2 times a year) conducted to determine the NSD customer satisfaction index (CSI). The CSI, among other things, makes it possible to assess the degree of overlap in understanding the importance of aspects of work by NSD employees and customers. NSD conducts quarterly self-assessments of the range of NSD's services compared to the range of services of leading CSDs.

Key Consideration 2 An FMI should have clearly defined goals and objectives that are measurable and achievable, such as in the areas of minimum service levels, risk management expectations and business priorities.

NSD has set out objectives and tasks concerning the effectiveness of its operations and the quality of services, which includes reliability, timeliness and communication skills. NSD's goals and objectives include service-level targets, risk management expectations, and the development of new services. NSD makes sure that it has clearly defined goals and objectives, measurable and achievable, using an analysis of competitors and a review based on international standards. Mechanisms used by FMI for the measurement and evaluation of its goals and objectives include key performance indicators (KPI), surveys/questionnaires in the field of quality of customer service and checks by external auditors.

Key Consideration 3 An FMI should have established mechanisms for the regular review of its efficiency and effectiveness.

To review efficiency and effectiveness, KPIs are used, which are established and approved for each year, with the possibility of adjustment once every six months. NSD performs quarterly monitoring of quantitative and qualitative indicators, characterizing the company's marketing activity. Among these are indicators of company operating activity in key areas (CSD, LMS and clearing activities, Repository, PS), PR

https://www.nsd.ru/ru/about/structure/commit/comm_user/





55

activity, Internet marketing, and the representation of NSD at professional conferences and events. The NSD Executive Board's report on work accomplished for the quarter is reviewed by the Supervisory Board of NSD.


Principle 22. Communication Procedures and Standards. An FMI should use, or at a minimum accommodate, relevant internationally accepted communication procedures and standards in order to facilitate efficient payment, clearing, settlement and recording.



Key Consideration 1 An FMI should use, or at a minimum accommodate, internationally accepted communication procedures and standards.

To interact with Russian and foreign clients and correspondents for the purpose of sending messages, NSD uses SWIFT international standards. In addition, SWIFT international standards are used in the implementation of cross-border transactions, in particular in the implementation of values-and-paper and cash settlements with international settlement and clearing organisations and foreign bank-correspondents. For the implementation of operational compatibility of systems and conversion of message formats at transfer and acceptance of messages received or sent to the SWIFT system, NSD uses the SWIFT message converter running in the automatic real-time mode. When sending SWIFT messages, NSD uses formats ISO 15022 and 20022.


Principle 23. Disclosure of Rules, Key Procedures and Market Data. An FMI should have clear and comprehensive rules and procedures and should provide sufficient information to enable participants to have an accurate understanding of the risks, fees and other (material) costs they incur by participating in the FMI. All relevant rules and key procedures should be publicly disclosed. Applies to FMI: CSD, SSS, PS, TR


Key Consideration 1 An FMI should adopt clear and comprehensive rules and procedures

NSD has developed and implemented rules and procedures for providing its services. Changes in the documents related to the provision of services take place with consideration for the opinion of market participants, are approved by management bodies of NSD and, if necessary, are agreed upon by (registered with) the Bank of Russia.


56

that are fully disclosed to participants. Relevant rules and key procedures should also be publicly disclosed.

Such documents are disclosed on the NSD website with an indication of the effective date:

Shareholders Agreement with respect to NSD;

Regulations of NSD's General Meeting of Shareholders;

NSD's Articles of Association;

Regulation on NSD's Supervisory Board;

Regulation on NSD's Executive Board;

Regulations on Customer Committees;

Terms and Conditions of Depository Operations;

Code of Professional Ethics;

Regulation on the Procedure of Processing Complaints and Customer Inquiries;

Information Disclosure Policy;

Rules of Electronic Interaction;

Clearing Rules;

Regulations on Interaction between NSD and Issuers;

Terms and Conditions for the Provision of Trade Repository Services and the Agreement on Terms and Conditions for the Provision of Trade Repository Services;

Instructions on Security of Personal Data during its Processing by NSD;

Rules of NSD PS;

Terms and Conditions for the Provision of Settlement Services;

Standard agreement forms and additional agreements thereto

Internal documents are disclosed on the NSD website in the order and time established by the law of the Russian Federation, the Bank of Russia normative acts, and agreements with NSD.

Access to the information listed above is available on the NSD website for all interested persons.

