MICEX-MICEX-RTSRTS FX FX MMarket: arket: NNew ew TTime, ime, New Instruments, New LiquidityNew Instruments, New Liquidity

EBRD, NFEA, ISDA ConferenceLondon, 14th March 2012

What Is the MICEX–RTS FX Market?

High Liquidity: USD/RUB strongest performance across international markets

High Liquidity: USD/RUB strongest performance across international markets

Variety of FX Instruments: USD/RUB, EUR/RUB, CHY/RUB, BKT, SWAP O/N, T/N

Variety of FX Instruments: USD/RUB, EUR/RUB, CHY/RUB, BKT, SWAP O/N, T/N

Benefits of On-Exchange Clearing & Settlement: CCP, PVPBenefits of On-Exchange Clearing & Settlement: CCP, PVP

!

!!

!!!Technological Excellence: API (transactional FIX 4.4 is available),

high productivity, low latencyTechnological Excellence: API (transactional FIX 4.4 is available),

high productivity, low latency!!!!

!!!!! Sponsored Clients’ Access (DMA replica) to FX Market Sponsored Clients’ Access (DMA replica) to FX Market

2

MICEX-RTS FX Market Instruments, Liquidity, and Members

Average Daily Trading Volume on the MICEX FX market, USD billion • Liquidity Average daily trading volume in 2011 – more than

USD 12 billion In 2011 the MICEX traded 28% of the USD/RUB

volume and 57% of the EUR/RUB volume on the Russian interbank market

FX spot – 56%, FX swap — 44% of total turnover USD/RUB – 83,4%, EUR/RUB —15,1%, EUR/USD —

1,2%, other— 0,4%

• High standard post-trading infrastructure

Guaranteed execution of transactions and fulfillment of settlement obligations: National Clearing Center (NCC) as a CCP

Ruble settlement via National Settlement Depository (NSD)

Foreign currency settlement via major international banks : J.P. Morgan Chase Bank; Deutsche Bank AG

• Instruments 7 currency pairs: USD/RUB, EUR/RUB, EUR/USD (value

dates T+0 and T+1), CNY/RUB, UAH/RUB, BYR/RUB, KZT/RUB (value dates T+0)

Basket for RUB/currency pairs (BKT = 55% USD & 45% EUR)

FX Swaps: USD/RUB, EUR/RUB, EUR/USD -O/N, T/N

The MICEX’s share on the Russian interbank market, %

200820072006200520042003 201120102009

USD/RUB

EUR/RUB

1,3

9,1 10,0

1,8

2011

12

10,2

1,8

2010

10,6

9,3

1,3

2009

12,3

10,0

2,3

2008

10,6

9,5

1,1

2007

6,0

5,8

0,2

2006

3,9

3,8

0,1

2005

2,4

2,4

2004

1,4

1,4

2003

0,60,6

EUR/RUB

USD/RUB

3

Development of FX SWAPs Development of FX SWAPs and Forwards at MICEX-RTSand Forwards at MICEX-RTS

4

Average daily volume and the structure of USD/RUB swaps in Russia, USD million

• In 2010 average daily global turnover in FX swaps totaled $1765 billion and in FX forwards – $475 billion.

• According to BIS, swaps with maturity less than 1 week accounted for 74% of the FX swap market, from 1 week to 1 year – 25% and over 1 year – 1% of the market.

• In 2010 the share of cross currency swaps with maturity over 1 week in developed countries accounts for 20-30% :

USA - 28% UK - 26%.

• In 2011 The share of long-term swaps in the UK USD/RUB swaps market exceeds 30%.

• Long-term (over 1 week) swaps have a quite small market share in Russia – just 3-4% of the FX swap market.

• According to the Bank of Russia’s and the Bank of England’s official data for 2011, long-term USD/RUB swaps trading volume was almost 4 times higher in London than in Russia.

• Russian banks must apply position limits against each other as well as sign the General Agreement and to enter into long-term cross-currency swaps on-shore. Bilateral limits between Russian banks are not sufficient to make long term OTC deals. If a counterparty on swap deal will go bankrupt it causes serious problems to bona fide side.

• As a result, most of the deals are conducted overseas and involve the use of various synthetic instruments.

Russian FX swaps and forwards market in comparison with international market

SWAP and Forward Markets in London and Russia

5

Average daily volume and the structure of USD/RUB swaps in UK, USD million

366 06898,0%

6450,2%

6 6501,8%

Over 1 year 2 0202,1%

6 months to 1 year 3 7944,0%

1 month to 6 months 15 28716,1%

1 week to 1 month 7 6998,1%

Less than 1 week 66 38769,7%

Sources: The Bank of Russia ‘s data based on BIS and United Kingdom's Foreign Exchange Joint Standing Committee (FXJSC) methodology (as of April, 2011)

USD/RUB swaps (UK)

USD/RUB swaps (Russia)

Less than 1 week

1 week to 1 year

Over 1 year

Total volume of USD/RUB swaps (short and long positions)made by Russian banks, USD billion

• As of the end of December, 2011, the outstanding volume of USD/RUB swaps and forwards concluded by Russian banks totaled $115 billion.

