- The value of securities under custody reached RUB 52.67 trillion
- OFZ balances in foreign nominee accounts amounted to RUB 2.8 trillion
- Raiffeisen Bank International (Vienna) became the first foreign bank to establish a direct link with the Russian securities market by opening a foreign nominee securities account directly with Russia’s CSD
- NSD announced its readiness to admit and service Russian issuers’ structured bonds, and to provide clients with services focused on supporting issuance and processing corporate actions involving new instruments
- NSD began providing its clients with the SWIFT gpi service
- The first constituent entity of the Russian Federation – St. Petersburg – joined NSD’s collateral management system platform
Central Securities Depository (CSD) services
In 2019, the value of securities under custody reached RUB 52.67 trillion – this was a 17% increase as compared with 2018 (RUB 44.97 trillion). The total number of securities issues serviced by NSD grew 17% – from 20.1 thousand in 2018 to 23.4 thousand in 2019.
The number of foreign securities issues serviced by NSD grew 23% – from 12.6 thousand to 15.5 thousand.
In 2019, NSD continued to develop a centralized system for record keeping of mutual fund units (Mutual Fund Distribution Platform) focused on unifying interactions between brokers, asset management companies, and specialized depositories/registrars on the collective investment market.
The Mutual Fund Distribution Platform is integrated with QUIK software and allows brokers’ clients (nominees) to access the collective investment market. The product is interesting for brokers, asset management companies, and investors conducting transactions in mutual fund units on the primary market. In 2019, eight new clients connected to the Mutual Fund Distribution Platform, including three asset management companies: VTB Capital Investment Management, SOLID Management AMC, and URALSIB AMC.
In 2019, the number of inventory operations in the CSD increased 22% Y-o-Y and reached 4.1 million operations (compared with 3.4 million operations in 2018), including 3.2 million exchange trade operations (+22%; 2.6 million operations in 2018) and 925 thousand OTC trade operations (+20%; 769 thousand operations in 2018).
In 2019, the amount of OTC DVP trades increased and reached RUB 9.4 trillion; this was 17% more than in 2018 (RUB 8.0 trillion).
There were positive growth dynamics in the number of client trades using new settlement services such as linked transactions and instruction prioritization; by the end of 2019, the number of such transactions reached 27.7 thousand. This is 5 times more than in the previous year (5.1 thousand inventory operations).
The value of federal loan bond (OFZ) balances in foreign nominee accounts with NSD was RUB 2.8 trillion; this was 62% more than in 2018 (RUB 1.7 trillion).
In 2019, ten commercial paper programs valued at RUB 560 billion in aggregate and 43 commercial paper issues valued at RUB 14.5 billion were registered.
In 2019, 19 meetings of shareholders were held using E-voting technology. Participants at several meetings were able to use NSD’s E-Voting system and registrars’ remote voting systems simultaneously; this provided investors and issuers with the widest opportunities to use NSD’s E-voting service. The following issuers used the E-voting service in 2019: NLMK, Alrosa, Rostelecom, IC RUSS-INVEST, Sberbank, Rushydro, Gazprom Neft, and the Moscow Exchange. In 2019, information about electronic voting at general meetings of shareholders with NSD’s E-voting service became accessible via Cbonds news agency.
As part of the modernization of EDI channels and the transition to online technologies, on 30 September 2019, the Web-Client for Depository and Clearing Services (Web-Client for DCS) became the key software provided by NSD to interact with clients who use depository and clearing services.
In 2019, NSD announced its readiness to admit and service Russian issuers’ structured bonds, and to provide clients with services focused on supporting issuing and processing corporate actions.
NSD continues to develop services focused on working with foreign assets and on international markets. In 2019, nine clients used the service “Individual Accounts with ICSD.” The total number of NSD’s segregated accounts with Euroclear Bank that allow accounting client securities reached 11. The key advantage was the opportunity to conduct settlements in a back-to-back mode, when a trade was funded by the difference between the receipt and the delivery of securities. Additional advantages include more services for dealing with ICSDs (such as technical netting, linked transactions, instruction prioritization, etc.) which increase liquidity and allow a transaction to be funded right before settlement, but not prior to it.
NSD continues to develop services integrated into the global financial system. Raiffeisen Bank International (Vienna) became the first foreign custodian bank to establish a direct link with the Russian securities market by opening a foreign nominee securities account directly with Russia’s CSD. Due to this, the bank was able to provide its clients with a wide range of Russian financial instruments and NSD services.
