LONDON – Thomas Murray has affirmed The National Depository Center’s (NDC) rating at A+, which means low risk. The outlook is Stable. The rating is made up of the following components:
| CSD Rating |
NDC Rating |
| Overall Rating |
A+ |
| Asset Commitment Risk |
A+ |
| Liquidity Risk |
A+ |
| Counterparty Risk |
A |
| Financial Risk |
AA- |
| Operational Risk |
A+ |
| Asset Servicing Risk |
AA- |
NDC has made substantial progress over the past year in particular in the areas of financial and operational risk. Financial risk has been strengthened by the increase in insurance coverage to USD 25 million in August 2006 and the increase in capital to RUB 916 million (approx USD 35 million) as at the end of 2006. Profits have also continued to increase with safekeeping fees representing an important portion of the total revenue. In addition, the cost of the new settlement system, which is being developed by Tata Consulting Services (TCS), has been spread over a three-year period with a large part already having been paid. As a result of these factors the Financial Risk rating has improved from A+ to AA-.
In terms of operational risk, the internal audit department staff numbers increased by one member during the past year and an external operational audit was carried out by Deloitte, which found no significant deficiencies in respect of the internal control objectives. The test of the disaster recovery plan was improved by the involvement of a small number of participants, although the business continuity plan still needs to be developed and tested. Overall, the changes to the components, particularly in respect of the improved audit arrangements, have meant that Operational Risk rating has improved from A to A+.
Other positive developments during the last year include the possibility to move cash and securities not used for trading from the trading sub-account at any time of the day (the process takes about three minutes to complete) and the introduction of electronic links with the largest registrars.
Simon Thomas, CEO and Chief Ratings Officer of Thomas Murray said: “Thomas Murray has worked closely with NDC in the past year in order to assess the controls and risk mitigation procedures surrounding their operations. The increase in the ratings for Financial and Operational Risks reflect the progress that NDC has made in particular by strengthening its resources in the form of capital and insurance as well as their audit capabilities. NDC appears to be in a good position to continue supporting the Russian infrastructure. However, it faces a significant challenge in the future in respect of the introduction of a single central securities depository in Russia”.
Nikolay Egoroy, Director of The National Depository Center, said “The National Depository Center is pleased to see the recognition to the efforts made over the past year by an increase in the ratings for two of the risk components. The work with Thomas Murray has helped us identify areas on which to focus our future risk development efforts. This independent view on The National Depository Center’s risk profile will continue providing some confidence to our participants, shareholders and other interested parties of the risk mitigation procedures in place at The National Depository Center”.
For further information contact:
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Simon Thomas/John Woodhouse |
Olga Rink |
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Thomas Murray |
The National Depository Center
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+44 (0) 207-830-8300 |
+7 (495) 232 0910
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About Thomas Murray:
Thomas Murray is a specialist custody rating, risk management and research firm specialising in the global securities services industry. Thomas Murray was established in 1994. The Company tracks and analyses over 250 custodians globally and monitors the risk of over 100 capital market infrastructures. The Company has a strong position as a provider of public and private ratings and risk assessments on global custodians, domestic custodian banks and capital market infrastructures.
www.thomasmurray.com
Definitions:
Public Rating. This assessment has been compiled from information provided by third parties and the CSD and has been verified by Thomas Murray analysts during an on-site visit to the CSD. The report has been reviewed by the CSD. The ratings that have been assigned to the risks that are reviewed in the report have been determined by Thomas Murray analysts and approved by the Thomas Murray Rating Board. The ratings have been assigned in accordance with the process outlined in the published methodology as developed by Thomas Murray and on the basis of information confirmed by Thomas Murray analysts during a site visit to the CSD.
- Publication Date
The publication date represented here is July 2007. This is the date that the assessment report has been reviewed by third parties including the CSD. The report is updated on an on-going basis throughout the year as new information is received and should be read in conjunction with the relevant newsflashes issued since the publication date.
RISK EXPOSURE DEFINITIONS
- Asset Commitment Risk - The period of time from when control of securities or cash is given up until receipt of countervalue. This risk concerns the time period during which a participant’s assets, either cash or stock, are frozen within the CSD and payment system pending final settlement of the underlying transaction(s). Following settlement, the risk period is extended until the transfer of funds and stock becomes irrevocable. It excludes any periods when assets, cash or stock, are committed to a market participant including brokers, banks and custodians, not caused by CSD processing.
