Russian Bank Derivatives (NFEA Annual 2011 Survey) Dmitry Piskulov, Ph. D. (econ. ) Member of NFEA Management Board, Chairman of the Committee for Professionalism; ICAP , Senior Adviser Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 1
NFEA 2011 Survey Info • 4 -th Annual Survey (next after 2006 -2008) • Conducted in February-September 2011 • Participants: 27 Moscow based banks (large domestic and foreign subsidiaries) • Coverage: > 90% of forwards & derivatives • Methodology: based on BIS (Basel) i. e. reporting is based on location of trading/sales desk regardless where the transactions are booked • Focus on Turnovers but not on Notional amounts Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 2
Off-shore/On-shore segments RUB derivatives market is split into 3 segments: A. Off-shore (between global banks domiciled outside Russia): B. On-shore (between local Russian resident banks on domestic market) C. Cross-border (between local and global) ! NFEA Survey covers only B+C !!! A (off-shore) volumes is 5 -7 times bigger than B (on-shore). Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 3
Particpating Financial Institutions 16 domestic Russian banks 11 Subsidiaries of foreign banks Absolut MDM Russian Bank for Development Alfa Metallinvestbank Sberbank Citibank Nomos St. Petersburg Commerzbank Nordea Troika Dialog Credit Agricole Promsvyazbank Vnesheconombank Deutsche bank Raiffeisen VTB HSBC RBS Unicredit ING Eurasia Renaissance Finance JP Morgan Rosbank Khanty-Mansiysk Russian Agricultural Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 4
Russian bank derivatives in 2011: Breakdown by underlying assets Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 5
2008 -2011 Trends in share of Russian derivatives by underlying assets Growth or Decline % 2011 2008 Total (all instruments): 100% FX derivatives 78. 6% 89. 1% - 10. 3 pp Interest rate derivatives 18. 1% 2. 8% +15. 3 pp Equity derivatives 0. 9% 5. 8% -4. 9 pp Commodity derivatives 1. 7% 0. 5% +1. 1 pp Fixed income derivatives 0. 1% 1. 8% -1. 7 pp Credit derivatives 0. 6% 0. 07% +3. 93 pp Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 6
2011 Derivatives turnover (monthly) 2011 2008 Growth % 276. 4 263. 5 - FX derivatives 66. 0 52. 1 - Interest rate derivatives 11. 9 6. 12 + Equity derivatives 0. 5 3. 1 - Commodity derivatives 1. 1 3. 0 - 0. 06 0. 49 - 0. 4 0. 2 + bln. US$ Total (all instruments): Fixed income derivatives Credit derivatives Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 7
Local vs International banks Breakdown between local Russian banks and subsidiaries of international banks (of total Russian derivatives turnover): 2011 2008 Local banks 48. 5% 68. 3% Foreign subs. 51. 5% 31. 7% Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 8
FX Derivatives 2011 -2008 2011 2008 21. 7 36. 2 79% 70% FX swaps 47. 8 51. 1 Cross currency swaps 11. 9 FX futures 12. 7 10. 8 FX options 5. 9 1. 9 FX derivative instruments, % FX forwards (NDF + Outrights) In FX Forwards (Full delivery Outright forwards) Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 9
Maturity of FX derivatives Maturity % 2011 2008 < 1 month 36. 2 34. 3 1 -6 months 34. 1 46. 9 6 -12 months 16. 1 12. 8 1 yr – 3 yr 5. 9 5. 3 > 3 yr 3. 7 - Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 10
Currency pairs FX derivatives As in previous years USD/RUB dominates in FX derivatives (similar to spot market) Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 11
Cash MM interbank loans + Repo DAILY VOLUMES: Maturity of cash MM interbank Moscow, 08. 09. 2011 78. 5 Spot-1 month 14. 1 14. 2 1 -3 months 3. 4 4. 4 1. 0 1. 8 6 -12 months 1. 4 0. 2 > 12 months 2008: $25. 6 bln. 2007: $ 16. 1 bln 78. 6 3 -6 months Of them: Unsecured deposits $12. 2 bln Repo $ 5. 4 bln 2008 % O/N, T/N, S/N Total: 2011: $17. 7 bln. 2011 % 1. 4 0. 9 National Foreign Exchange Association, Russia 12
Interest rate derivatives • Monthly total volume: 11. 9 bln. US$ • 57% in Rubles, 32% in USD, 7% in EUR IR derivative instruments 2011 2008 Interest rate swaps (IRS) 37. 0 43. 9 Cross-currency swaps (CCS) 31. 5 22. 1 Interest rate futures 10. 8 18. 3 Forward rate agreements (FRA) 6. 3 9. 3 Forward-forward loans 3. 0 6. 1 Interest rate options (IRO) 2. 0 0. 3 Moscow, 08. 09. 2011 % National Foreign Exchange Association, Russia 13
