11th Annual Clearing &
Settlement Conference
London, UK
6th & 7th October 2008
What to consider in
accessing emerging
markets from a
post-trade
perspective: Russia
Igor SUZDALTSEV
Head of Financial Institutions
OTP Bank, Russia
London, 7th October 2008
1
Trans-Atlantic and trans-Pacific alliances
and MoU: implications for the capital
markets
Major political developments in 2008 are the worsening of RussianAmerican relations due to Georgian-American aggression against
people of South Osetia on August 7th, 2008 and the preparation of
American aggression against Iran.
Since US government is in the state of war with Russia already, it’s
obvious that US dollar as a currency of enemy state is doomed to
loose its position in Russia.
I personally will not be surprise to see the dollar banned in Russia
right after American invasion of Iran. Hopefully, European
countries will not repeat mistakes they have made in Iraq.
London, 7th October 2008
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Profile of the risks in doing business with
these markets
Major risk on Russian markets today is related to huge amount of
foreign currency and securities bought by the Central Bank of
Russia for Russian international reserves. On August 1st, 2008
these reserves were equal to USD 595,9 billion including:
- securities: USD 364 billion;
- total currency and deposits with banks headquartered outside
Russia: USD 81,5 billion;
- reverse repo: USD 119,5 billion.
We understand that future American financial crisis may lead to
financial crisis in Russia. That is why we are trying to convince
the Central Bank of Russia to sell all dollar-related foreign assets
in order to eliminate the systemic risk for Russian economy.
London, 7th October 2008
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How do you access them cheaply: Agent,
direct?
Direct access is always better. Speaking of clearing and settlement,
the direct access to Russian market is simple and safe.
Today any of TOP-50 Russian banks (including OTP Bank, Russia)
will be able to open vostro account for foreign bank and serve its
operations in Russian rubles (RUB).
Also, ruble is a settlement currency at Clearstream and Euroclear. I
believe, the conference speakers from these great companies
will provide you with more details.
London, 7th October 2008
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Factors to consider
For successful operations I recommend to foreign banks:
1. To prevent late payments by setting a rule for treasury:
“Payments to Russia – first thing in the morning”.
There are two major reasons for that:
- Russian banks report to regulator DAILY, not quarterly like in
Europe. Once late payment is reported to the Central Bank,
nothing can be changed. That is why the back value is totally
useless procedure for Russian banks.
- Time difference up to 12 hours. When in London is noon, it’s
3pm in Moscow and midnight in Petropavlovsk-Kamchatsky.
London, 7th October 2008
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London, 7th October 2008
6
Factors to consider
2. To keep in mind that Russian ruble is becoming the major
currency for payments for all goods that are traded in Russia, or
coming out of Russia (exports), or to Russia (imports).
The logic here is simple and honest:
- If any foreign importer doesn’t want to buy Russian goods for
rubles then we don’t need this buyer;
- If any foreign exporter doesn’t want to sell goods to Russia for
rubles then we don’t need these goods.
It’s obvious that in such circumstances any foreign bank needs to
set a RUB nostro account with Russian bank in order to be able
to meet the growing demands of financial markets generally and
the demands of big clients particularly.
London, 7th October 2008
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Factors to consider
3. FX trading: to replace USD-related deals and settlements by
CHF-related deals and settlements.
Due to worsening of Russian-American relations, it’s the only way to
decrease political and settlement risks. Since Japan, UK and EU
are too close to USA and NATO, a currency of independent
Switzerland that is not a NATO member looks like the best
choice for FX trading and settlements with Russian banks.
The traffic lights for settlement currencies in Russia in 2009 are:
RUB
CHF
EUR
GBP
JPY
USD
I expect a strong increase in CHF/RUB operations in 2009 as well as
a strong increase in RUB-related operations at the most active
Swiss FX banks: UBS, Credit Suisse, Bank Julius Baer.
London, 7th October 2008
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Factors to consider
Average daily FX spot trading volumes in Russia in July 2007 & July 2008, in USD mio
Currency
July
2007
July
2008
Change Dynamics
CHF
RUB
651
45 708
1 640
70 515
+989
+24 807
+152,0%
+54,3%
EUR
USD
GBP
28 370 41 635
81 491 113 954
7 975
5 735
+13 265
+32 463
-2 240
+46,8%
+39,8%
-28,1%
JPY
Total:
5 576
3 406
86 221 119 191
-2 170
+32 970
-38,9%
+38,2%
London, 7th October 2008
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Russian Choice: Simple netting agreement
vs. ISDA
Among major goals of ISDA agreement is to provide Counterparties
with regular payment netting opportunities as well as with an
additional guarantee of close-out netting of all deals covered by
ISDA.