Key Consideration 2 An FMI should disclose clear descriptions of the system's design and operations, as well as the FMI's and participants' rights and obligations, so that participants can assess the risks they would incur by participating in the FMI.

NSD shall disclose detailed information relating to the design and operations of NSD on their website. The main documents defining operations of the system are as follows:

Terms and Conditions of Depository Operations;

Rules of Electronic Interaction;

Clearing Rules;

Regulations on Interaction between NSD and Issuers;

Agreement on Terms and Conditions for the Provision of Trade Repository Services;

Terms and Conditions for the Provision of Repository Services;

Rules of NSD Payment Sytem;

Terms and Conditions for the Provision of Settlement Services;

Standard agreement forms and additional agreements thereto: on clearing services, securities account, share account, bank


https://www.nsd.ru/common/img/uploaded/files/licenses/regl_obsch_sobr_akc.pdf

https://www.nsd.ru/common/img/uploaded/files/licenses/ustav_nsd.pdf

https://www.nsd.ru/common/img/uploaded/files/licenses/polojenie_nab_sovet.pdf

https://www.nsd.ru/common/img/uploaded/files/licenses/polojenie_pravlenie.pdf

https://www.nsd.ru/ru/about/structure/commit/


https://www.nsd.ru/ru/about/csd_disclosure/int_docs/





https://www.nsd.ru/ru/documents/emiss/index.php?id36=548&i36=2



https://www.nsd.ru/ru/documents/personal/






https://www.nsd.ru/ru/documents/emiss/index.php?id36=548&i36=2






57

account, paying agent, treasury securities account, exchange of electronic documents, etc.) Access to the documents listed above is available on the NSD website for all interested persons. In order to enable clients to assess the risks they face as a result of participation in FMI, standard forms of contracts contain clauses on the rights and obligations of clients. Participants are informed about the main activities and achievements of NSD in the field of risk management and business continuity: information is disclosed in the section "Risk Management," NSD's annual report, the results of the annual rating audit by Thomas Murray, and the report on the operational audit. Rules of NSD PS also contain sections on risk management and business continuity of NSD PS. In order to maintain an acceptable level of operational reliability, NSD regularly (at least 2 times per year) conducts tests aimed at assessing and validating the backup of software and hardware and the secondary site, the results of which are published on the NSD website in the section "Business Continuity." The Specialised Repository Web-Portal is in operation, dedicated to formats of repository messages and recommendations for participants on how to complete forms, and describing tools, message examples and Repository business processes.

Key Consideration 3 An FMI should provide all necessary and appropriate documentation and training to facilitate participants' understanding of the FMI's rules and procedures and the risks they face from participating in the FMI.

NSD provides participants with the necessary information on its website, as well as in presentation and information materials. Seminars and webinars are regularly conducted with a view to training market participants. NSD has experience in testing aimed at developing and validating business continuity of participants' and regulator activities (clients, Moscow Exchange, Bank of Russia). It is expected that in the future participants will take part in testing procedures for NSD's business continuity on a permanent basis. Participants are notified in advance of planned changes to the internal documents of NSD and can take part in the discussion of draft amendments by sending their opinion to NSD. Sessions of the Committee on Repository Activity involving the Executive Board of NSD and working group with the Committee are conducted on a monthly basis. In addition, training seminars and webinars for participants are conducted on a regular basis. Materials of seminars are posted in the section "Information Materials" on NSD's website.

Key Consideration 4 An FMI should publicly disclose its fees at the level of individual services it offers as well as its policies on any available discounts. The FMI should provide clear descriptions of priced services for comparability purposes.

NSD shall publish information on the fees charged for services provided on the company's website. A special "Fees" section was developed for this purpose. Basic pricing principles for NSD's services are defined in the Marketing and Pricing policies, approved by customer committees and confirmed by NSD's Supervisory Board. NSD PS publicly discloses information on the cost of individual services it offers and the policy of discounts as part of the Rules of NSD PS and NSD Tariffs on cash and settlement services.

https://www.nsd.ru/ru/about/bc/


http://repository.nsd.ru/recommendations/recommendations


http://repository.nsd.ru/versioned/current/examples

http://repository.nsd.ru/versioned/current/reference/bizproc

https://www.nsd.ru/ru/services/repository/materials/

https://www.nsd.ru/ru/fees/general/


58

Key Consideration 5 An FMI should complete regularly and disclose publicly responses to the CPSS-IOSCO Disclosure Framework for Financial Market Infrastructures. An FMI should provide its participants and the public with any other additional information necessary to understand the business and operations of the FMI. An FMI also should, at a minimum, disclose basic data on transaction volumes and values.