In 2019, NSD continued to develop digital technologies and use blockchain in its post-trade services. To develop national commodity market infrastructure, NSD and the Russian Agricultural Bank are implementing a pilot project to digitize (tokenize) the process for registering grain and trading in this product using blockchain.
Collateral Management System (CMS)
In 2019, the amount of the placement of NSD’s flagship product in the tri-party service segment - Federal Treasury repos - reached RUB 19.9 trillion (RUB 17.3 trillion in 2018). In the previous year, the structured excess of banking sector liquidity fell compared with 2018 (the average value was RUB 3,026 trillion as compared with RUB 3,332 trillion in 2018), and interest rates gradually reduced. The Federal Treasury responded in a flexible way to changing market conditions, and placed more than a third of all funds in repos with a flexible rate. Long term trades (more than 30 days) amounted to 75% or all transactions (RUB 118.6 trillion of RUB 148.5 trillion of total turnover). The average maturity of the Federal Treasury transactions was 7.41 days (compared with 6.17 days in 2018).
Starting October 2019, Federal Treasury repos with the use of NSD’s CMS became available via the OTC terminal at the Moscow Exchange. By January 2020, the share of transactions concluded via terminals exceeded 7% of the FT open position in repos with a fast growth trend.
The first constituent entity of the Russian Federation – St. Petersburg Committee – joined NSD’s collateral management system platform. The pilot auction of repos of the St. Petersburg Committee of Finance was held 5 July 2019. In 2019, the value of placed assets amounted to RUB 87.1 billion. Russian constituent entities that use repos with NSD’s CMS can expand their range of instruments to place their available budgetary funds, minimize risks associated with placing funds on non-guaranteed bank deposits, admit more credit organizations to submit their bids for repos and, subsequently, increase the profitability of transactions related to managing budget liquidity.
In 2019, the value of Bank of Russia repos with the use of NSD’s CMS continued to fall, primarily due to the fact that there was enough money on the market that was cheaper than the money offered by the “lender of last resort.” The amount reached a historical peak (RUB 216.37 billion) in 2019.
By promoting the CMS on the OTC market, NSD was able to increase four-fold the inflow of inter-dealer repos with the CMS compared with 2018; by the end of 2019, the average daily open position amounted to RUB 50 billion. The Company implemented a function of the interchange in electronic messages related to repos with the CMS with the automated generation of settlement instructions; it reduced the time required to process OTC trades in client back offices. The existence of many market price sources to evaluate collateral let clients use more than 23 thousand securities serviced by NSD in their repo transactions. NSD clearing system’s options that let change repo rates and replace securities allowed NSD clients to use the CMS for servicing within a long period of time their open repo positions with the fixed or open date for executing the second part of the transaction.
The number of users of the Single Account service launched in December 2018 doubled and reached 21; the new service automates the standard transfer of assets between client positions in NSD and CCP NCC. One quarter is a new category of users – issuers. The service reduced funding costs, accelerated asset flows, and mitigated operational risks. Clearing participants’ clients also were able to automate their cash transfers within the perimeter of the Moscow Exchange Group.
In 2019, the value of clearing services related to DVP reached its historical peak in terms of the number of trades, growing by 37% compared with 2018 and reached to 286 thousand, and in terms of value - 9.4 trillion in ruble equivalents. Of this, 91% of the trades were DVP 2 netting transactions.
Meanwhile, 70% of the total number of trades was represented by FX transactions. In 2019, market participants were able to use in their business solutions clarifications regarding Federal Law No. 173-FZ “On Currency Regulation and Currency Control,” dated 10.12.2003 which had been made in late December 2018, as well as explanations regarding the settlements on agreements for clearing securities transactions published by the Bank of Russia in January 2019.
By January 2020, NSD was ready, technically and legally, to conduct DVP-2 and DVP-3 settlements on clearing transactions in the Bank of Russia money. NSD proposed its clients use the secure and modern way of settlements that complies with Principle 9 for Financial Market Infrastructures.
NSD’s CMS plans to develop services for new segments of the financial market and propose new infrastructure services.
In 2019, the activity of the Repository’s clients increased: the number of transactions registered with NSD’s Repository amounted to approximately 15.2 million or 21% more than in 2018 (12.5 million). The value of the registered transactions reached RUB 558.5 trillion; it was 28% more than in 2018 (RUB 434.8 trillion).
In 2019, the top 3 instruments of registered transactions included:
The top 3 instruments in terms of the volume of reported transactions included (RUB trillion):
The NSD Repository is a part of the Marketplace ecosystem which is being created by the Bank of Russia in conjunction with market participants; it will be a key element of the ecosystem - the Registrar of Financial Transactions (RoFT). The RoFT’s objective is to provide citizens with access to an independent source of reliable information about financial products and services they purchased. A RoFT record on the purchased product will have “golden copy” status.
