Derivatives and collateral – final pieces in the puzzle Andrei Murygin Partner 20 November 2014

1 Missing links – netting and gaming Close-out netting and derivatives reporting mandatory from 1 April 2015 Article 1062 (2) of the Civil Code – the need to add non-Russian financial institutions and, possibly, large corporates into the derivatives exemption remains

2 Credit Derivatives Credit Derivatives Definitions – advanced draft of the supplement for the local documentation exists and awaits completion List of DFIs to be updated by the CBR to include, among other things, proper credit derivatives descriptions and collateral

3 Missing links – Collateral Repos benefit from margin permission in the SML, whereas DFIs don’t November 2012 – amendments to the Civil Code introducing financial collateral for derivatives were not passed The existing domestic collateral instrument (Floating Margin Payment Agreement) is not widely used and raises enforceability concerns in the absence of express statutory regulation of collateral

4 Collateral – draft amendment to SML Amendment to the SML prepared by the CBR: applies to multiple trades covered by an eligible Master Agreement transfer (“внесение”) of cash or securities – title transfer nature not very clear? triggers: fluctuation of underlying assets or other triggers set in the agreement such amounts and securities are taken into account “towards performance of the corresponding obligations in connection with the termination of all trades” (close out) – performance vs termination exposure? terms of such collateral arrangements to be set out in “an agreement being a DFI” – trade confirm or CSA? add recognition of “agreements made for the purposes of securing the performance of obligations arising out of financial agreement” in the Insolvency Law Intended timing of this Bill: end of the year

5 Central clearing CBR is working on central clearing regulations and related regulatory capital provisions Moscow Exchange is considering practical aspects of such clearing Clearing mechanism likely to involve novation-style termination of the existing trade and re-execution with the central counterparty

6 Questions?