POST-TRADE SERVICES

CLEARING

The NCC’s clearing efforts were focused on the further development of clearing services and services, improvement of the technological platform and creation of additional opportunities for clearing participants to work efficiently, comfortably and in a reliable environment on the financial market.

In doing so, NCC was guided by the Moscow Exchange Group Clearing Development Strategy adopted in 2021 and the Roadmap for implementing this Strategy, which includes a detailed action plan for developing and implementing key projects and tasks.

Key projects in 2021

Development of a new margin model on the Standartised OTC Derivatives Market

A new risk management system which is an innovative margining model for the Standartised OTC Derivatives Market, has been piloted in conjunction with the risk management divisions to improve NCC’s risk-protection profile and also to help optimise the Group’s costs.

The new model is based on a scenario module, which increases its versatility. In addition, it takes into account adaptive volatility estimation models, historical VaR, scenario changes in risk factors, and allows for better option valuation through a proration model, scenario shifts in risk factors, and additional scenarios.

CCP-cleared OTC transactions

As part of the development of OTC services, the FX OTC Services Development project was implemented, the main objective of which is to expand the Group’s services into the OTC FX market and generate additional income from OTC clearing.

In addition, the new service provides post-trade services for transactions as part of the overall netting of participants’ positions to the central counterparty (CCP), as well as enabling the expansion of trading opportunities for both local and global consumers and liquidity providers.

Direct access to clearing services for non-residents

In order to provide non-residents with direct access to clearing services on the FX, Securities and Derivatives Markets, as well as the Deposit and Credit Market, in the reporting period a functionality was automated enabling NCC to act as a tax agent in relation to income received by non-resident clearing participants, as well as their clients.

Obtaining QDD status by NCC

In September 2021, NCC was granted Qualified Derivatives Dealer (QDD) status by the US tax regulator (IRS), which allows NCC to administer dividend equivalent income from US securities, in particular income transferred under repo transactions in US securities. Furthermore, NCC relieves the buyer under the first part of the repo transaction from having to make withholding of US tax by its own.

NCC’s QDD status allowed US issuers to be admitted to trading on the Exchange.

Development of the risk management system

In accordance with the approved Road Map for development of the risk management system of NCC until 2025, the main efforts in this area were focused on implementation of a set of measures to improve risk management processes, maintaining the quality of CCP management at the level required by the regulator and in accordance with international standards.In addition, the operational processes related to risk management were optimised and automated to improve the reliability and continuity of the systems supporting the risk management system.

NCC projects and objectives

Implementation of the Model for Adaptive Anti-ProCyclicality, which aims to reduce the pro-cyclicality of NCC’s margining and create a more transparent process for stakeholders to raise collateral rates.
Develop and pilot a new margin model as part of the development of a risk management framework for the Standartised OTC Derivatives Market. This model will improve the risk-protection of NCC by applying full revaluation of instruments based on scenario shifts in risk factors, additional scenarios and adaptive volatility estimation models.The work was carried out jointly with the clearing development units.
Internal validation of risk-parameter models across all markets (except for the Standartised OTC Derivatives Market), resulting in a more systematic procedure for setting and revising risk-parameters.
Validation and revision of the methodology for determining NCC’s internal counterparty ratings. As part of this task, the set of indicators and their thresholds as well as expert adjustments were adjusted, a rating model for leasing companies was developed, and the external rating comparison scale was revised. Approaches to rating individuals, sole proprietorships and representative offices based on recommendations from internal audits are taken into account.
Revised approach to the calculation of provisions for expected credit losses for the purposes of IFRS 9. Refined methodology for determining the stage of impairment and calculating the probability of default, taking into account the type of legal entity based on international rating agency matrices.
Implementation of automation of key processes and improvement of approaches to non-financial risk management, provision of comprehensive insurance for NCC activities, as well as updating of the business continuity management system in line with best practices.

From mid-2021, NCC began to make more detailed disclosures about its activities as a central counterparty in accordance with the regulator’s new requirements Bank of Russia Instruction No. 5452-U of 30 April 2020 “On Requirements to the Composition of Information to be Disclosed by the Central Counterparty, the Procedure and Timing for the Disclosure of Such Information, and the Rules for the Provision of Information by the Central Counterparty to Clearing Members”. .In addition to the previously published scope of information, the NCC began to disclose in more detail information on risk models, as well as data on aggregate metrics of collateral requirements by market, maximum and average margin requirements and listed variation margin.

