ING Financial Markets
RuONIA Overnight Index
Swap Market in Russia
November 2010
Moscow
CONTENTS
I. RuONIA background
•
History, current state and future prospects
•
Comparison with MosPrime
II. RuONIA OIS: issues and solutions
•
Legal, calculation and discount curve
•
Settlement, liquidity and market-making
III. Appendix: OIS market comparison
•
November 2010
Comparison of EONIA, SONIA and RUONIA
1
RUONIA BACKGROUND
What is RuONIA:
RuONIA and OIS history:
• Rouble-denominated
• Much preparatory work over last 2 years
• Trade-weighed overnight rate index
• Calculation methodology agreed July 2010
• Based on actual money market deposits
• CBR started publishing RuONIA from 8th Sep
• Participants are (currently) 31 banks of highest credit quality that
cover more than 50% of the interbank market
• Organizational bodies are the Central Bank of Russia (CBR) and
the National Foreign Exchange Association (NFEA)
Calculation
method:
Average daily volume
Deals that are too large
calculated
excluded
Remaining deals
Non-representative buckets
Remaining volume
bucketed
excluded
calculated
If too low, criteria eased
Volume-weighted formula
and last 2 steps repeated
applied
• First offshore 1 week RuONIA OIS trade DB London – EBRD
• First locally booked 1 week trade (ING – EBRD) 13th Oct
• First locally booked 1 month trade (ING – EBRD) via ICAP 11th Nov
• First locally booked 3 month trade (ING – EBRD) via ICAP 15th Nov
European EONIA OIS market
Future development:
• Interest from participants; regular meetings: NFEA, ICAP etc.
• Daily RuONIA OIS fix, similar to the NFEA daily FX swap fix
• RuONIA OIS central clearing through MICEX
OIS curve has the potential to become very important:
the curve of choice for the regulator and participants
Source: ECB
November 2010
2
RUONIA MOSPRIME COMPARISON
MosPrime against RuONIA
7.00
MosPrime
Ruonia
6.00
5.00
4.00
3.00
2.00
1.00
0.00
11.01.2010
24.02.2010
07.04.2010
21.05.2010
RuONIA is not a replacement of MosPrime
It is an additional benchmark with its own properties
• MosPrime: offer rate at which banks are ready to lend
• RuONIA: rate of ACTUAL trades done
02.07.2010
13.08.2010
24.09.2010
09.11.2010
MosPrime – RuONIA basis
120
100
80
60
40
20
Benefit of full protection from manipulation
However, timing disadvantage (published 5 pm next day)
0
11.01.2010
24.02.2010
07.04.2010
21.05.2010
02.07.2010
13.08.2010
24.09.2010
09.11.2010
-20
-40
• Basis is 27bp on average and has a tendency for tightening
-60
-80
November 2010
3
OIS ISSUES AND SOLUTIONS
ISSUES
LEGAL ISSUE
SOLUTION
• Legal uncertainty
• Standardized documentation
- Few RISDA agreements has been signed so far
- Long Form Confirmation based on ISDA/RISDA – to sign
- RISDA lacks some sections needed for OIS trading
- Term Sheet – to exchange
- Uncertain implementation, esp. netting and default
clause
• To request RuONIA contributors to put in place at least 10
agreements with each other
• Online trade matching service
CALCULATION ISSUE
SOLUTION
• Difficulty in agreeing cashflows with precision
• Specialized online service
- Calculating cashflows for individual trades / whole
portfolios
- Possible providers: CBR, MICEX, Bloomberg, Reuters
- Developed markets services: DTCC, triOptima
DISCOUNT CURVE ISSUE
SOLUTION
• Need for discount curve for derivatives trades
• Firm agreement as to which curve to use
- To start with MosPrime
- To introduce OIS points on the curve gradually
• To offer quotes for OIS up to 3 months
• Regular meetings to evaluate quality of data used
November 2010
4
OIS ISSUES AND SOLUTIONS (2)
SETTLEMENT ISSUE
SOLUTION
• Shortage of knowledgeable support staff
• To issue accounting recommendations
• Accounting/settlement systems not ready
- To confirm that P&L is calculated as discounted MTM
• Inconsistent accounting among banks
• Third party clearing (MICEX or expert bank like ING)
LIQUIDITY AND MARKET-MAKING ISSUE
SOLUTION
• Lack of liquidity so far
• To nominate 5 or 10 of 31 RuONIA contributing banks to offer firm
OIS quotes
• Introduction of experienced OIS brokers services
November 2010
5
APPENDIX OIS MARKETS COMPARISON
EONIA
SONIA
RUONIA
Underlying Indexes
Currency
EUR
GBP
RUB
Stands for:
Euro Overnight Index Average
Sterling Overnight Index Average
Ruble Overnight Index Average
Index History
4th January 1999
24th March 1997
11th January 2010
Index Calculation
Weighted average rate of all unsecured, Weighted average rate of all unsecured,
overnight cash transactions undertaken overnight cash transactions brokered in
in the interbank market, initiated
London by WMBA member firms between
within the euro area by the banks
midnight and 16:15 (London Time) with all
counterparties in a minimum deal size of
contributing to the Euriobor survey.
