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Moscow Exchange to Issue New Instrument in 2016

17.10.2014 15:29 / vedomosti.ru

The new instrument is called clearing participation certificate (CPC) and will enable trading backed by a pool of collateral deposited at National Clearing Center (NCC), said Igor Marich, Money Markets Managing Director at Moscow Exchange.

Last year, Moscow Exchange launched Central Counterparty repo and general NSD-based collateral basket repo. When the Central Counterparty executes a trade, it sends parties guarantees of settlement of the both parts. In basket repo, the Central Bank accepts replaceable assets as collateral, highlighted Marich, while CPC combines the best of both.

To receive the certificate, a party deposits assets with NSD — currency, bonds, NCC-approved shares — pre-discounted. All title to the securities remains intact, and at any time an asset may be exchanged for an asset of similar value. Two problems are resolved this way: counterparties de facto dealing with the basket will not have to constantly react to changing quotes for each instrument, since the value of the entire pool will be readjusted. Market players will be able to take part in long-term repos and manage the portfolio at the same time, with no need to freeze assets, says Marich.

The CB is not the only bank to offer basket repos — the exchange is willing to compete, it’s normal business practice, and MOEX possesses a certain edge here, however Central Counterparty risk ultimately increases, says Deputy Chairman of Vozrozhdeniye Bank Andrey Shalimov.

This actually implies risk management outsourcing, however, terms and discounts on assets used as collateral will be above the market, claims Head of Asset Management at BKS Andrey Lifshiz: “NCC is unlikely to accept risks of collateral suddenly dropping in value below the price of the certificate”. “Apart from separate instruments risk, there is also system risk — for instance, what will NCC do if the market plunges 30% all of a sudden?”, continues Shalimov. “It may be a good idea to be careful while transferring this risk from banks to the trading floors, which may ultimately lack capital”.

“If part of this pool loses value, the party is obliged to deposit additional collateral, and if it fails to do so, the Central Counterparty will sell off the securities and retain collateral in cash”, points out Marich.

The market has crashed to lower levels before, however this posed no threat to the Central Counterparty and the risk management system proved robust, he insists.

Daniil Zhelobanov

Trading infrastructureProject Group №1