NSD intends to conduct an annual self-evaluation within the CPSS-IOSCO framework. Performance indicators of NSD (weekly statistics) are published on the NSD website https://www.nsd.ru/ru/about/statistic/week/ Performance indicators of NSD (monthly statistics) are published on the NSD website https://www.nsd.ru/ru/about/statistic/month/ NSD proposes to unify the frequency of providing its participants with performance and statistical information on settlements and corporate actions.


Broadly observed

Principle 24. Disclosure of Market Data by Trade Repositories. A TR should provide timely and accurate data to relevant authorities and the public in line with their respective needs. Applies to FMI: TR


Key Consideration 1 A TR should provide data in line with regulatory and industry expectations to relevant authorities and the public, respectively, that is comprehensive and at a level of detail sufficient to enhance market transparency and support other public policy objectives.

NSD sends to the Bank of Russia a daily extract from the registry of contracts of the Repository, including all changes in the registry made during the business day. On a monthly basis, the Bank of Russia is provided with statistics on the number of profiles recorded in the registry during the reporting month, as well as data on the volume of repo transactions and currency swaps. A separate "Repository" section dedicated to the activities of the NSD Repository was created on the NSD website, and the Specialised Repository Web-Portal, dedicated to the formats of repository messages, is also in operation. The "Repository" section contains:

General information about the Repository;

Information on how to connect to the Repository (including the set of necessary documents);

Regulations on repository activities (including references to laws and regulations on repository activities in the Russian Federation, as well as the Terms and Conditions for Providing Trade Repository Services with appendices and the Agreements on Terms and Conditions for Providing Trade Repository Services);

https://www.nsd.ru/ru/about/statistic/week/

https://www.nsd.ru/ru/about/statistic/month/






59

Directory of Repository Activity Participants (updated daily);

Information on tariffs for the provision of repository services;

Information about the Customer Committee and working group;

Materials from training seminars and webinars;

Contact details. In the "Repository News" section, information needed by clients and associated with the most important events of repository activity (approval of new editions of the Terms and Conditions for Providing Trade Repository Services, changes in messaging formats, planned installation of Repository software releases, seminars for clients and meetings of the Customers Committee, etc.) is posted on a regular basis. All information about the Repository on NSD websites is published in the Russian and English languages.

Key Consideration 2 A TR should have effective processes and procedures to provide data to relevant authorities in a timely and appropriate manner to enable them to meet their respective regulatory mandates and legal responsibilities.

NSD has effective processes and procedures to ensure timely provision of necessary data in the prescribed manner to the Bank of Russia for the implementation of regulatory and other functions. Starting 2014 collaboration with the Bank of Russia is in progress creating an analytical database of the Repository. The information from the specified database is planned to be available to the Bank of Russia online. This data will become the basis for the summary statistics of the Repository, which in the future will also be disclosed to market participants.

Key Consideration 3 A TR should have robust information systems that provide accurate current and historical data. Data should be provided in a timely manner and in a format that permits it to be easily analysed.

NSD has robust information systems that ensure the provision of accurate current and historical data. All communications between the participants and the Repository, sent electronically, shall be automatically recorded (STP-processing) in the Repository's books (including the Log of Incoming Messages, Log of Outgoing Messages, and registry of contracts). The data is stored in the online database of the Repository and is available in historical sequence. NSD's IT Department performs daily backups and archives of the Repository database.


Fully observed

I. LIST OF PUBLICLY ACCESSIBLE SOURCES

For any necessary information, please visit NSD's website www.nsd.ru and click the links referred to above.

https://www.nsd.ru/ru/press/repository

http://www.nsd.ru/


60

II. GLOSSARY

FMI – financial market infrastructure

PS – payment system

SSS – securities settlement system

TR – trade repository

CSD – central securities depository

NCC – Bank "National Clearing Centre" Closed Joint-Stock Company

FL – federal law

Documents

DISCLOSURE BY NSD INFORMATION ON COMPLIANCE WITH … · 2015. 4. 1. · By 1 April 2013, NSD had completed ... Clearstream Banking S.A. (hereinafter – Clearstream), as well as in