MICEX-RTS FX Market: New Time,
New Instruments, New Liquidity
EBRD, NFEA, ISDA Conference
London, 14th March 2012
What Is the MICEX–RTS FX Market?
!
Variety of FX Instruments: USD/RUB, EUR/RUB, CHY/RUB, BKT,
SWAP O/N, T/N
!!
!!!
!!!!
!!!!!
High Liquidity: USD/RUB strongest performance across
international markets
Benefits of On-Exchange Clearing & Settlement: CCP, PVP
Technological Excellence: API (transactional FIX 4.4 is available),
high productivity, low latency
Sponsored Clients’ Access (DMA replica) to FX Market
2
MICEX-RTS FX Market Instruments, Liquidity, and Members
• Liquidity
Average Daily Trading Volume on the MICEX FX market, USD billion
12,3
EUR/RUB
10,6
USD/RUB
2,3
1,1
12
10,6
1,3
1,3
1,8
9,3
10,2
6,0
0,2
3,9
2,4
0,6
0,6
2003
1,4
2,4
1,4
2004
2005
9,5
10,0
0,1
• High standard post-trading
infrastructure
5,8
3,8
2006
2007
 Average daily trading volume in 2011 – more than
USD 12 billion
 In 2011 the MICEX traded 28% of the USD/RUB
volume and 57% of the EUR/RUB volume on the
Russian interbank market
 FX spot – 56%, FX swap — 44% of total turnover
 USD/RUB – 83,4%, EUR/RUB —15,1%, EUR/USD —
1,2%, other— 0,4%
2008
2009
2010
2011
The MICEX’s share on the Russian interbank market, %
EUR/RUB
USD/RUB
 Guaranteed execution of transactions and fulfillment
of settlement obligations: National Clearing Center
(NCC) as a CCP
 Ruble settlement via National Settlement Depository
(NSD)
 Foreign currency settlement via major international
banks : J.P. Morgan Chase Bank; Deutsche Bank AG
• Instruments
2003
2004
2005
2006
2007
2008
2009
2010
2011
 7 currency pairs: USD/RUB, EUR/RUB, EUR/USD (value
dates T+0 and T+1), CNY/RUB, UAH/RUB, BYR/RUB,
KZT/RUB (value dates T+0)
 Basket for RUB/currency pairs (BKT = 55% USD & 45%
EUR)
 FX Swaps: USD/RUB, EUR/RUB, EUR/USD -O/N, T/N
3
Development of FX SWAPs
and Forwards at MICEX-RTS
4
SWAP and Forward Markets in London and Russia
Average daily volume and the structure of USD/RUB swaps in Russia,
USD million
Russian FX swaps and forwards market in comparison with
international market
• In 2010 average daily global turnover in FX swaps totaled $1765
billion and in FX forwards – $475 billion.
Less than 1 week
1 week to 1 year
98,0%
1,8%
366 068
• According to BIS, swaps with maturity less than 1 week accounted
for 74% of the FX swap market, from 1 week to 1 year – 25% and
over 1 year – 1% of the market.
• In 2010 the share of cross currency swaps with maturity over 1
week in developed countries accounts for 20-30% :
6 650
 USA - 28%
 UK - 26%.
Over 1 year
0,2% 645
USD/RUB swaps (Russia)
Average daily volume and the structure of USD/RUB swaps in UK, USD
million
Less than 1 week
1 week to 1 month
1 month to 6 months
6 months to 1 year
Over 1 year
69,7%
8,1%
66 387
7 699
16,1%
15 287
4,0% 3 794
2,1% 2 020
USD/RUB swaps (UK)
• In 2011 The share of long-term swaps in the UK USD/RUB swaps
market exceeds 30%.
• Long-term (over 1 week) swaps have a quite small market share in
Russia – just 3-4% of the FX swap market.
• According to the Bank of Russia’s and the Bank of England’s
official data for 2011, long-term USD/RUB swaps trading volume
was almost 4 times higher in London than in Russia.
• Russian banks must apply position limits against each other as
well as sign the General Agreement and to enter into long-term
cross-currency swaps on-shore. Bilateral limits between Russian
banks are not sufficient to make long term OTC deals. If a
counterparty on swap deal will go bankrupt it causes serious
problems to bona fide side.
• As a result, most of the deals are conducted overseas and involve
the use of various synthetic instruments.
Sources: The Bank of Russia ‘s data based on BIS and United Kingdom's Foreign Exchange
Joint Standing Committee (FXJSC) methodology (as of April, 2011)
5
Ruble SWAP Market Has High Potential for Growth
Total volume of USD/RUB swaps (short and long positions)
made by Russian banks, USD billion
High potential for growth of Ruble swaps and forwards and
necessary prerequisites to develop the market on-shore
• As of the end of December, 2011, the outstanding volume of
USD/RUB swaps and forwards concluded by Russian banks totaled
$115 billion.
500
400
• In 2011 the overall volume of USD/RUB swaps (short and long
positions) made by Russian banks grew 31% against 2010 to more
than $4 trillion.
300
200
• Until recently, the low share of long-term swaps on the Russian
market was explained by the general underdevelopment of the
derivatives market in Russia.
100
0
J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND
2009
2010
2011
USD/RUB derivatives trading volume on the CME, USD billion
10
• Due to small limits on long-term instruments, risks of counterparty
bankruptcy, insufficient OTC risk management Russian banks
prefer to operate off-shore or create synthetic swaps on
international markets.
• A substantial volume of USD/RUB derivative transactions is made
on the CME . Monthly volumes exceeded USD 9 billion.
• Key issues that have to be resolved in order to significantly
increase on-shore market share for the long-term USD/RUB swaps
are as follows: a) removing counterparty risk; b) protecting bona
fide side of the deal; c) introduction of sound risk management
8
6
• What MICEX-RTS could offer to participants:
 The CCP's services
4
 Sound risk-management system
2
• These factors should facilitate the creation of the exchange-traded
cross currency swaps market in Russia.
0
J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND
2009
2010
2011
• Our expecting market share with long-term swaps is 15-20%
against current 3-4% of the domestic swap market.
Sources: The Bank of Russia’s data based on BIS & СМЕT methodology.
6
SWAP and Forward’s Specifications
Parameter
Long-term swap
Currency pair
Maturity
Valuation date of the 1st leg
Forward
USD/RUB
1W, 2W, 1M, 2M, 3M, 6M
1D - 6M
TOM (T+1)
–
Lot
100, 000 USD – anonymous mode
1000 USD – addressed mode
Basic exchange rate
The basic exchange rate for the currency
pair, calculated at the EOD
Margining
Unified margining (combined with SPOT instruments), dynamic collateral
calculation, compensation payments (variation margin). NFEA SWAP rate is
taken as the basis for m-t-m process
1000 USD
–