Maturity of IR derivatives % 2011 2008 < 1 month 4. 0 23. 9 1 - 3 months 7. 0 8. 3 3 - 12 months 29. 3 13. 9 1 - 3 years 24. 1 34. 5 > 3 years 30. 7 19. 3 Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 14
Use of NFEA indices • • Mos. Prime rate: launched 2005 FX SWAP Rate: launched 2010 RUONIA (together with the CBR) launched 2010 ROISfix: launched April 2011 Use of NFEA indices (% of respondents Mos. Prime FX SWAP RUONIA Settlement/execution of IR derivatives 73% 27% 35% Fixing base interest rates of loans/bonds 77% 12% 23% Accounting & Revaluation 58% 19% Internal pricing & benchmarking 65% 27% 35% Analysis and statistics purposes 85% 31% 62% Banks plan to use ROISfix as RUB curve Moscow, 08. 09. 2011 85% National Foreign Exchange Association, Russia 15
New derivatives legislation • 92% of banks regard new derivatives legislation as positive step forward; • What Repositories banks would use: – Exchanges: 75% – Clearing organizations: 50% – SRO (incl. NFEA): 42% • What else should be adopted in the legislation and regulation, what is still missing: • • Close-out netting – final adoption and implementation Adds to Tax Code on derivatives as hedging instruments Corrections to Accounting Rules Collateral and credit support for derivatives transactions Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 16
Russian ISDA (RISDA) 2009 Use of Standard documentation (RISDA) of 2009, in % of all bank respondents RISDA with Counterparties RISDA with Clients Already executed (RISDA in use) 35% 30% Not yet but plan in future 63% 44% Do not plan to use RISDA 4% 4% Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 17
RISDA new annexes 2011 -13 Additional annexes(standard terms) to be added to RISDA Ranking of importance 10 max %% of respondents Credit Support Annex (CSA) 7. 9 46% Commodities annex 6. 2 17% Credit derivatives annex 6. 0 8% Precious metals annex 4. 9 8% Other (Repo!) 0. 3 3% Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 18
All legal agreements Ranking of importance of bilateral legal agreements(10 max) Standard Documentation (RISDA) 3. 2 NFEA interbank agreement 1. 1 Elaborated by legal firms/or In-House agreements 6. 1 ISDA Agreement 2002 7. 7 GMRA 2000 3. 6 GMSLA 0. 7 IFEMA 0. 4 Repo agreement (by NSMA, NFA) 3. 0 Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 19
Problems of development Ranking of importance 2011 2008 Legal (legislative) problems 8. 9 7. 9 Tax problems 7. 0 6. 9 Accounting problems 7. 0 6. 8 Lack of Government support 4. 9 4. 0 Lack of Infrastructure 4. 5 3. 2 Main problems that still hinder market development Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 20
About NFEA • • • Established: October 1999 in Moscow Membership: institutional (local and global banks and brokers) operating in Russian spot/forward foreign exchange , money markets and derivatives; Management: the Board (28 market practitioners), 4 co-chairmen, 3 Committees (on Market Indices; for Professionalism, Ethics & Education; on Legal Affairs) Projects up to date: – 1999 -2001, 2006: Elaboration of Standards (Code of Conduct and Rules to Conduct Operations (Committee for Professionalism, Ethics & Education), – Market indices: Mos. Prime Rate (2005, RUB money market reference rate), NFEA FX SWAP RATE – new index for USD/RUB and EUR/RUB forwards - Standard Documentation for Russian OTC derivatives transactions (Russian ISDA Agreement) – completed in 2009 - RUONIA – Russian analogue of EONIA (since Sept 2010) International cooperation, partners and working contacts: - EBRD - ISDA (inclusion of Mos. Prime rate into ISDA definitions 2006) - ACI-The Financial Markets Association - WMBA Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 21
Contact Details 12 Bolshaya Nikitskaya st, Moscow, 125009, Russia, Tel. +7 (495) 629 -9510, 629 -9709 www. nva. ru, www. nfea. ru; www. ruonia. ru @ The Copyright National Foreign Exchange Association, 2011 All rights reserved. Any reproduction is only permitted with prior consent of NFEA. Moscow, 08. 09. 2011 National Foreign Exchange Association, Russia 22
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