£25m.
SOLUTION
Weighted average rate of unsecured,
overnight interest rates based on money
market loans and deposits between
(currently) 31 banks.
Organisational body
European Banking Federation (EBF) Wholesale Market Brokers' Association
and the Financial Markets Association (WMBA)
(ACI)
Central Bank of Russia (CBR) and the
National Foreign Exchange Association
(NFEA)
Contributors
The Euribor Reporting Panel The five major interdealer brokers (ICAP, All 31 banks licensed by the CBR
currently numbering 49 banks. Made Tullet Prebon, Sterling International
up of the banks transacting the highest Brokers, Martin Brokers & Tradition)
volumes of business in Eurozone money report volumes of trade running through
markets.
defined price bands - typically 0.01% wide.
Calculated by
European Central Bank (ECB)
Currently Thomson Reuters - responsibility Central Bank of Russia (CBR)
is due to be taken back by the WMBA
within the next 6 months
Daily fixing published at:
19:00 CET
17:00 London Time
November 2010
Next day (5 pm Moscow time)
6
APPENDIX OIS MARKETS COMPARISON (2)
EONIA
SONIA
RUONIA
OIS Markets
Outright swaps
1-week to 2-years active trading, trade 1-week to 2-years active trading, trade seen 1 week to 6 months
seen out to 10-years.
out to 10-years.
1, 3, 6 &12-month gap spreads and
1, 3, 6 &12-month gap spreads and IMM 1,2,3 months gap spreads must be
Fwd swaps
IMM dated fwd markets active out to dated fwd markets active out to 3-years
executable
2-years
ECB reserve period dated contracts MPC reserve period dated contracts liquid
liquid out to 9 months
out to 18 months
Euribor/Libor-Overnight Index Outright spreads active out to 10-years Outright spreads active out to 10-years
None at the moment
swap spreads
with trade seen out to 30-years
with trade seen out to 30-years
Typical clip sizes
Settlement
Date convention
Daily OIS fixings
Clearing
Standard documentation
Futures Markets
IMM FRA/EONIA spreads active in
white and red months, green prices
also seen
€1bn out to 1-month
€1bn out to 3-months
€500m out to 1-year
€100-200m in term
T+2
ACT/360
No
Mainly through LCH.Clearnet
ISDA
SOLUTION
IMM FRA/SONIA
spreads active in white
and red months, green prices also seen
£1bn out to 1-month
£500m out to 3-months
£250 out to 1-year
£100m in term
T
ACT/365
No
Mainly through LCH.Clearnet
ISDA
NYSE Euronext: IMM dated, 3-month NYSE Euronext - has been under
EONIA Swap Index contracts active in consideration, but no immediate plans to
white and red months. Developing
launch
mainly as a spread to Euribor Futures.
Index calculated from contributing
banks as part of the Euribor survey
November 2010
2 bln RUB out to 1m
1 bln RUB out to 2m
500 mio RUB out to 3m
500 mio RUB out to 6m
T+1
ACT/365
No
No central clearing
ISDA, RISDA
None at the moment
7
Q&A
November 2010
8
THANK YOU!
November 2010
9