NATIONAL SETTLEMENT DEPOSITORY

Non-bank credit institution Joint Stock Company National Settlement Depository (NCO JSC NSD) is the central securities depository of the Russian Federation, that offers clients a wide range of services, including depository, repository, clearing services, settlement and cash services, information services, as well as collateral management and technological services.

Central securities depository

By the end of 2021, the volume of assets held on NSD accounts increased by 13.8% YoY to RUB 72.4 trln. The total amount of issued securities (ISIN) being serviced by the NSD increased by 9.7% to 29.2 thousand. The number of international securities and Eurobonds of Russian Ministry of Finance increased by 10.5% to 20.1 thousand.

At the end of 2021, the balances of Russian government bonds (OFZ) 2021 stood at RUB 15.5 trillion (+13.3% YoY).

OFZ balances in foreign nominee accounts amounted to RUB 3.0 trillion at year-end (RUB 3.1 trillion at year-end 2020). In 2021r, NSD implemented several new projects to develop its depository services:

465 US securities were admitted to trading on the Exchange;
NSD took another step towards integration with the global financial market by providing investment fund services via the Euroclear Bank platform;
NSD was actively preparing for the entry into force of the new European CSDR Settlement Discipline Regime. The requirements of the regulation are aimed at improving settlement discipline of market participants when executing securities transactions at European ICSDs Euroclear Bank and Clearstream Banking, as well as at the central securities depositories of the local markets of the European Union. As part of the project to adapt NSD’s operations to the CSDR requirements, NSD launched two new settlement services: Hold and Release and Partial Release in ICSDs. Also, a process was put in place to inform participants on a daily and monthly basis of the penalties issued by the superior securities depositories and further settlements in respect of the penalties issued based on the results of the reporting period;
the number of clearing sessions has been increased to nine for the DVP-2 service that uses correspondent accounts with the Bank of Russia.

Corporate Actions Center

In 2021, NSD switched to a new technology that ensures the transfer of lists of persons exercising rights in securities and persons for whose benefit rights in securities are exercised, as well as information about such persons and their securities in a structured form in XML format, including via the Corporate Action (CA) Web Account. The new format was developed jointly with market participants, agreed with relevant SROs and allows information to be transmitted in a single message in STP mode without the possibility of distortion or incorrect interpretation.

In 2021, NSD completed the implementation of the functionality that will enable issuers, registrars and information agencies to transmit to NSD information on CAs in the course of reorganization of joint-stock companies in the ISO 20022 structured format, electronically interact with NSD systems in the course of such CAs, and send confirmations to participants about CAs in accordance with the international standards.

Work has started to convert notices related to payments under a CA into ISO 20022 and ISO 15022 format, which can also be viewed in the CA web account. Notifications in the new format will be implemented in the summer of 2022.

During 2021 issuers initiated 3,997 meetings of securities holders using electronic voting technology, 417 CAs for redemption of securities for the amount of RUB 188.39 billion and 40 CAs related to the exercise of pre-emptive rights.

In total 18,309 correlated documents were initiated in relation to Russian securities in 2021 (+5.9% YoY), while 52,806 correlated documents were initiated in relation to foreign securities (+21.1% YoY). The growth in CAs was primarily driven by acceptance of newly issued securities. The largest increase was recorded in coupon and dividend payments on securities. In 2021, 33 annual general meetings of shareholders were held using e-voting.

Collateral management

The total volume of funds placed under repo transactions with NSD’s Collateral Management System (CMS) has exceeded RUB 320 trillion since the system was launched in 2013.

The Russian Federal Treasury’s cash placement under repo transactions in 2021 totalled RUB 40.8 trillion, with more than 93% of funds placed at a floating rate for a long term (more than 30 days).

The Bank of Russia’s repo transactions with NSD’s services totalled RUB 2.3 trillion.

In 2021, NSD continued to develop the OTC platform for inter-dealer repo with CGS. In October, participants of the platform tested a new instrument for secured refinancing in DOM.RF mortgage-backed securities. Inter-dealer repo transactions with NSD’s CGS provide market participants with additional liquidity management opportunities through the use of a basket of securities and the ability to replace them throughout the life of the transaction. Transaction volume for 2021 was RUB 201.7 billion.

As part of the development of the government lender liquidity management platform, there were a number of significant events, as well as progressive movement of previously launched services.

