POST-TRADE SERVICES
CLEARING
The National Clearing Centre (NCC) acts as a Clearing House and Central Counterparty (CCP) for MOEX’s markets. The Bank of Russia granted NCC the status of a qualified central counterparty.
In 2023, NCC’s clearing efforts were focused on further developing clearing services and services, improving the technology platform and creating additional opportunities for clearing members to operate efficiently, comfortably and in a secure environment in the financial market.
In doing so, NCC was guided by the Moscow Exchange Group Clearing Development Strategy adopted in 2021 and the roadmap for implementing this strategy, which includes a detailed action plan for developing and implementing key projects and tasks.
Projects in 2023
Migration to T+1 settlement cycle
In 2023, Moscow Exchange in cooperation with NCC switched trading and settlement in shares and bonds to a single T+1 settlement cycle. This means that trades in the Central Order Books of all Moscow Exchange markets are settled and assets are delivered on the next trading day after the trade date (previously, on the second trading day).
Clearing of OTC trades on the Equity Market
Since April 2023, Moscow Exchange has offered professional market participants and their clients an OTC trading service for Russian shares not listed on MOEX with settlement through a central counterparty (CCP).
At the first stage, investors could conclude OTC trades in ten Russian shares not listed on the Exchange; by the end of 2023 the number of securities reached 28. The list was compiled on the basis of data from the MOEX Board indicative quotation system, which includes over one thousand shares of Russian companies, taking into account trading volumes in a security, compliance with the disclosure requirements, the availability of financial statements and investor interest.
The new service helps enterprises and businesses at different stages of their life cycle, many of which have already become joint stock companies and have their own shareholders but are not yet public, to gain their first experience of trading their securities on the secondary market.
Money Market Instruments
At the beginning of 2023, Money Market participants are enabled to make repo transactions, place deposits with the CCP and take floating rate loans. Traded are made and settled in RUB and CNY. Floating rate trades are available in the modes of repo with the CCP, GCC repo and inter-dealer repo. The floating rate at trade execution is made up of an indicator and a spread, the amount of which is set by the parties to the trade. RUSFAR family benchmarks, the key rate of the Bank of Russia and the RUONIA rate are available for entering into floating rate negotiated trades. The new instruments allow participants to levelling interest rate risk when managing liquidity in roubles and yuan for long terms, which contributes to lengthening the terms of funds placement and improving the efficiency of financial planning.
In August 2023, on demand repo transactions became available to professional money market participants. The new type of transactions provides clients with a unique opportunity: execution of the second part of a repo transaction at any convenient moment at the initiative of one of the parties, which expands opportunities for operational liquidity management, makes treasury processes more flexible and allows for faster response to changes in market conditions for each party to the transaction.
Development of the risk management system
In accordance with the approved roadmap for the development of the risk management system of NCC until 2025, the main efforts in this area were focused on implementation of a set of measures to improve risk management processes, maintaining the quality of CCP management at the level required by the regulator and in accordance with international standards. In addition, the operational processes related to risk management were optimised and automated to improve the reliability and continuity of the systems supporting the risk management system.
NCC projects and objectives
- The Clearing Rules set requirements for non-resident clearing members based on the strategic plan for admission of these type of members. The correspondent network was expanded to ensure smooth settlements in foreign currencies, sources of information and services for monitoring risks on foreign counterparties were enabled.
- External validation of the methodology for determining internal ratings for the most significant groups of NCC counterparties (banks, financial organisations, corporate clients), as well as validation of margining models for FX, Equity & Bond, Derivatives and Standartised OTC Derivatives Markets.
- A model risk management policy was developed, including an approach to model validation, and the model register was updated and approved.
- Approaches to liquidity risk management continued to be updated taking into account changes in the structure of the FX Market and a significant decrease in the share of turnover and trading in dollars and euros against the background of the appreciation of the Chinese yuan.
- Approaches to measuring market risk, including interest rate risk, for the trading portfolio on a revaluation basis in the event of a stress scenario were refined.
- Approaches to non-financial risk management were modernised in terms of developing process and risk maps and related control procedures, assessing potential losses, introducing a system of key risk indicators across all core business lines, conducting scenario analysis, and expanding the scope of description and testing of emergency scenarios as part of the development of the business continuity management system.