In Russia the payment netting works but close-out netting has a few
chances to happen. In most cases this is a false hope.
Therefore, instead of signing a big and complex ISDA agreement,
it’s much better to sign with Russian Counterparties a small
netting agreement (2-3 pages). The procedure of signing of such
agreement will take only 1-2 weeks.
London, 7th October 2008
10
BESP (Russian RTGS) – How can foreign
banks use it?
The Banking Electronic Speed Payment (BESP) system is the Bank
of Russia Real Time Gross Settlement (RTGS) system.
The BESP system can be used by foreign banks through their
corresponding or daughter banks in Russia.
BESP is a centralized federal system that performs real time
payments for all system participants irrespective of their territorial
location. It started its operations on December 21st, 2007.
BESP operates in parallel with intraregional electronic settlement
system (VER) and interregional electronic settlement system
(MER) independently from them. BESP system participants
always have an option to pay through VER-MER systems.
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BESP (Russian RTGS)
Payments go through system via electronic messages.
Other information goes via electronic information messages.
Participants may use the Bank of Russia telecommunication
system and formats. In the future, it will be possible to use the
SWIFT system and formats.
The BESP ensures the processing of payments from 2am till 9pm
Moscow time. Payments are debited from participant-payer’s
account and are credited to participant-recipient’s account on the
same day.
Choosing your corresponding bank in Russia it’s important to check
the level of its BESP participation:
1. Direct (with opportunity to use all services).
2. Associated (with limited range of payment and information
services).
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BESP (Russian RTGS)
BESP payments are considered irrevocable when funds were
debited from participant-payer’s account with the institution of
Bank of Russia and final when funds were credited to
participant-recipient’s account with the institution of Bank of
Russia.
BESP can settle a payment to its full value only. Partial settlement is
not allowed.
There are three types of BESP payments:
• Regular;
• Time-critical (express payments) – the highest priority;
• Limit payments – the regular payments that require to check
bilateral or multilateral limit set by participant-payer.
London, 7th October 2008
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BESP (Russian RTGS)
BESP enables direct participants to use in real-time the mechanism
of liquidity management and monitoring, and intraday queue
management as well as receive different information including:
•
•
•
Amount of funds on participant’s account (sub account) with
Bank of Russia service institution;
Intraday and overnight credit limit set by the Bank of Russia for
participant’s corresponding account (sub account) and its
utilization;
Amount of expected incoming payments from other participants,
and other information.
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BESP (Russian RTGS)
BESP rates:
For regular payment:
- Direct participant:
25 rubles.
- Associated participant:
20 rubles.
For express payment:
- Direct participant:
30 rubles.
For liquidity and/or balances inquiry: 10 rubles.
For other inquiries:
7 rubles.
There is a discount practice related to volume of payments.
London, 7th October 2008
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BESP (Russian RTGS)
BESP transport:
SP (Special
Participation) =
Bank of Russia
branches.
AP (Associated
Participation) =
Russian banks &
non-banks.
DP (Direct
Participation) =
Russian banks.
BESP members
Not members
BESP
Bank
of Russia
formats
SWIFT
formats
Bank of Russia
transport
system
SP
SWIFT
transport
system
AP
DP
Foreign Banks
London, 7th October 2008
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BESP (Russian RTGS)
Improved services of Russian corresponding banks –
Direct BESP Participants:
Extension and unification of business day schedule throughout
entire territory of Russia that leads to acceleration of payments
and eliminates the discrimination among Russian banks on “the
geographical” basis.
Concentration of liquidity flows over nostro accounts of Direct BESP
Participants allows them now to provide fast payment services to
non-BESP member banks including any foreign bank.
London, 7th October 2008
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Summary:
1. A rule for treasury department of foreign bank: “Payments to
Russia – first thing in the morning”.
2. Russian ruble (RUB) is becoming the major currency for
payments for all goods that are traded in Russia, or coming out
of Russia (export), or to Russia (import).
3. FX trading: USD-related deals and settlements will be replaced
by CHF-related deals and settlements.
4. ISDA agreement in Russia should be replaced by a small netting
agreement (2-3 pages).
5. The Banking Electronic Speed Payment system (the BESP
system, Russian RTGS) can be used by foreign banks through
their corresponding or daughter banks in Russia.
London, 7th October 2008
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Contacts:
Igor Suzdaltsev
OTP Bank, Russia
Direct phone: +7 495 228 8030
Reuters: OTPM
THANK YOU!
London, 7th October 2008
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