Order-Driven Trading General Description RTS Stock Exchange September

Order-Driven Trading General Description RTS Stock Exchange September, 2007

Stocks EESR GAZP GMKN LKOH MTSS ROSN RTKM SNGS RAO UES of Russia Gazprom Norilsk Nickel LUKOil Mobile Tele. Systems Rosneft Rostelecom Surgutneftegaz 2

Benefits • State-of-the-art Trading Technology • Anonymous / Named Orders • Fast Execution • Direct Market Access • Algorithmic Trading • Standard Settlement • Fines for Settlement Delay 3

Trading • Order book • Orders only with DVP settlement in USD • Orders are submitted within limits set by the RTS • Minimum order size is $5, 000 • Negotiated trades • Not restricted by RTS limits • FOP settlement is available 4

Central Counterparty A counterparty for all the trades executed in the Order-driven trading is NP RTS Two trades instead of one: 1. Seller – CCP 2. CCP – Buyer The CCP is obliged to: • • • Deliver the stocks / pay for the stocks Pay the fines in case of settlement delay (if there is not enough stocks / cash) Pay the penalty in case of settlement failure 5

Reasons for CCP • • • Connecting participants compliant for KYC / AML policies with no need to check every RTS member firm Matching two orders submitted by the same broker on account of 2 different clients A legal basis for netting 6

Settlement • No manual PSA is required (PSA is signed automatically at the moment of trade execution) • Trade-by-trade DVP settlement in USD using accounts with: • JPMorgan Chase • Citibank • RTS Settlement Chamber • Back-to-Back Settlement of both trades with CCP • Trades can be settled in full only (no partial settlement is allowed) 7

Settlement Cycle T T+4 T+6 Trade is executed Standard day of settlement Last day to provide cash T+7 Buyer pays the penalty if there is not enough cash to settle the trade T+9 Last day to provide securities T+10 Seller pays the penalty if there are not enough securities to settle the trade 8

RTS Guaranties RTS guarantees payment of: • Settlement delay fines (daily from T+4 until the trade is settled or cancelled) • Settlement failure penalties (cover market risk) 9

Guarantee System Guarantees • RTS Guarantee Fund • Margin deposited by the participants Margin Call Request to deposit additional margin for the unsettled trades in case: • Market price changes • RUR to USD rate decreases (if margin is deposited in RUR) Margin is used to pay fines and penalties 10

Limits Serve to restrict member’s unsettled trade volume. Depend on: • Balance of margin accounts • Member’s reliability level Decreased if: • Trade is executed • Market risk is realized Increased if: • Member gets higher level of reliability • More cash is deposited to margin accounts • Trade is settled 11

Participant Groups Group of the participant Liability level, $ Unsecured limit, $ Secured limit, $ Margin 7. 5% Margin 18% I 1, 500, 000 45, 000 60, 000 75, 000 No limit II 900, 000 15, 000 30, 000 45, 000 No limit III 700, 000 6, 000 12, 000 18, 000 No limit IV 600, 000 3, 000 6, 000 9, 000 V 300, 000 750, 000 2, 250, 000 3, 750, 000 10, 000 No limit 12

RTS Guarantee Fund • Formed from the RTS own capital in Russian rubles • Used in case the deposited margin is not enough to pay the fines and penalties • The defaulting party shall reimburse the sum paid from the Guarantee Fund • Size, terms and conditions of usage is described in the Guarantee Fund Regulation • Current size = equivalent of $10, 000 13

Margin in Cash Kept on: • Special accounts with RTS Settlement Chamber, (under control of RTS) • Settlement accounts with JPMorgan Chase or Citibank (under control of DCC) Currency: • USD • Russian rubles (estimated according to the current rate of the Central Bank of Russia) RTS may use the deposited cash only to pay fines and penalties for the defaulting participant 14

Margin in Securities Kept on: • Special accounts with DCC (under control of RTS) List of Securities: • Hi-Rated municipal and corporate bonds RTS may sell the deposited securities only to refill the Guarantee Fund in case the defaulting participant has not reimbursed the sum used to pay for his fines and penalties 15

Margin Calls • Posted when the realized market risk for all the unsettled trades of a participant is above 50% of the RTS liability limit to that participant • Limit of the RTS liability depends on the category of the participant Realized market risk = Qty of shares * | trade price – market price | 16

Fines and Penalties • For Settlement delay – 8% annual interest for every calendar day of settlement delay. • For Settlement Failure : Realized Market Risk + 0, 25% of the failed trade volume • Unpaid Margin Call – Double refinance rate of the Central Bank for every calendar day of delay • Guarantee Fund Usage – Double refinance rate of the Central Bank for every calendar day of delay to reimburse 17

Documents • RTS Stock Exchange, OAO: • Trading Rules (Section IV. Electronic Trading) • Terms of the Transactions Executed in the Electronic Trading • RTS, NP: • Clearing Rules • Regulation of the Guarantee Fund • Parameters of the Risk Management System • RTS Settlement Chamber, NCO • Operation Rules • DCC • Clearing Rules 18

RTS Experience in Clearing Since 1999 T+0 Market Clearing Since 2001 Derivatives Market CCP Since 2005 Guarantees for the Order-Driven Trading Since 2007 CCP for the Order-Driven Trading

CCP Owned Capital RUR, million

Next Steps Stock Lending/Borrowing (Repo Agreement) Buy-In / Sell-Out Netting with Multi-Currency Settlement FIX Gateway Securities + Derivatives Portfolio Margining

Thank you! Contacts: • E-mail: classic@rts. ru • Tel: +7 495 705 90 31 • http: //www. rts. ru/ 22