In February, the Federal Treasury launched operations to place funds in the Single Treasury Account (STA) in repos with NSD’s services. The Single Treasury Account accumulates temporarily idle funds from budgets at various levels, which enabled the Federal Treasury to place funds that had not been placed before. To launch the transactions, NSD implemented a technical solution which made it possible to segregate the margin and record the ECS funds from the federal budget funds. The volume of repo transactions with STA funds for 2021 was RUB 34.5 trillion.

In March 2021, the Federal Treasury and NSD launched repo transactions secured by mortgage-backed bonds and additional collateral in the form of a guarantee from DOM.RF.

This expanded the list of collateral available to banks. The volume of transactions for 2021 amounted to RUB 455.1 billion, with the placement period increasing from 35 to more than 90 days since the launch of operations. Fair prices for these bonds are calculated by NSD’s Pricing Centre.

The Finance Committee of St Petersburg is the first constituent entity of the Russian Federation to join NSD’s platform for servicing liquidity placement transactions. In 2021, RUB 57.3 billion was placed in repo transactions with collateral management by NSD. In November 2021, the region expanded the list of instruments used and started to conduct repo transactions with the RUONmDS floating rate widely used in Federal Treasury operations.

In February 2021, NSD accepted for servicing another participant, the Finance Committee of the Leningrad Region. The volume of funds placed in repo transactions totalled RUB 70 billion.

In 2021, NSD launched a new digital channel based on the collateral management web account for interaction with NSD’s clearing system for the placement of temporarily available budgetary funds of state creditors. This was another milestone in the development of digital technologies and new tools to improve the reliability and security of state allocations. The Finance Committee of the Leningrad Region was a pioneer in using the new technology.

Repository

The year 2021 saw significant growth both in the number of transactions recorded by NSD’s repository (45.7 million transactions (+80%)) and their value (RUB 703 trillion (+35%)). Currency instruments and repurchase agreements continued to be the main drivers in repository reporting.

The repository continued to improve services that simplify client interaction and reduce transaction costs for clients:

as part of the development of a new area, NSD’s IT solution for reporting to the repository, a technological solution was developed and offered to a pilot client to set up a direct reporting process from the client’s systems to NSD’s repository;
as part of the development of interaction channels, a decision was made to develop a REST API for repository processes (work in this area will continue in 2022).

In connection with the entry into force of new laws and regulations, the following changes were implemented:

changes related to the reform on the transfer of transactions to a central counterparty. The hedging transaction attribute was implemented in reporting;
a functionality was developed to aggregate data on customer transactions reported to the repository;
changes to allow NSD’s repository to accept/submit data from the contract register at the client’s request.

As part of the development of additional services for commercial products to provide analytical information, NSD’s repository implemented customised reports based on participants’ individual requests.

For the convenience of clients, flexible statement reports based on existing tabular reports were implemented in the repository’s web office. Participants are now able to independently determine the information to be submitted from the register in the form of a report, there is an option to choose: sections of the contract register, forms of questionnaires, counterparties, parameters of contracts, frequency of submission of requested information.

Financial Transaction Registrar

The Financial Transaction Registrar (FTR) is a key element of the financial marketplace, accumulating information on all transactions performed on financial platforms.

In 2021, the functionality of the FTR continued to develop: new clients - operators of financial platforms - were accepted for servicing, the range of registered instruments was expanded, and the formats of extracts and notifications from the FTR that are provided via the unified portal Gosuslugi upon requests from citizens, participants of the marketplace were refined.

At the end of 2021, five financial platform operators were connected to FTR, and transactions involving deposits, bonds, fund units, electronic compulsory car insurance (OSAGO) and loans were reported.

The functionality of FTR has been was refined and prepared for the planned changes in legislation in terms of expanding the categories of participants and the product component.

Settlement and payment system

NSD’s settlement services operate as an independent service area and are integrated into depository and clearing activities, forming comprehensive services.

The volume of money transfers in Russian rubles and foreign currencies in 2021 decreased by 1.1% YoY to RUB 324.7 trillion. In 2021, the volume of transfers in Russian rubles has decreased by 2.7% to RUB 279.9 trillion, while the volume of foreign currency transfers increased by 10.7% to RUB 44.76 trillion.

The number of transactions was 2.09 million, up 35.9% YoY (1.54 million). The number of transactions in RUB increased by 29.5% to 1.15 million, while the number of foreign currency transactions increased by 44.7% to 0.94 million. NSD is one of Russia’s largest settlement non-banking credit institutions, a systemically and nationally important payment system in terms of settlement transactions, capitalisation and the number of financial market participants.

