Russian derivatives regulations – developments and remaining challenges

Andrei Murygin

Partner

10 September 2013

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Repositories – reporting and close-out netting

― NSD and NP RTS announced availability of reporting facilities for repos and FX swaps – reportable from 5 November 2013

― Impact: close out netting will become available for repos and swaps

― Announcement of reporting facility for DFIs and “other agreements involving securities and foreign currency” expected before November 2013

― Works as extension of transition period for reporting of derivatives and spot trades until July 2014

― Close out netting for derivatives will effectively be postponed too, unless both parties agree to report before statutory obligation arises

― Foreign banks’ reporting obligation – applicable?

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Collateral

― “Contracts for payment of floating margin amounts” are included in the basic DFI list in the 2011 Russian Master Derivatives Documentation;

― 2011 Form of Margin Agreement - collateral is treated as a separate derivatives transaction

― FSFM proposes adding Credit Support Agreements into the list of DFIs

― Improves chances of inclusion of collateral in Close out Amount;

― Does it improve enforceability of collateral in the absence of statutory recognition of margin payments in the SML?

― Civil Code or SML changes necessary: timing unclear

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Curing discrimination of foreign players - Civil code changes needed

― Article 1062 (2) : change is needed to ensure equal protection of derivatives with non-Russian professional counterparties

― November 2012 – Duma indefinitely postponed the proposed changes to the Civil Code

― Timing of such changes is uncertain

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Court practice – adverse cases

― Unicredit case – 2013 repeat case of 2012 loss

― Easy fix: specific termination clauses can be dealt with in the documentation

― Larger impact: unpredictable interpretation of international-style provisions of Russian and ISDA derivatives documentation

― VAS discussions of possible clarifications on derivatives

― Possibility of adding termination if a professional party acted in bad faith

― Possibility of professional party’s disclosure obligation and suitability tests

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Questions

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