In Q4 2019, NSD implemented functionality for registering all types of financial transactions with RoFT in accordance with the draft law.
NSD began providing legal entities with the Reporting Agent service. It allows corporate clients to submit mandatory reports on transactions to the regulator in a timely manner.
In 2019, NSD Repository’s clients were able to better control their transactions due to a service of the automatic generation and receipt of an extract from the Repository’s register of contracts. Now, transaction participants can receive general information about contracts, reports and master agreements registered in the register for a certain period of time without requesting it from counterparties and without submitting a single request.
In Q3 2019, the operability of the Web-Client of the Repository increased. As part of improving software functionality, the time required to launch the application was reduced, the interface operation was accelerated; also, the response to the opening of a document, and the speed of searching, filtering and data synchronization were increased. In addition, now tables are automatically updated every three minutes. As a result of the upgrade, the speed of the Web-Client’s operations corresponds with best international practices for web applications: a user will receive a response to his or her request within four seconds.
Corporate Actions (CAs)
In 2019, NSD automated the process for converting Russian securities, including transitioning to electronic interactions with registrars and issuers and providing clients with information about the results of CAs in accordance with international standards. Also, the Company implemented a new mechanism to repurchase and repay bonds by issuers at an earlier date; an option to conduct settlements via NSD by submitting instructions to NSD and locking securities was added.
In 2019, NSD implemented a large scale project focused on foreign securities; as a result of the project, the Company automated transactions in securities and cash when processing CAs, visualized print forms and information about transactions conducted via NSDirect in a format that was convenient for clients, and also introduced structured reports on CAs to clients.
In 2019, 4,082 meetings of securities holders were initiated. Also, 344 CAs related to securities repurchases for RUB 237 billion and 48 CAs related to the implementation of pre-emptive rights were processed, following which securities with a total value of RUB 46 billion were purchased.
In total, 16,134 corporate actions involving Russian securities were conducted in 2019 (compared with 15,267 corporate actions in 2018). In 2019, the number of corporate actions involving foreign securities continued to grow due to an increase in the number of securities issues serviced by NSD (from 25,185 CAs in 2018 to 32,007 in 2019).
In 2019, the amount of securities income and repayments paid via NSD was less than in 2018; this was mostly caused by repayments and repurchases of major bond issues by Russian issuers in 2018. In 2019, the value of securities income and repayments paid via NSD was RUB 16.7 trillion (as compared with RUB 19.3 trillion in 2018). The amount of income from foreign securities paid in 2019 was RUB 0.9 trillion (in 2018, the same indicator amounted to RUB 1.0 trillion).
In 2019, the number of contracts concluded with information service users grew 13% Y-o-Y and reached 606 contracts. The number of the Valuation Center’s users stood at 180 (in 2018, it was 182).
Now, the NSD Valuation Center is the only fair source officially accredited by the Bank of Russia. Every day, the NSD Valuation Center calculates the value of more than 1,350 exchange traded bonds and Russian issuers’ Eurobonds based on a new methodology and publishes information about prices for more than 1,900 instruments for reference. All estimations of fair values may be downloaded automatically; in August 2019, it became available for viewing in the Valuation Center interface.
Starting May 2019, the Valuation Center began broadcasting the fair prices of floaters on a daily basis. Bonds, which payments are linked to the Consumer Price Index and RUONIA, including OFZ-PC and OFZ-IN, are valued based on a new methodology. The calculation methodology is based on IFRS 13 and follows Bank of Russia recommendations for forecasting payment flows.
In September 2019, NSD’s Valuation Center launched the evaluation of Russian issuers’ Eurobonds and began broadcasting the levels of evaluation based on IFRS 13 and bond yields. The transparent model for determining fair value is based on OTC market data; it takes into account a borrower’s individual risk, and uses Interfax’s Eurobond indexes.
On 24 October 2019, the Bank of Russia recognized the quality of NSD Valuation Center’s functioning during a determination of the value of MinFin Eurobonds as satisfactory.
In autumn 2019, the Valuation Center prepared a methodology for evaluating bonds without international ratings in partnership with AKRA RM and Interfax. On 13 January 2020, NSD began publishing the fair values of more than 300 bond issues without international credit ratings.
