In 2020, CCP NCC (hereinafter NCC, the Company) carried out its activity according to the plans contemplated by the Strategy of Moscow Exchange Group and the objective set by stakeholders and aimed at transforming the Company into an operationally autonomous, economically efficient, and innovative one developing within the frame work of Group’s strategy. NCC continued rendering clearing services in all markets of Moscow Exchange Group (FX and precious metals, securities market, money market, deposit, derivatives markets, and standardized financial derivatives (SFD) market, as well as commodity market of the National Mercantile Exchange).
During the reporting period, NCC focused its efforts on attaining the objectives in the following main activity areas:
- implementing the priority projects designed to develop the clearing business, inter alia, the projects to automate the processes not being transactions carried out daily but posing substantial risks to NCC in case of operational errors; to adjust some clearing processes to the environment of external adverse challenges; to strengthen the operational reliability of all clearing systems and processes:
- maintaining the quality level of CCP management in compliance with the national regulatory requirements and international standards; improving further the stress resistance and strengthening the protection of the central counterparty against risks inherent in CCP;
- innovatively developing the IT platform and its architecture to develop and introduce the cutting-edge technology solutions for business process automation to increase the speed of the operating systems, to improve the efficiency, reliability, and to ensure the functioning continuity of all services related to clearing and risk management;
- developing the corporate governance system, improving lines of control 1, 2 and 3, which includes, inter alia, internal audit, internal control, and compliance;
- implementing the plans of NCC’s revenue budgeting by deriving the fee and interest income.
During the reporting period, NCC carried out its activity in the extraordinary environment caused by the pandemic, which affected practically all spheres of life and activity of the country, including the financial one, and posed serious challenges, among others, to the financial market participants, management and employees of credit institutions, trading venues, and financial infrastructure institutes, IT-complexes and communications systems. NCC successfully adapted to the environment, which had changed due to COVID-19, ensuring the reliability and continuity of the business processes, security of all personnel and operation of the Company as a whole.
Due to the pandemic, 2020 was characterized by high volatility of financial markets. In such environment, especially while WTI oil prices were declining to negative values, NCC, as well as other world infrastructure organizations, had to make certain adjustments to their risk management framework and adapted to the market situation. Joint actions of NCC and Moscow Exchange, while introducing the Bachelier model (in addition to the existing option assessment model based on the Black Scholes model), enabled the market participants to make trades with negative prices for certain basic assets.
Besides, the changes in the collateral requirements caused by high volatility of the markets demonstrated the substantial increase in the participants’ risks and the probability of failure to meet their obligations. That required the risk management special attention to and efficiency in establishing the risk management framework parameters and accurate performance of the default management processes, and NCC successfully coped therewith.
NCC’s performance in such environment illustrated the Company’s ability to withstand the challenges in the global financial markets, readiness willingness to respond thereto efficiently and quickly, while reiterating its stability and reliability as a financial infrastructure institute.
During the reporting period, NCC maintained its position of one of the most highly capitalized clearing houses in the world, the leader of the centralized clearing industry in the Russian financial market. The Company enhanced its competitive advantages in the foreign securities market as a result of assigning of the Qualified Intermediary status by the Internal Revenue Service. This status will enable NCC to perform the tax agent functions for trades, including repo trades with foreign securities made by participants at Moscow Exchange.
In 2020, NCC, being the full-fledged member of the Global Association of Central Counterparties (CCP12) and the European Association of Central Counterparty Clearing Houses (EACH), expedited the work in committees and task teams of the above associations having assigned additional employees thereto. The above enabled the Company to participate in more detail and more effectively in discussion of the international regulators’ draft documents on the subjects relevant to NCC, such as CCP’s risk management development, requirements for participants, recovery plans and unified standards for disclosure of information on the central counterparty’s activity. Along with it, the interaction with foreign colleagues was enhanced in relation to default management in terms of information exchange, assessment, analysis and in-depth case studies.
During the reporting year, NCC took an active part in the work of the Association of Russian Banks, its commissions and committees, thus enabling the Company to keep abreast of the drafted regulatory requirements and legislative initiatives related to various aspects of credit institutions’ activity and ensured efficiency in giving effect to the relevant guidelines and regulations.