• In 2011 the overall volume of USD/RUB swaps (short and long positions) made by Russian banks grew 31% against 2010 to more than $4 trillion.

• Until recently, the low share of long-term swaps on the Russian market was explained by the general underdevelopment of the derivatives market in Russia.

• Due to small limits on long-term instruments, risks of counterparty bankruptcy, insufficient OTC risk management Russian banks prefer to operate off-shore or create synthetic swaps on international markets.

• A substantial volume of USD/RUB derivative transactions is made on the CME . Monthly volumes exceeded USD 9 billion.

• Key issues that have to be resolved in order to significantly increase on-shore market share for the long-term USD/RUB swaps are as follows: a) removing counterparty risk; b) protecting bona fide side of the deal; c) introduction of sound risk management

• What MICEX-RTS could offer to participants:

The CCP's services

Sound risk-management system

• These factors should facilitate the creation of the exchange-traded cross currency swaps market in Russia.

• Our expecting market share with long-term swaps is 15-20% against current 3-4% of the domestic swap market.

Sources: The Bank of Russia’s data based on BIS & СМЕT methodology.

High potential for growth of Ruble swaps and forwards and necessary prerequisites to develop the market on-shore

Ruble SWAP Market Has High Potential for Growth

6

USD/RUB derivatives trading volume on the CME, USD billion

SWAP and Forward’s Specifications

ParameterParameter Long-term swapLong-term swap ForwardForward

Currency pair USD/RUB

Maturity 1W, 2W, 1M, 2M, 3M, 6M 1D - 6M

Valuation date of the 1st leg TOM (T+1) –

Lot100, 000 USD – anonymous mode1000 USD – addressed mode

1000 USD

Basic exchange rateThe basic exchange rate for the currency pair, calculated at the EOD

–

MarginingUnified margining (combined with SPOT instruments), dynamic collateral calculation, compensation payments (variation margin). NFEA SWAP rate is taken as the basis for m-t-m process

Only addressed (off-order-book) orders are accepted for forward transactions

Firstly USD/RUB swaps and forwards will be launched. Other currency pairs will be added later

CCP’s based settlement for SWAP and Forward on-exchange deals

7

8

Who and Why Would Use FX SWAPs at MICEX-RTS

Target group:Russian banks, including foreign banks’ subsidiaries, which are trading members of the MICEX-

RTS FX marketTrading members’ clients, including Russian and foreign brokers, corporations and other legal

entities (DMA access)

Additional opportunities provided by exchange-traded instruments:No constraints (limited counterparty risk, bilateral agreements are not necessary)On-exchange liquidityCombined clearing and the CCP's services on the exchange-based FX market

Benefits:Money market instruments with maturities up to 6 monthsLiquidity management and long-term currency risk hedging Arbitrage and bargain huntingApplication to strategies on global markets

MICEX-RTS FX Market AccessMICEX-RTS FX Market Access

9

MICEX-RTSFX Market

Russian Bank –UTS member

ClientsIndividuals

Legal Entities

Institutional Investors

BrokersBroker’s Clients

Agency Agreement Bids/offers

Brokerage Agreements

Sponsored Access Scheme

Bids/offers

Bids/offers

10

Sponsored Direct Access – the Effective Way to Trade on MICEX-RTS FX Market

Settlement acc.

Clients

Clients

Trading/clearing member (Bank)

Key Features:

The access to the market is granted by the UTS trading participant – bank, however in fact a client could enjoy all preferences of a direct trading, so MICEX SDA = DMA Transparency (individual client’s registration at the Exchange)

Flexible position control model via settlement codes assignment

No crossing with the bank – access provider or other bank’s clients

Broker

Settlement acc.

11

Clients’ Share at the Sponsored DMA to FX Market

• 1st phase of the Sponsored DMA for non-banking institutions to MICEX-RTS FX Market was launched in Oct 2010

• 2nd phase was introduced in Feb 2012. A new version of sponsored DMA allowed to banks – FX Market participants seriously increase the clients base and better control their risks

• The number of registered clients has grown 5x during Feb 2012

• The clients’ volumes are concentrated in the SPOT instruments; This share made 17% of the total in Feb 2012.

12

Coming soon on MICEX-RTS

Long term FX SWAPS (1W, 2W, 1M, 2M, 3M, 6M) – Apr 2012

Deliverable FX forwards (flexible maturity up to 6 months)- negotiated deals only – Apr 2012

Trading time extension (till 23:50) – Q3–Q4 2012

Introduction of more G10 currency pairs – Q4

Re-thinking a new fee structure– more benefits for liquidity providers – Q2

13

THANK YOU FOR YOUR ATTENTION!THANK YOU FOR YOUR ATTENTION!

Contacts: Alexander Ageev, VP, Head of FX&MM Sales Contacts: Alexander Ageev, VP, Head of FX&MM Sales

ageev@micex.comageev@micex.com

TelTel..:: +7 (495) 363-32-32, ext. 31-15+7 (495) 363-32-32, ext. 31-15WebWeb: : www.micex.ruwww.micex.ru