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CB to Share Risks with MOEX

06.04.2015 12:00 / Vedomosti

The Central Bank is ready to accept traders’ risks in complex situations to keep Moscow Exchange from raising the bar on collateral requirements, said Central Bank’s First Deputy Chairman Sergey Shvetsov. This option is part of a new Duma bill, he says.

To guarantee performance on obligations, the National Clearing Center (NCC) requires trading participants to put up collateral – a percentage of the trade amount. If a party fails to perform on a trade, NCC fulfils the obligation on their behalf, and in order to prevent frequent recurrence of these situations, in the event of a drastic market change the collateral requirements are raised. Last time it happened on 16 December 2014, when the key interest rate soared. Prior to that, the Exchange required an 18% collateral deposit on one of the blue chips – Sberbank, jumping to 30% the next day; the bar on Sberbank futures collateral rocketed from 16% to 24%. Raising the bar on collateral, in turn, triggers a wave of margin calls and client dissatisfaction, therefore the less it happens, the easier trading becomes for market participants, states Yuri Mintsev, CEO at Otkrytie Broker.

The CB plans to sign a risk sharing agreement with NCC, said Shvetsov: in return for NCC’s refusal to set ‘high discounts’, the regulator will accept the obligation to buy out collateral or partially compensate the NCC for losses suffered due to the bankruptcy of a licensed participant. The Ministry of Finance backs the idea, according to an official. It is most likely to take shape as amendments to the Bank of Russia Act, allowing the CB to execute net-offs, says an NCC-CB liaison source. “There are no Central Counterparties in the world who get guarantees like that from the regulator”, he points out. A CB spokesman declined to comment on bill details.

This means an exchange ‘nationalization’ of sorts: the state, represented by the CB, will take on additional obligations, says Head of Dealing Center at Metallinvetsbank Sergey Romanchuk. More involvement from the CB means ‘more trust in the Exchange from the market’. If MOEX does not raise the bar, brokers will not request additional deposits from clients, says Mintsev: “In a crisis, we will think twice before asking clients for collateral above exchange requirements”.

“No actual mechanisms are in place yet, discussions are in progress”, says NCC CEO Aleksei Khavin. He expects the CB to buy out the position of a defaulting major trader together with collateral, by entering into a net-off with the Central Counterparty.

Today, NCC remains the only party responsible for timely performance on trades. “An additional guarantee from the CB is reassuring for the Central Counterparty as well as other market participants”, says Khavin, adding that even if the collateral were to remain the same in rising volatility, NCC could face “market positions lacking collateral for a long period of time”.

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