Payment and Settlement System
The amount of cash transfers in Russian rubles fell 8% and stood at RUB 265.4 trillion in 2019 (RUB 288.8 trillion in 2018). In 2019, the amount of cash transfers in foreign currency declined 18% to RUB 38.3 trillion (compared with RUB 46.9 trillion in 2018). The total amount of transactions in client bank accounts denominated in Russian rubles and foreign currency reached RUB 303.6 trillion.
The number of client transactions amounted to 1.2 million in 2019 – this is 5% more than in 2018.
In 2019, NSD separated cash flows resulting from exchange trades on the stock market; it reduced risks associated with delays in ruble settlements due to emergency situations that may occur with foreign correspondent banks and increased the continuity level of NSD’s settlement services.
Also, NSD introduced the STP procedure for funds received in transit accounts when paying a yield on securities. Due to this innovation, processing of instructions became automatic.
NSD became a user of the gpi service supplied by SWIFT; due to this, NSD clients were offered to use new settlement opportunities: crediting funds on the payment day, and providing clients with transparent fees and full information about the payment status (the location of funds and the execution phase).
NSD initiated a procedure for connecting to the Bank of Russia’s Rapid Payment System (RPS). In future, the platform will function in the C2B format. Brokers will be able to use the RPS to credit individual investors’ funds in broker accounts with NSD.
NSD is Russia’s largest settlement non-banking credit organization in terms of the scale of settlement operations, capitalization, and the number of serviced participants in financial markets; it is also a nationally important payment system.
National and Substitute Numbering Agency, and the accredited Local Operating Unit (LOU)
NSD is Russia’s Numbering Agency and as the substitute numbering agency for CIS countries; it assigns ISINs, CFIs, and FISNs to financial instruments. In 2019, NSD assigned ISINs, CFIs and FISNs to 1,592 Russian financial instruments and to 43 financial instruments of CIS countries.
In May 2019, NSD successfully passed the annual re-accreditation and confirmed its Local Operating Unit (LOU) status. It allows NSD to assign LEIs and verify them on an annual basis, to accept for servicing LEIs transferred by market participants from other LOUs, and to transmit LEI data to the international database maintained by the global GLEIF operator. NSD is the first and the only company with LOU status in Russia and CIS countries.
Being a LOU, NSD provides services in 29 jurisdictions which, in addition to the Russian Federation, include countries of the CIS, Western and Eastern Europe, and other countries; market participants can apply to NSD for LEI assignment and servicing. NSD continues to expand the list of serviced jurisdictions based on client requests. In 2019, NSD assigned 83 new LEIs and verified 530 LEIs.
Responding to CIS client demands, in 2019, NSD developed an interaction scheme for assigning and further servicing LEIs via the Registering agent licensed by GLEIF and operating in the client’s country. Working via the Registering agent will facilitate and accelerate foreign participants’ access to NSD services.
NSD’s activities as the Numbering Agency and LOU contributes to the introduction of international codification standards in the Russian market and CIS country markets; the standards increase market transparency, enhance integration into the global market infrastructure, facilitate and optimize transactions in the financial market.
As the core of the financial market, NSD pays particular attention to developing a reliable IT platform, implementing partnership programs, and ensuring a high level of information security.
In 2019, 7 new users connected SWIFT services via NSD’s SWIFT Service Bureau, and the total number of users reached 71. The Service Bureau clients’ average monthly traffic increased 27% compared with 2018 and reached 421.5 thousand messages per month. In 2019, Moscow Credit Bank (MCB) connected to NSD’s SWIFT Service Bureau and was granted access to the SWIFT global network via NSD’s IT infrastructure.
NSD began providing its clients with the SWIFT gpi service. The gpi solution allows for rapid cross-border real-time payments, lets users track their payments, and ensures the transparency of bank fees and foreign exchange rates. In the future, NSD plans to offer its clients the gpi service as part of its service bureau model.
NSD continues to implement the Transit 2.0 project, a new system allowing banks and corporations to exchange financial messages developed by NSD on the basis of Transit, a previous version of the system. Prior to this, its users were represented only by professional securities market participants who exchanged electronic documents in the course of depository operations and cash settlements. Transit 2.0 considerably expands the list of users and options: now the system can be used by corporations and banks to automatically exchange payment instructions and other documents, including ISO 20022 messages.
In 2019, Gazprombank and DIXY Group, and MCB and Slavneft began conducting mutual settlements via Transit 2.0, a platform developed by NSD. Sberbank also began conducting settlements via the platform. Due to Transit 2.0, the bank was able to automate the electronic interchange with corporate clients through Fintech API.
By the end of 2019, 15 corporations and 11 banks (including eight systemically important banks) joined the Transit 2.0 platform.