Currency associations will ask the Central Bank of Russia to cancel mandatory registration of OTC short term transactions that should come into effect in November. Currently the regulator is discussing a three-month moratorium for sanctions.
The National Currency Association (NCA) and ACI Russia, the associations uniting representatives of hundreds of financial companies, plan to propose amendments to the Law “On Clearing Activities” to avoid reporting on short term clearing transactions (up to four days) to repositories. “There is no commercial sense in registration of these transactions,” according to the minutes of the Council of ACI Russia’s meeting held on 16 October (Vedomosti has got the Minutes). The associations are preparing a letter with respective proposals for the Central Bank and plan to send it soon, as both companies’ representatives say.
Starting 5 November, market participants will report on the OTC repos and currency swaps to one of two functioning repositories – National Settlement Depository (NSD) and St. Petersburg Exchange. Previously OTC transactions were not registered with the repository, but the law on clearing changed everything. Owing to the new procedure, in case of bankruptcy of one of the parties to a transaction, there will be liquidation netting. Now market participants register transactions in a trial system for free. 395 companies have concluded agreements with NSD; 180 companies have applied for testing the system, NSD representatives said.
According to Eddie Astanin, Chairman of the Executive Board of NSD, registration of any repo or currency swap transaction with NSD regardless of its term will cost RUB15 (if two informing entities take part in the process). According to Evgeny Serdyukov, General Director of St. Petersburg Exchange, the SPCEX repository will service short term transactions (up to four days) for free, excluding repos, but only if the parties submit reports quarterly. Repos will be serviced on the basis of a fixed rate for a package of transactions, for instance, registration of 1,000 transactions costs RUB5,000, he added.
Market participants don’t understand why they need to register short term transactions if the reports are to be submitted on a quarterly basis: this will not protect the transactions. 3-4 day transactions represent 98% of all OTC currency swaps, said Dmitry Piskulov, Chairman of the Management Board of NCA. Daily turnover on these transactions amounts to US$37 million (April data). According to the Moscow Exchange data, in August the value of repos concluded with the Central Bank was RUB385 billion.
Piskulov continues: “The economic efficiency of registration of these transactions in the repository is questionable.” He adds that there is no sense in this given the use of liquidation netting. He points out that the banks do not go bankrupt every day, and often information about problems with a bank lands in the market before it loses its financial solvency. For instance, the market knew about problems at the Pushkino bank well before 30 September, when its license was revoked. As of 1 September, the value of currency sale and purchase via currency swap operation in the bank was RUB3 billion per day, and there is no data about unfulfilled obligations.
Now the Central Bank receives information about the OTC transactions – from the banks’ reports based on the Form 701, Piskulov says. Astanin states that the registration of such transactions is a global trend: “This is a part of the obligations undertaken by the G20 countries in the Pittsburgh summit in 2009 to control the huge and non-transparent derivative market.”
As the market participants told Vedomosti, the regulator discusses with them a moratorium on sanctions for violating requirements for transaction registration (a penalty up to RUB5,000) until 5 February. Vedomosti examined the draft letter prepared by FFMS. The representative of the Bank of Russia’s Financial Markets Service admits that the new system is being implemented, and market participants could make mistakes unintentionally during the transitional period. Now professional market participants have asked the Service not to apply sanctions during three months, he said, and now the Central Bank is working on this proposal.
Yulia Orlova
Vedomosti.ru