- The risk appetite structure was optimised in line with the newly approved strategy of Moscow Exchange Group.
NATIONAL SETTLEMENT DEPOSITORY
National Settlement Depository (NSD) is Russia’s central securities depository, offering its clients a wide range of services, including depository services, repository and clearing services, banking services, information services, collateral management services and technology services.
Depository services
In 2023, the total amount of issued securities being serviced by the NSD was 24.6 thousand, of which 13.9 thousand were international securities and 10.7 thousand were Russian securities.
Settlement and clearing
In 2023, the number of OTC trades cleared by NSD on a Delivery Versus Payment (DVP) basis was 66.6 thousand. The volume of trades totalled RUB 2.7 trillion. At the same time, the number of FOP (Free of Payment) trades increased by 22% to 10.9 million in 2023.
Automatic conversion of depositary receipts on foreign securities into Russian shares of international companies
In accordance with the decision of the Board of Directors of the Bank of Russia dated 15 September 2023 The Decision of the Board of Directors of the Bank of Russia «On Establishing the Procedure and Terms for Automatic Conversion of Securities of Foreign Issuers Certifying Ownership of Shares of Joint-Stock Companies with the Status of an International Company into Shares of Such Joint-Stock Companies» dated 15 September 2023. , NSD converted depositary receipts into shares of three international companies (ICPAO VK, ICAO Global Ports Investments and ICPAO United Medical Group) as part of their redomiciliation in Russia. After the automatic conversion procedures were completed, MOEX resumed trading in the securities of ICPAO VK and ICPAO United Medical Group, and investors were once again able to earn on these securities and participate in corporate actions.
Customer service channels
In the reporting period, the functionality of messaging via the Bank of Russia’s SPFS was finalised and put into operation.
Modernisation of record-keeping infrastructure
In 2023, NSD continued modernising its record-keeping infrastructure with a view to its use in the retail segment of the market as part of a project to develop a new investment instrument for individuals such as people’s bonds using Finuslugi financial platform.
In 2023, NSD placed four issues of people’s bonds, including the first issue of corporate bonds.
NSD acts as a depository for individuals, an agent for issuers in placing and redeeming bonds via the marketplace, and a withholding agent for individuals.
NSD enters into depository agreements with individuals remotely via Finuslugi personal account, opens the owner’s securities accounts, keeps records of the rights to the bonds, executes transactions with the bonds, maintains the individual’s position by transactions executed on the platform with the bonds, and calculates and withholds personal income tax on the sale, payment of income and redemption of the bonds.
Services for issuers
As a central securities depository, NSD provides collective custody of bond issue certificates and collective recording of ownership to bond issues of Russian and certain foreign issuers listed on Russian stock exchanges and the OTC market, provides issuers with depository services related to bond offerings, registers commercial bonds, provides counting board services at bondholders’ meetings, and, by law, represents bondholders in bankruptcy proceedings against issuers.
NSD is developing electronic channels to communicate with issuers to facilitate the placement and redemption of bonds, as well as to perform corporate actions on bonds, optimising service processes as well as streamlining and speeding up issuers’ access to services.
In April 2023, NSD offered issuers and Russian borrowers of Eurobond issues a new service to verify holders’ ownership of securities.
A total of 2,010 issues of corporate bonds worth RUB 49.15 trillion and eight issues of bonds of constituent entities and municipalities of the Russian Federation worth RUB 36.5 billion were accepted for service in 2023. The total number of bond issues accepted for service increased by 113% YoY.
In 2023, the share of bond issues accepted for placement with issuance documentation executed electronically was 95% (2022: 97.6%) of the total number of accepted issues.
NSD, as a central securities depository, registers commercial bond issues. Such bonds are registered without a prospectus and may be placed only by private subscription.
In 2023, 48 commercial bond issues by 26 issuers totalling RUB 118.3 billion and CNY 3.3 billion with maturities ranging from one to 50 years were registered. Ten commercial bond programmes worth RUB 227 billion were registered.
In 2023, 44 commercial bond issues worth RUB 180.8 billion and CNY 3.3 billion were placed and 34 commercial bond issues worth RUB 148.1 billion and EUR382.4 million were redeemed.
