National settlement depository activities
By late 2015, the National Settlement Depository, part of Moscow Exchange Group, had fully implemented its three-year development strategy for the central securities depository adopted in 2012, when it was assigned the status of central securities depository. All of the main strategic business areas – central securities depository, repository, collateral management system, payment system and the corporate actions and corporate information centre – had been established and continue to function well. In addition, the goal set when the strategy was developed was to increase the assets deposited in the NSD to RUB 30 trln. As of the end of 2015, this indicator stood at RUB 31.7 trln.
Since 1 October 2015, market participants have had to report to the repository on all types of trades in derivatives concluded based on master agreements. Before October 1, only OTC repo and FX swap reporting was mandatory. The transition to more extensive reporting was made as convenient as possible for market participants and passed without any technical deficiencies or complaints from clients or the regulator. This was possible due to preparatory measures arranged with clients.
In 2015, market participants were offered the option of tri-party repo transactions with the Federal Treasury, enabling them to make full use of the collateral management advantages of the NSD, including selection of optimum collateral, substitution of securities with other securities accepted by the lender, margin calculation and daily revaluation of securities at market price. As of the end of the year, Repo transactions with the Federal Treasury reached to RUB 9 trln in 2015.
The NSD launched an FX payment service combining two transactions (currency buying and selling, and wire transfer), thus reducing the number of instructions and payment documents sold to clients. Settlements became possible using the “delivery against payment” scheme in “central bank money”, i.e., using correspondent accounts of counterparties opened by the Bank of Russia in the settlement system. This settlement model is a generally recognised standard on international financial markets which mitigates risks.
The NSD implements best risk-management practices and makes use of international experts to conduct international peer reviews. Thomas Murray, a specialist rating agency for financial infrastructure institutions, confirmed the NSD’s rating at АA–, implying a very low risk level, with stable outlook. The assessment of risk management and transparency was upgraded from А+ to АА–.
The NSD conducted an operational audit under the ISAE 3402 international standard. 2015 saw the first audit under ISAE 3402 type II, which includes a large body of research: apart from assessing how the design of control procedures meets control goals, the operational performance of such procedures was also inspected.
In June 2015, the NSD signed a memorandum of understanding with China Central Depository and Clearing Co. (CCDC), which services government securities. The memorandum’s ultimate goal is to establish a direct and convenient investor link between the Russian and Chinese markets. In 2015, the NSD also signed memorandums of cooperation with the Serbian and Greek central depositories to exchange information and maintain regular interaction.
Corporate actions reform
Legislation adopted in July 2015 contains key provisions for corporate actions reform in Russia. The changes will help increase protection of local securities holders and reduce costs of involvement in corporate actions. Professional market participants and investors will obtain a single NSD-based source of official information regarding corporate actions; information from this source will be regarded as definitive in all cases.
Key features of the corporate actions reform effective as of 1 July 2016 include:
- A new approach to compiling the list of securities holders;
- A new procedure for exercising rights when corporate events are carried out under the direction of institutions responsible for ownership record-keeping;
- A new right for the central securities depository to set electronic communications formats when rights under securities are exercised;
- New ways to participate in general meetings of securities holders, in particular, e-proxy voting and e-voting;
- Establishment of a corporate data centre at the central securities depository.
E-proxy voting allows NSD depositors to receive information regarding meetings of shareholders via messages sent in accordance with the ISO 20022 and 15022 international standards, and then to send voting instructions from their clients. The service has been available since 1 April 2015.
In the nine months following the launch of the service, e-proxy voting was available at 283 corporate meetings, including those of Gazprom, Sberbank, Mosenergo and MIPC. NSD deponents submitted 357 ISO instructions thanks to the innovation. The Exchange also began creating its own e-voting platform in 2015. The platform will provide an opportunity for shareholders to take part in meetings both in person and in absentia. Users will be authorised via the Unified System for Identification and Authentication (USIA) used on the State Services Portal. This allows avoiding hard-copy paperwork and personal attendance with all formalities observed. It is expected that e-voting at the Exchange will be launched in 2017.
The use of e-technologies and the ISO 20022 format at meetings of shareholders of Russian strengthens increases corporate governance by making it simpler for holders to exercise their rights, which over time may make Russian assets more marketable.
The NSD also plans to establish a centralised record-keeping system for units of mutual funds to allow brokers to purchase, redeem and change mutual funds of any asset management companies via a single entry using a two-tier nominee holding scheme.
Under a new reporting model to be introduced at the depository, principal reporting agents will be abolished and powers of attorney will be replaced by electronic applications upon the appointment of reporting agents.
Securities will be accepted as collateral under trades on the Standartised OTC Derivatives Market. The NSD’s services for optimising collateral portfolios and selecting securities for delivery will be made available to clients. The NSD’s tripartite facilities will be used in securities lending.
Plans for 2016 include official accreditation of the NSD price centre by the Bank of Russia, introduction of fair value measurements for different classes of financial instruments, and development of a global network for distributing the pricing centre’s data.