Only addressed (off-order-book) orders are accepted for forward transactions

Firstly USD/RUB swaps and forwards will be launched. Other currency pairs will be
added later

CCP’s based settlement for SWAP and Forward on-exchange deals
7
Who and Why Would Use FX SWAPs at MICEX-RTS
Target group:
 Russian banks, including foreign banks’ subsidiaries, which are trading members of the MICEXRTS FX market
 Trading members’ clients, including Russian and foreign brokers, corporations and other legal
entities (DMA access)
Benefits:




Money market instruments with maturities up to 6 months
Liquidity management and long-term currency risk hedging
Arbitrage and bargain hunting
Application to strategies on global markets
Additional opportunities provided by exchange-traded instruments:



No constraints (limited counterparty risk, bilateral agreements are not necessary)
On-exchange liquidity
Combined clearing and the CCP's services on the exchange-based FX market
8
MICEX-RTS FX Market Access
9
Sponsored Access Scheme
Clients
Individuals
Bids/offers
Legal Entities
Agency
Agreement
Institutional
Investors
Russian Bank –
UTS member
Bids/offers
MICEX-RTS
FX Market
Bids/offers
Broker’s Clients
Brokers
Brokerage
Agreements
10
Sponsored Direct Access – the Effective Way to Trade on
MICEX-RTS FX Market
Key Features:
Trading/clearing member (Bank)
Settlement
acc.
Settlement
acc.
 The access to the market is granted by
the UTS trading participant – bank,
however in fact a client could enjoy all
preferences of a direct trading, so
MICEX SDA = DMA
 Transparency (individual client’s
registration at the Exchange)
Clients
Broker
 Flexible position control model via
settlement codes assignment
Clients
 No crossing with the bank – access
provider or other bank’s clients
11
Clients’ Share at the Sponsored DMA to FX Market
• 1st phase of the Sponsored
DMA
for
non-banking
institutions to MICEX-RTS
FX Market was launched in
Oct 2010
Clients’ share in the total FX trading
volume
100%
• 2nd phase was introduced in
Feb 2012. A new version of
sponsored DMA allowed to
banks
–
FX
Market
participants
seriously
increase the clients base and
better control their risks
98%
96%
94%
92%
• The number of registered
clients has grown 5x during
Feb 2012
90%
88%
86%
Jan 11
Mar 11
May11
Jul 11
Turnover, Spot+Swap (without clients)
Sep 11
Nov 11
Clients' Turnover, Spot+Swap
Jan 12
• The clients’ volumes are
concentrated in the SPOT
instruments;
This
share
made 17% of the total in Feb
2012.
12
Coming soon on MICEX-RTS
 Long term FX SWAPS (1W, 2W, 1M, 2M, 3M, 6M) –
Apr 2012
 Deliverable FX forwards (flexible maturity up to 6
months)- negotiated deals only – Apr 2012
 Trading time extension (till 23:50) – Q3–Q4 2012
 Introduction of more G10 currency pairs – Q4
 Re-thinking a new fee structure– more benefits for
liquidity providers – Q2
13
THANK YOU FOR YOUR ATTENTION!
Contacts: Alexander Ageev, VP, Head of FX&MM Sales
ageev@micex.com
Tel.:
+7 (495) 363-32-32, ext. 31-15
Web: www.micex.ru