- Liquidity Risk - The risk that insufficient securities and or funds are available to meet commitments; the obligation will be covered some time later. This is where for certain technical reasons (e.g., stock out on loan, stock in course of registration, turn round of recently deposited stock is not possible) one or both parties to the trade has a shortfall in the amount of funds (credit line) or unencumbered stock available to meet settlement obligations when due. These shortfalls may lead to settlement ‘fails’ but do not normally lead to a default.
- Counterparty Risk - The risk that a counterparty (i.e., a participant) will not settle its obligations for full value at any time. This is simply the total default of a direct participant of the CSD. This is the event when a participant is unable to meet its financial liability to other participants. This risk only goes as far as direct participants of the CSD and excludes clients of direct participants that default on liabilities to such participants, even if such a default should systemically cause the direct participant to subsequently default.
- Asset Servicing Risk - The risk that a participant may incur a loss arising from missed or inaccurate information provided by the depository, or from incorrectly executed instructions, in respect of corporate actions and proxy voting. This risk arises when a participant places reliance on the information a depository provides or when the participant instructs the depository to carry out an economic transaction on its behalf. If the depository fails either to provide the information or to carry out the instruction correctly then the participant may suffer a loss for which the depository may not accept liability. The depository may provide these services on a commercial basis, without statutory immunity, or it may provide the service as part of its statutory role, possibly with some level of protection from liability. This risk is likely to become much higher when international securities are included in the service.
- Financial Risk - The ability of the CSD to operate as a financially viable company. This risk concerns the financial strength of the depository and if its financial resources are sufficient to meet the on-going operation of the organisation. This risk also includes where the CSD may act as central counterparty, or otherwise acts in a Principal capacity.
- Operational Risk - The risk that deficiencies in information systems or internal controls, human errors or management failures will result in losses. The risk of loss due to breakdowns or weaknesses in internal controls and procedures. Internal factors to be considered in the assessment include ensuring the CSD has formalised procedures established for its main services. The CSD should have identified control objectives and related key controls to ensure operation and proper control of established procedures. Systems and procedures should be tested periodically. There should be external audit processes in place to provide third-party audit evidence of the adequacy of the controls.
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| RATING SCALE |
| AAA |
Extremely low risk |
| AA+ |
Very low risk |
| AA |
| AA- |
| A+ |
Low risk |
| A |
| A- |
| BBB |
Acceptable risk |
| BB |
Less than acceptable risk |
| B |
Quite high risk |
| CCC |
High risk |
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| N/R |
No rating has been given due to insufficient information |
| DISCLAIMER |
Copyright © 2004 - 2007 by Thomas Murray. Reproduction in whole or in part prohibited except by permission. All rights reserved. The services and analysis provided by Thomas Murray are provided on an “as is” basis and Thomas Murray make no representations or warranties, express or implied, as to the accuracy, adequacy or completeness of its analysis or results to be obtained from accessing and using this report (or any information included therein), including without limitation, any warranties of merchantability or fitness for any particular purpose or use. Neither Thomas Murray nor their affiliates shall be liable to any user or anyone else for any inaccuracy, error or omission, regardless of cause, in this report or for any damages resulting therefrom. In no event shall Thomas Murray have any liability for lost profits or for indirect, special, punitive or consequential damages, even if advised of the possibility of such damages. Thomas Murray shall have no liability to any third party arising from or related to this report. Neither this report nor any component of the service provided by Thomas Murray is a rating, endorsement or guarantee of any Depository or its financial strength or a recommendation to enter into any agreement with any Depository. Thomas Murray relied on information provided by third parties believed to be accurate and reliable but due to the possibility of human or mechanical error, Thomas Murray can not guarantee the accuracy of any such information. Contacts:
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LONDON
W1J 9FA
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E-mail:
Web-site: www.thomasmurray.com
Names of analysts available on request. |
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For further information about NDC: www.ndc.ru, or NDC press service: +7 495 232 0910, .
