4.2. Proprietary Transactions in Financial Markets
In 2020, NCC executed transactions in financial markets in the extremely changing environment due to the coronavirus pandemic, which also resulted in the increased volatility of financial markets and changing rates of the main currencies of NCC’s asset portfolio.
During the reporting period, NCC’s liabilities structure continued changing (see Table 1). The amount of clearing members’ collateral in foreign currencies increased. Increasing collateral was partially due to the growing volumes of CCP-cleared on-exchange trading that was equally relevant both to US dollars and Euros. Significant growth of USD collateral was also related to the decline of FRS rate in March 2020. At the same time, the growth of EUR collateral was lower, and since 1 January 2020 even declined after NCC introduced the fees for EUR collateral accounting (the average amount of EUR collateral in 1Q2020 dropped by 28% compared to the amount in 4Q2019). The change in the RUB collateral amount experienced slight changes and, as shown in Table 1, actually stabilized in the last four years.
|Clearing Members’ Collateral –|
|RUB, mln||USD, mln||EUR, mln|
|2020/2019 Change, mln||+10,768||+1,917||-2,246|
|2020/2019 Change, %||+21%||+99%||-41%|
The nature and amount of NCC’s transactions with financial instruments was based both on the changing liabilities structure and market factors:
- decrease in US FRS rate in 1Q2020;
- decrease in the rate of the Bank of Russia in 1H2020.
The RUB securities portfolio increased by RUB4.576 mln (5.4%), that being in line with increase in RUB liabilities.
During 2020, securities portfolio in foreign currencies experienced significant changes in connection with repayment of a large number of issues (54% in USD and 78% in EUR).
Substantial efforts were aimed at recovery of and significant increase in the amount of USD securities portfolio (see Table 2) caused both by growth of the liabilities base and the need to offset the decreasing revenue gained from USD transactions on the money market as a result of decreasing market rates.
The limited number of EUR Eurobond issues, which was in conformity with the effective risk profile of NCC, resulted in the portfolio recovery due to sovereign issues with longer duration but with lower amount (in order to limit assumed risks). As a result, the duration of the EUR Eurobond portfolio was extended significantly (from 0.76 years as of 01.01.2020 to 4.16 years as of 01.01.2021).
|Amount of EUR Eurobond Portfolio (Annual Average)||USD in RUB Equivalent, mln||EUR in RUB Equivalent, mln|
|2020/2019 Change, mln||+23,504||-7,777|
|2020/2019 Change, %||+49%||— 23%|
In 2020, the amount of repo transactions did not practically change on 2019. In this case, the decrease in market rates on US dollar led to the decline of revenues from repo transactions by 62%.
Amount of Location SWAP transactions with precious metals reduced on 2019 from 4,945 kg to 2,098 kg. However, physical gold acceptance/delivery transactions increased from 2,436 kg to 5,929 kg. Such dynamics were caused by the appearance of new clearing members and the market maker dealing in physical gold and the changing tariffs for physical gold acceptance/delivery transactions.
The number of trades on the financial markets, as a part of the default management processes, decreased, first of all due to a decrease in the number of liquidation transactions, being in line with the decreasing number of license revocations by the Bank of Russia. At the same time, the amount of default management transactions on the securities market increased, that was likely to be associated with significant increase in the trading volumes on the securities market (see Table 3, Figure 1).
|Transactions||Number of Transactions||Change on 2019, %||Volume,|
|Change on 2019, %|
|Carrying over positions (SWAP)||360||-22%||47,816||-66%|
|Regulating margin calls+ closing positions||6||-50%||75||-93%|
|Carrying over positions|
|Closing positions (Sale/Purchase +LT+Т+2) RUB||5||-17%||47||213%|
|Carrying over positions|
|Carrying over positions|
(REPO +SWAP+S/P) RUB
|Closing positions (margin requirement) RUB||2||-50%||2||-33%|
|* selling of individual collateral of clearing members||0%||0||0%|
During the reporting period, as a part of expanding refinancing sources, repo agreements with the Federal Treasury and the Finance Committee of St. Petersburg were activated by connection to trading terminals used to place orders at auctions.
In 2H2020, the key interest rate of the Bank of Russia stabilized and the conditions formed for the regulator’s transition in 2021 from the soft monetary policy to the moderate one, which provided for potential increase in the key interest rate in the second half of the year. Due to the expectations in place, in 2021 NCC’s key objectives, regarding transactions on the financial markets, would be RUB assets portfolio restructuring towards moderate maturity for timely portfolio replenishment with higher yield assets and, as a result, increasing revenues