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Equal Rights for Central Counterparties

11.10.2015 12:00 / Vedomosti

The Central Bank has initiated amendments to the Clearing Act. A Central Counterparty acts as middleman in stock exchange transactions and accepts risks in case of counterparty default. There are three CCs in Russia: National Clearing Center (NCC, part of MOEX Group), MFB Clearing Center (St Petersburg Exchange, part of RTS Group) and Clearing Depositary Company (clears for the St Petersburg International Commodities Exchange).

The three companies are licensed, however, NCC holds a banking license and abides by banking regulations. Last year and early this year, NCC was having difficulties due to market participants concentrating the bulk of their currency liquidity there, putting pressure on capital, says a close source. In 2014, Moscow Exchange brought NCC capitak up to some RUB 53bln, going for RUB 58.5bln by end-2016.

“If we limit asset deposits to top-tier banks with good ratings and high-liquidity secure assets, the central counterparty will require less capital. In the future, this will help avoid raising clearing fees or negative interest rates for clearing balances”, says CB’s Financial Stability Department Head Sergey Moiseev. “From the moment we were founded we have been viewed by the regulator as a common bank, without the CC specifics in mind, which is wrong”, agrees NCC CEO Alexey Khavin. Today, NCC is a Top 10 Russian bank, with larger capital than European CCs, he adds: “There is constant need for capitalization, year after year, due to banking regulation specifics”.

NCC will forfeit the banking license, and all three CCs will be licensed as a non-bank. “Effectively this will be a limited banking license outlining the scope of CC business: the money market, the capital market, the derivatives market, the commodities market”, explained Moiseev. Capital requirements are a minimum of RUB 300mln (MFB Clearing Center shows RUB 400mln, Clearing Depositary Co – RUB 1.5bln). If amendments pass, the NCC will be allowed two years for status upgrade, while other CC will have five.

The CC, says the regulator, will be entitled to a number of benefits that only NCC has today: access to the payment system and CB refinancing, correspondent account opening with the CB and clearing banks, money market access for liquidity and default management. “G20 countries will reform their OTC derivatives markets, which will introduce mandatory OTC derivatives clearing. Countries not compliant with global standards risk losing their national clearing markets. We do not want to lose the Russian clearing market, and we do not want to clear our instruments in London, Chicago or elsewhere”, admits Moiseev.

“There is the downside as well, including staff training expenses, new reporting and CB liaison procedures”, says the St Petersburg International Commodities Exchange President Alexey Rybnikov. He does not miss NCO status: “Access to CB refinancing is needed in a crisis, otherwise the CB loses the motivation to build an effective risk management system”.

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