4.1.4. Commodities Market Clearing. Performing the Commodity Delivery Operator’s Functions
The Commodities Market of Moscow Exchange Group holds organized trades in derivatives (deliverable forward and swap contracts) with commodity as the underlying asset. For settling trades, the participants’ commodity accounts are used, which are maintained with NCC, which acts as a central counterparty on the grain and sugar market and as a clearing organization accounting both funds received from buyers in payment of the commodity price and default funds.
According to Bank of Russia resolution dated 28.10.2015, NCC was accredited to act as a commodity supply operator. Acting as CSO, NCC accredits elevators and warehouses for storing commodities admitted to on-exchange trading.
The main objectives implemented on the commodity market in 2020 were the objectives related to automation of the process of settling non-fulfilled obligations of clearing members.
The facility was implemented to enter into closing trades on the date T-n (where T is the date of due performance of obligations) according to the procedure in place. Urozhay TCS provides automation of settlement of non-performed cash liabilities by entering into swap agreements on the date T. Collection of fines for entering into closing forward agreements is automated. The facility to switch the settlement account to the settlement mode was implemented and the restrictions set for the settlement mode were introduced.
4.1.5. SFD Market Clearing
The SFD market was established in 2013 in pursuance of the resolutions of the G20 on strengthening of the central counterparty’s role on financial markets. NCC has been clearing on the SFD market since 2013 in compliance with the Clearing Rules and performing the Central Counterparty’s functions under all SFD contracts.
NCC, as the central counterparty, clears partially secured trades with respect to the following derivatives: swap contracts, futures contracts, forward contracts, and option contracts.
The SFD market continued developing actively and in 2020 the amount of open positions on the market increased almost 2.5 times to RUB1,71 trn (2019: RUB439 bn). The number of clearing members increased by 10% and the total number of clearing members reached 52 (2019: 46 clearing members).
In 2020, the facility to include the settlement account of the SFD market into the Unified pool was implemented. As a result, the SFD market participants were provided with an access to the Unified pool capabilities, i.e. transfer of profiles of Russian Rubles, US dollars and Euros between the securities market and the SFD market and usage of securities as the individual clearing collateral.
Regarding the product line, new underlying assets were added: key interest rate, SOFR, ESTR, SARON, CHF currencies, OIS on the return rate of currency swap. In addition, the maximum terms of traded contracts were extended from 5 to 10 years.
The objectives were implemented, inter alia, because of preparation of the central counterparty’s infrastructure for compliance with Bank of Russia Ordinance N 5352-U dated 16.12.2019 ‘On cases where agreements, which are derivative financial instruments, are entered into only provided that the other party under such agreements is an entity performing the central counterparty functions’ (hereinafter, the Instruction), which came into effect since 1 January 2021. On 1 January 2021, NCC, as the central counterparty, was fully ready to attain the objectives imposed on NCC pursuant to the above Instruction.
For further development of the clearing business, the plans are as follows:
- to implement the Single Limit Allocation Project designed to enable market participants to make partially secured OTC FX trades in the OTC platforms subject to the uniform limit based on the assets accepted by NCC as collateral and deposited by clearing members to the Unified Pool’s TA and settlement accounts maintained in securities market TCS;
- as a part of the project for segregation of the statuses of market participants and clearing members on Moscow Exchange Group’s markets, to implement the functionality enabling NCC to act as a tax agent according to the obtained status. It will enable nonresidents to become parties to trades made with NCC on Moscow Exchange Group’s markets;
- to build a new margining model on the SFD market by implementing the risk management system (RMS), developed in-house together by NCC and Moscow Exchange. It will allow to avoid settlements using Fincad standard libraries and trades margining and assessment of NPV trades in Navigator TCS. Implementation of in-house RMS will allow to calibrate curves using methods, which will be treated as optimum ones. Also there will be a capability to build own infrastructure and prototypes for automatic testing and reducing the risk of errors in model implementation;
- to implement the Early Trading on the FX and Derivatives Markets objectives, to elaborate measures to ensure liquidity of RUB account balances of NCC for allowing potential withdrawal of funds during the morning session. NCC will not have to take any additional measures to ensure the liquidity in US dollars, Euros and Asian currencies, since NCC maintains cash balances in the above currencies on the correspondent accounts with relevant foreign correspondent banks. The regulatory requirement for trouble-free functioning of the SWIFT payment network is met;
- to continue development of the Clearing Terminal service. The key aspects of further expansion of the clearing terminal functionality are as follows: provision of clearing terminal to trading participants, who are not clearing members, to segregated clients, custodians, etc. and reorganization of clearing reports, provision of clearing members with required information on clearing results using the clearing terminal functionalities;
- to continue development of OTC trades clearing: to expand clearing and settlement services on the OTC FX market by automating and unifying the processes of transmitting information on trades made on the OTC FX market;
- to implement the pre-trade checks on the off-exchange trade platforms of the FX market. Participants will be allowed to execute transactions on the off-exchange electronic platforms meeting NCC’s risk management requirements with preliminary pre-trade check of the unified limit. Calculation of NCC’s limit utilized directly on the trade platform will allow to improve the effectiveness of clients’ trade transactions, will provide clients with additional capabilities for liquidity distribution and business expansion regardless of counterparties’ credit quality;
- to enhance interaction with the Eurasian organizations for developing the EEU integrated FX market and transactions with national currencies – technological interaction with the exchanges and infrastructure financial institutions of Kazakhstan, Belarus, etc. Also configuration of trade and clearing links with the Asian exchanges and trading systems, namely, with the Kazakhstan Stock Exchange (KASE), the China Foreign Exchange Trade System (CFETS), inter alia, the link with the Shanghai Gold Exchange (SGE), thus enabling Russian clearing members to get access to the world’s largest Chinese gold market and to enter into NCC-cleared trades in gold loco Shanghai.
- to launch spot and swap gold trading via the trade clearing link with the largest liquidity providers in London. Trading in gold loco London with the minimum lot of 10 ounces (XAUUSD_SPT, XAUUSD_TOMNEXT);
- to create a trade and clearing link with the Shanghai Gold Exchange, thus enabling Russian clearing members to get access to the world’s largest Chinese Gold Market and to enter into NCC-cleared trades in gold loco Shanghai. Entering into pilot trades in gold at the Shanghai Gold Exchange.