Payment services and client systems
NSD has started developing electronic client channels based on domestic technologies.
A unified approach to the visualisation of user interfaces for all client areas was applied, taking into account modern requirements to the customer journey and Moscow Exchange Group’s UX/UI standards.
Client areas now have a uniform interface, user-friendly, intuitive functionality, and their speed meets market standards and expectations.
The result in 2023 was an integration gateway and crypto service for Linux, successfully implemented using independent technologies. Client areas for depository and clearing services and collateral management system have been developed and are scheduled to be implemented in early 2024. NSD has launched and is actively promoting the migration of necessary and non-alternative functionality from the outdated LUCH software to the new specific client areas.
In 2023, a new bank-client was successfully implemented with functionality in line with the best practices of the banking industry.
Tri-party services
NSD, as an equidistant infrastructure, operates the Automated Collateral Management System (ACMS) and provides post-trade services for trades executed by market participants, as required by Russian law. By the end of 2023, 143 banks were connected to NSD’s settlement services; the total amount of repo transactions settled using NSD’s ACMS since 2013 exceeded RUB 466 trillion, and the maximum average daily volume of services provided (open position) reached RUB 4.5 trillion in 2023.
Post-trade services provided by NSD to market participants in 2023 totalled RUB 78 trillion, or 11.8% of the total volume of services provided by NSD as a settlement depository for on-exchange repo transactions.
Starting from the fourth quarter of 2023, NSD provides post-trade securities services for repo transactions. The facility allows credit institutions facing a temporary shortage of liquidity to promptly make up the shortfall with low-rated securities put as collateral.
From 2022, NSD provides settlement services for on-exchange deposit transactions. In 2023, the volume of these services totalled RUB 93 billion.
NSD also services inter-dealer repo transactions in yuan, i.e. repo transactions between market participants on the OTC market. In 2023, the total trading volume was over CNY 11 billion. In December 2023, the daily average volume of the services exceeded CNY 6 billion.
NSD provides clearing and settlement services on the Commodity Market. In 2023, NSD cleared for a total of RUB 15.2 billion across 67 participants.
Repository
In 2023, the number of transactions made on the Derivatives Market amounted to 27.3 million, totalling RUB 209.41 trillion.
The work to implement an independent infrastructure, which began a year earlier, was successfully completed in 2023. All processes were transferred to domestic solutions capable of continuing to provide a high level of IT infrastructure fault tolerance.
The Repository continued to develop and improve services that simplify interaction with clients, as well as optimise internal systems and client processes.
As part of the development of additional services for the provision of analytical information, the NSD Repository developed and implemented new forms of extended reports in response to individual participant requests. Two large clients joined the service.
In addition, the depository continues to make efforts with the National Financial Association to provide information on the OTC repo market for analytical reports.
For the convenience of clients, services were developed and tested to calculate fair value for determining thresholds and initial margin levels within the framework of Bank of Russia Directive No. 6032-U dated 23 December 2021.
Financial Transaction Registry
In 2023, NSD continued to develop the Financial Transaction Registrar (FTR) business line. The main function of the FTR is to make records of bank deposits, bond transactions, compulsory car insurance (OSAGO), loans and bank cards.
- Four financial platform operators were added to the service (in total nine financial platform operators were connected to FTR by the end of the year).
- About 55,000 statements were issued using a seamless service of requests through the unified portal of state service Gosuslugi.
- In order to ensure the quality of reporting by financial platform operators, a service was implemented aimed at reconciling the information transmitted to the FTR register with the data registered in the systems of financial platform operators.
Technological services
NSD Multibank
At the end of 2023, 57 corporations were connected to NSD’s multibank platform. The number of supported banks increased to 26, with at least five new banks scheduled to be connected in 2024. In 2023, the number of messages processed tripled year-on-year and exceeded 65 million. NSD developed a universal banking module to facilitate the process of connecting new banks to Multibank. NSD introduced an API orchestrator that allows for seamless customisation of individual API channels; the orchestrator was used to integrate with two major banks.
Due to the growing customer base, the performance of Multibank was quadrupled in advance. In December 2023, a Linux version of the Multibank software was released and made available to all system users.