London, 14Apr10 National Foreign Exchange Association, Russia

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Overview of RUB markets

in 2010Dmitry Piskulov, Ph.D. (Econ.)

Member of NFEA Management Board,

Chairman of the Committee for

Professionalism;

ICAP , Senior Adviser

What’s new in RUB markets• Stability is achieved: RUB appreciates against Basket;

CBR reserves up to $436 bln.• Spot/cash RUB markets: interbank limits almost back to

normal. Rise in direct OTC interbank• New enhanced derivatives legislation: changes in Tax,

Securities and Banking laws – aimed at development of domestic derivatives market

• Law on close-out netting (CON) is being reviewed by Parliament, expected by end of 2010

• Russian ISDA (Standard documentation) with FX, IR, Equities and FI annexes is in place

• New market indices: NFEA FX SWAP rate, RUONIA

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Where RUB markets?

• ON SHORE: only domestic (residents)

• OFF-SHORE: only non-residents

• ON-SHORE deals with OFF-SHORE: cross-border RUB transactions

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What RUB products

• FX spot

• FX forwards and FX swaps

• Cash MM deposits

• RUB bonds (government + corporate)

• REPOs

• Interest rate derivatives

• Equity cash

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Russian on-shore FX mkt 2007Rank Country 2007 ADT, $ bln. Share of global %

1 United Kingdom 1,359 34.1 %

2 USA 664 16.6 %

3 Switzerland 242 6.1 %

4 Japan 238 6.0 %

5 Singapore 231 5.8 %

6 Hong Kong SAR 175 4.4 %

7 Australia 170 4.2 %

8 France 120 3.0 %

9 Germany 99 2.5 %

10 Denmark 86 2.2 %

11 Canada 60 1.5 %

12 Russia 50 1.3 %

13 Belgium 48 1.2 %London, 14Apr10 National Foreign Exchange

Association, Russia5

Domestic RUB interbank market smaller than FX market: average daily turnover (ADT), bln.$

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Interbank deposits REPOs

O/N Domestic Cross-border

Domestic Cross-border

Jan10 $4.0 bln $1.5 bln $1.6 bln 0

Feb 10 $7.6 bln $2.6 bln $2.0 bln 0

Source: CBR, April 2010

RUB money market 2010

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Domestic FX market in Feb 10Domestic OTC market average daily turnover (ADT) in bln. US$ by BIS methodology (Bank of Russia)

Total ADT,US$ bln.

of them: CCY /RUB

Cross-borderof CCY/RUB

FX spot $26.8 $ 18.5 $11.6

Outright forwards

$0.48 $ 0.36 $0.28

FX swaps $21.1 $ 13.4 $5.3

Total: $48.4 $31.6 $13.0

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Crisis on FX interbank marketsRussian FX average daily turnovers dropped in 2008 but stabilized in 2009-2010

Month Overall FX market volume

MICEXVolume

Jul 2008 $ 119.2 bln. $ 10.5 bln.

Apr 2009 $ 46.2 bln. $ 9.8 bln

Oct 2009 $ 54.2 bln. $10.6 bln

Feb 2010 $ 53.4 bln $10.0 bln.

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RUB markets outside Russia

• Turnover: $11-12 bln. daily (FX, MM, IRD)• Link Moscow-London (transactions done in

Moscow in the name of London HO)• Number of banks (dealing codes) (according to

ICAP EBS: banks that entered RUB SSI) in March 2010• Active: 60 (already dealt in EBS)• Potential: 181 (entered RUB SSI in EBS)

Increase in participants and thus global

volumes subject to settlements solution!

RUB instruments outside Russia

More RUB derivatives than cash products• FX spot• Cash deposits • FX swaps• NDFs• Outright forwards• FX options• Interest rate swaps (IRS)• Currency swaps (incl. CCS)• Forward rate agreement (FRA)London, 14Apr10 National Foreign Exchange

Association, Russia10

Geography of RUB FX

Overseas counterparties of Russian banks (CBR):

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Region FX spot FX swaps

Western Europe 64.0% 89.9%

Northern Europe 18.7% 3.1%

C I S countries 10.0% 1.6%

South America 4.2% 2.6%

Cyprus 2.3% -

North America 0.3% 0.3%

RUB FX in LondonSource: UK FXJSC semi-annual survey, January 2010

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Oct 08 Apr 09 Oct 09

Percentage of RUB in total UK FX

0.7% 0.7% 0.7%

USD/RUB turnover $10.9 bln. $8.6 bln. $10.8 bln.

Rank of RUB 15 17 16

Total ADT of UK market, $bln.

$1699 bln. $1356 bln. $1549 bln

Volumes of RUB FX instruments in London

Instruments Apr 2009 Oct 2009

FX swaps $4.0 bln $6.1 bln

FX spot: $1.8 bln $1.8 bln

NDF $1.2 bln. $1.3 bln.

FX options $0.5 bln $1.2 bln

Outright forward $0.9 bln $0.3 bln

Ccy swaps $0.14 bln $0.1 bln

Total: $8.6 bln $10.8 blnLondon, 14Apr10 National Foreign Exchange

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UK FXJSC: Average daily volumes in 2009

Global banks RUB trading

• Global banks – main promoters of RUB instruments

• RUB FX pricing and execution hub location: struggle between Moscow and Head office:

in London: 30%in Moscow: 60% other (Helsinki, NY,Tokyo,

Vienna, Hong Kong): 10%

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Challenges for authorities

1. Monitoring of round-the clock RUB quotes (also at night time in Moscow)

2. Support of RUB instruments in global electronic trading platforms (such as EBS, Reuters, Bloomberg etc.) – possibility to establish the band

3. Access to RUB FOREX in MICEX for foreigners

4. Removal of obstacles in RUB clearing and settlements –

- RTGS (BESP of CBR)

- CLS Bank clearing currency (next ZAR, MXN):

CBR Chairman S.Ignatiev approved beginning

Of cooperation with CLS Bank International

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About NFEA

• Established: October 1999 in Moscow as non-commercial organization;• Membership: legal entities (local and global banks and brokers) working on/related

to Russian spot/forward foreign exchange and money markets.• 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: MosPrime Rate (2005, RUB money market reference rate), NFEA FX SWAP RATE – new index for USD/RUB and EUR/RUB forwards

- Standard Documentation on Russian OTC derivatives transactions (Russian analogue of ISDA Agreement) – completed in 2009

• Projects in progress:- RUONIA – Russian analogue of EONIA

• International cooperation and working contacts: - ACI-The Financial Markets Association - ISDA (inclusion of MosPrime rate into ISDA definitions 2006)

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Contact Details

13 Bolshoy Kislovskiy Per., Moscow, 125009, Russia, Tel.+7 (495) 705-9693, Fax: +7(495) 705-9675.www.nva.ru, www.nfea.ru

@ The Copyright National Foreign Exchange Association, 2008. All rights reserved. Any reproduction is only permitted with prior consent of NFEA.