In 2021, the number of transactions processed through the mandatory currency control procedures increased by 39% to 750,995 transactions.

Technological services

NSD attaches great importance to developing its IT infrastructure. It offers the market technological solutions that increase the efficiency of clients’ internal processes, while ensuring a high level of reliability of the solutions implemented.

SWIFT Service Bureau

In 2021, NSD successfully passed a SWIFT on-site audit as part of the Shared Infrastructure Programme (SIP) for SWIFT service bureau certification. Compliance with SIP requirements confirms a high level of security and reliability of NSD’s service bureau operations.

By the end of 2021, the total number of SWIFT service bureau participants was 58. The average monthly message traffic of SWIFT service bureau clients was 748,566 messages, which is 28.9% higher than last year.

Transit 2.0

By the end of 2021, 25 corporate clients had joined the Transit 2.0 platform, 19 of which use the system on a permanent basis to work with counterparty banks on a one-stop-shop basis. Currently, 14 banks are available on the platform.

The functionality implemented for currency transfers and currency control was expanded, and joint work with banks to expand the platform’s capabilities for clients is under way. The second stage of integration with MOEX Treasury was launched.

A “light” version of the platform was successfully implemented, with clients coming back with a request for further work on extending the version.

FMS Service Bureau of the Bank of Russia

In 2020, NSD became the first organization in Russia to be granted the FMS Service Bureau status by the Bank of Russia. As of the end of 2021, NSD was the only FMS Service Bureau in Russia connecting foreign counterparties to the system.

In 2021, NSD integrated the FMS functionality into Transit 2.0 to create a unified interface for greater convenience for market participants.

To date, 12 clients have been connected to the system. At the end of the year, the demand for connections increased significantly. There are plans to expand the client geography and enter the Western European market.

Information services

2021 was a year of increased automation and data quality. The number of active commercial information contracts reached 675, an increase of three times over the previous year and three times more than in 2016. Over the same period, NSD’s Information Centre revenue grew 3.3 times, increasing by 9% in 2021 alone.

The Information Centre’s key development areas remain:

NSD’s traditional provision of reference data on securities and issuers;
calculation of fair value and other pricing parameters as part of the NSD’s Pricing Center;
NSD’s dissemination of information through partner products, RU DATA and Exchange channels;
analytical products on the ownership structure of various assets and the provision of financial parameters and ratios.

In 2021, technological and qualitative improvements were made to the ownership structure analytical products. As a result of this work, a product analysing the dynamics of non-residents’ share in OFZs aroused interest not only among Russian, but also among foreign clients. Also, a product analysing the share of residents in OFZs by area of core business was put into commercial operation. As part of the development of the Reference Data business line, in June 2021 the “My Mailings” service was implemented with the functionality of sending notifications of information on securities published in the “Corporate Center News” newswire. The use of the service significantly reduces the time required to search for and track information messages on the securities of interest. As part of NSD’s strategy until 2024, NSD’s Information Center is developing a new area, Data Management. In 2021, a data catalogue was launched and an analytics platform project was initiated, which will help increase the speed of bringing information products to market and develop information services based on artificial intelligence.

Identification of financial instruments

NSD is the National Numbering Agency (NNA) for Russia and the Substitute Numbering Agency for the CIS countries, which assign ISIN, CFI and FISN codes to financial instruments. In 2021, NSD allocated ISIN, CFI and FISN codes for 2,131 Russian and 341 CIS financial instruments.

In 2021, NSD once again underwent its annual re-accreditation, confirming its status as a Local Operations Unit (LOU). NSD is the first company in Russia and the CIS countries to have such a status.

As a LOU, NSD serves 30 jurisdictions, including, in addition to the Russian Federation, the CIS countries, Western and Eastern Europe and other countries of the world, whose market participants may apply to NSD for assignment and maintenance of LEI codes. NSD continues to expand the list of jurisdictions serviced on request. In 2021, NSD assigned 65 LEI codes and verified 488 LEI codes.

In the middle of the year, NSD, following the requirements of the global operator, implemented pre-checking of LEI code data through the unified resource GLEIF, which improved the quality of information uploaded to the international database of LEI codes about their holders.

NSD’s activities as a Numbering Agency and LOU ensure the implementation of international coding standards in the Russian and CIS markets, which increases their transparency, facilitates integration into the international market infrastructure, and simplifies and optimizes financial market operations.