MICEX Group Derivatives Market Directing the Derivative Market Boom – Trends and New Projects Zhanna Smirnova MICEX Vice President

World exchange derivatives market: trends

World exchange derivatives market: products

World exchange derivatives market: regions

Russian derivatives market: history and facts 1990s: Start as it was… 2000s: And what’s now October 1992  Products (by underlying) Derivatives trading starts in Russia GKO Stocks, indices Stock indices FX STIR 2002 CM  Exchanges 1992 – Moscow Commodity ExchangeNo activity since – Russian ExchangeNo activity since – Moscow Central Stock ExchangeNo activity since – The Exchange “Saint-Petersburg”Till FORTS foundation – MICEXSuspended 1998; Restarted – SPCEXTrading now 2001 – FORTS (based on SPBEX market)Trading now

Russian derivatives market: dynamics of growth

15-times growth of the MICEX cash markets Russian derivatives market: underlying dynamics

MICEXRTSSPCEXSPBEX FX futures++++ FX options++ STIR futures++ STIR options+ LTIR futuresQ Stock Index futuresQ Stock Index OptionsQ EQ futures2008+ EQ optionsQ CM futuresQ CM options++ Russian derivatives market: traded instruments

Russian derivatives market: structure

Regulative  Absence of special acts: derivative instrument market law, clearing and netting law, etc.;  Regulation vacuum of OTC cash-settled transactions;  Tax problems for individual investors;  Collateral & bankruptcy law Infrastructure  Low clearing houses capitalization Educational  Generally low educational level;  Lack of special educational programs, seminars, etc. Russian derivatives market: barriers on the way up √ solved

Russian derivatives market: potential of growth

Exchange Clearing organizationMICEX Settlement organization MICEX SH Remote access via Internet for MICEX derivatives market participants and their clients SCIEX NCSEX URCEX SICEX MICEX derivatives market: infrastructure

MICEX derivatives market members (as of ) AllGCMICMACMGTMITM MICEX derivatives market: membership General Clearing Members Individual Clearing Members CLients Trading (non-clearing) Members Clients Banks Non-banks MICEX Derivatives Market

MICEX derivatives market: membership

MICEX derivatives market: market leaders Position by turnover (Jan-May 2007) MICEX Derivatives Market participants Membership Category 1OJSCo SCB "Metallinvestbank"GCM 2CJSC IMBGCM 3JSB Gazprombank (CJSC)GCM 4JSC Bank of Khanty-MansiyskICM 5Evrofinance MosnarbankGCM 6OJSC Bank "Petrocommerce"GCM 7ZAO CitibankGCM 8JSC VneshtorgbankGCM 9ZAO Standard BankICM 10SberbankGCM

MICEX Group Derivativesmarket €/$€/$ EUR/USD EUR/USD €€ EUR/RUB EUR/RUB $$ USD/RUB USD/RUB FX futures: o/no/n Overnight MosIBOR 3-M 3 month MosPrime Rate STIR futures: MICEX derivatives market: instruments Forthcoming: MICEXMICEX MICEX Index futures

MICEX USD/RUB futures: trading statistics

MICEX USD/RUB futures: liquidity

USD/RUB futures: domestic & international market

MICEX STIR futures: trading statistics

Long interest rate products Futures-type settlement options Market-making programs Automatic quoting Combination trading Widening trading opportunities Increasing liquidity New types of orders Synthetic products MICEX FX & STIR futures: nearest plans

MICEX equity derivatives: firm basis Exchange MICEX SE Clearing house MICEX Settlement house MICEX SH MICEX SE derivatives market Technical Center MICEX Liquid underlying cash markets of MICEX Group High-end trading, clearing and settlement IT solutions Strong and effective financial safeguards system Clear market rules and simple transaction procedures

MICEX SE derivatives market: coming instruments Single stock options Bond- related futures options MICEX Index futures options Bond- related futures MICEX Index futures … Proposed instruments list

«Blue chips» Capitalization Sectoral MICEX Index MICEX O&G MICEX PWR MICEX TLC …… MICEX10 index MICEX Large Caps MICEX Middle Caps MICEX Small Caps MICEX indices family

80%80% capitalization 95% trading value 3030 shares 1010 sectors RFIndexInvestmentfundsEUUCITSrequirementsUSABroad-basedsecurityindex 3 month watch list 6 month calculation base 15%15% max issuers’ weight 5%5% min free-float Capitalization Liquidity Weighted price of 10 last tradesComplianceWithregulations Structure MICEX Index: diversification and liquidity On average 5.5 ticks per secondCalculation

MICEX Index: economic sectors MICEX Index structure reflects exchange equity market distribution MICEX Index structure reflects exchange equity market distribution

MICEX Index RTS FTSE Russia IOB Index … … RTX DJ Titans Russia… MSCI Russia DAXglobal Russia Russian equity market in 2006: how many indices the market needs? Russian equity market in 2006: how many indices the market needs? MICEX Index: Russian EQ market benchmark

MICEX Index: key indicator of Russian EQ market Russian equity market in 2007: strengthening positions of MICEX SE

MICEX Index: basis for index investment funds Russian collective investments in 2007: investors choose MICEX Index

Net asset value growth MICEX Index funds MICEX Index: basis for index investment funds Formed Under formation 2 2 Total number Registration 5 5

MICEX Index futures: analogies from abroad CountryKey index (national currency) Futures & options availability Key index (foreign currency) Futures & options availability BrazilIBovespa; IBrX-50 ( BRL) (BRL) Hong Kong Hang Seng Index (HKD) (HKD) IndiaS&P CNX Nifty (INR) (INR) S&P CNX DEFTY (USD) KoreaKOSPI 200 (KRW) (KRW) MalaysiaKLCI (MYR) FTSE Bursa Malaysia 100 Index (USD) MexicoIPC Index (MXN)

MICEX Index: analogies from abroad Russian currency is a stable one – there is no need to use another Russian currency is a stable one – there is no need to use another

MICEX Index futures: contract specification UnderlyingMICEX Index Trading UnitRUB 20 times MICEX Index Contract Months 2 nearest months in the March quarterly cycle: Mar, Jun, Sep, Dec Final Settlement DayThe 15 th calendar day of the contract month Settlement MethodCash-settled Price QuotingMICEX Index times 100 Minimum Price Fluctuation 25 price points or RUB 5 per contract Final Settlement Price MICEX Index determined on the final settlement day times 100 FeeRUB 1 per contract

MICEX Derivatives Market financial safeguards Risk management system fundamentals: daily mark-to-market procedures and calculation of variation margin gross-margining and collateral (performance bonds) prepayment compulsory liquidation of insolvent members’ positions MICEX Reserve Fund accounts for RUB 500 million Overall reliability and stability of MICEX derivative market is confirmed by reports of juridical bureau “Milbank, Tweed, Hadley and McCloy”, the Institute of State and Law of The Russian Academy of Sciences and by the KPMG company

MICEX Derivatives Market financial safeguards Current limitations: Coming flexibility: Gross-margining Cash collateral Strict liquidation procedures SPAN based portfolio margining Variety of financial collateral Market procedures of settling insolvency situations Collective clearing fund Net-margining of CMs

MICEX Derivatives Market IT’S TIME TO SERIOUSLY CONSIDER JOINING THE RAPIDLY EVOLVING RUSSIAN MARKET OF LARGE POTENTIAL

Phone:  Phone:+7 (495) (495) (495) Fax:  Fax:+7 (495)  Web:  Web: Contacts MICEX Derivatives Market Division Thank You!