Moscow, 23Nov09National Foreign Exchange Association, Russia 1 RUB on global markets & in Russia in 2009: crisis effect Dmitry Piskulov, Ph.D. (Econ.) Chairman of the Committee for Professionalism; ICAP, Senior Adviser

What RUB markets? Mainly OTC markets: interbank, less between Investment firms On-shore (within Russia) + off-shore (outside Russia) = Global RUB markets RUB Instruments: Foreign exchange (cash TOD,TOM) swaps + outright forwards Interbank deposits Derivatives (NDFs, IRS, CCS, FRA) OTC Equities (potentially for non-residents) Moscow, 23Nov09National Foreign Exchange Association, Russia 2

Where RUB markets? Main locations: Russia (Moscow, St.Petersburg): cash (spot) FX UK (London) + Europe: RUB derivatives USA (NY) Asia (Tokyo, HK, Dubai) Main participants: -Banks -Investment companies -Institutional investors (hedge funds) Moscow, 23Nov09National Foreign Exchange Association, Russia 3

Moscow, 23Nov09 National Foreign Exchange Association, Russia 4 Why RUB markets important Plans of Russian political and economic authorities: Concept of Moscow as International Financial Center (adopted) to compete with Dubai, Shanghai, Mumbai; Strategy of development of Russian financial market till 2020 – focus on securities, forwards and derivatives instruments, clearing infrastructure: RUB to become international (regional) reserve currency Shortcomings of above programs: Focus on the securities markets Negligence of RUB settlements Access for foreigners?

Russian on-shore FX mkt 2007 RankCountry2007 ADT, $ bln.Share of global % 1United Kingdom1, % 2USA % 3Switzerland % 4Japan % 5Singapore % 6Hong Kong SAR % 7Australia % 8France % 9Germany992.5 % 10Denmark862.2 % 11Canada601.5 % 12Russia501.3 % 13Belgium481.2 % Moscow, 23Nov09 National Foreign Exchange Association, Russia 5

Moscow, 23Nov09National Foreign Exchange Association, Russia 6 Domestic FX market in Sep 09 Domestic OTC market average daily turnover (ADT) in bln. US$ by BIS methodology (Bank of Russia) Total ADT, US$ bln. of them: CCY /RUB Cross-border of CCY/RUB FX spot$27.8$ 22.0$11.6 Outright forwards $0.66$ 0.49$0.28 FX swaps$19.7$ 14.3$5.3 Total:$48.3$31.6$13.0 FX options$0.09$0.07$0.04

Moscow, 23Nov09National Foreign Exchange Association, Russia 7 Crisis on FX interbank markets FX turnovers dropped globally and in Russia (UK data, Russia data) *both Interbank OTC & in MICEX; source: CBR MonthUK marketRussian market* Apr 08$ 1,696 bln. Jul 08$119 bln. Apr 09$ 1,269 bln.$53.7 bln. Sep 09n.a.$ 52.1 bln. Change %-25%-56%

Crisis in interbank money market Unsecured RUB cash MM deposits volumes dropped 3-4 times to ADT $5-6 bln. Average size of single deal dropped Rise in secured lending (Repo) between banks in major financial centers Crisis of confidence is still in place BUT: bilateral limits to re-establish in Q Moscow, 23Nov09National Foreign Exchange Association, Russia 8

Moscow, 23Nov09National Foreign Exchange Association, Russia 9 Non-residents in Russian FX Share of non-resident (global) participants in Russian FX market stable at 37-42% Periodnon-residents in USD/RUB Non-residents EUR/RUB Q %31.7% Q %25.3% Q %20.7% Q %22%

Moscow, 23Nov09National Foreign Exchange Association, Russia 10 RUB markets outside Russia Turnover: $10-11 bln. daily (FX, MM, IRD) Link Moscow-London (transactions done in Moscow in the name of London HO) Number of banks (dealing codes) (according to ICAP EBS data on banks that entered RUB SSI) Active: 50 (already dealt in EBS) Potential: 140 (entered RUB SSI in EBS) Increase in participants and thus global volumes subject to settlements solution!

RUB instruments outside Russia More RUB derivatives than cash products FX swaps FX spot NDFs Outright forwards Interest rate swaps (IRS) FX options Cash deposits Currency swaps Forward rate agreement (FRA) Moscow, 23Nov09National Foreign Exchange Association, Russia 11

RUB FX in London Source: UK FXJSC semi-annual survey, September 2009 Moscow, 23Nov09National Foreign Exchange Association, Russia 12 Oct 08Apr 09 Percentage of RUB in total UK FX 0.7% USD/RUB turnover$10.9 bln.$8.6 bln. Rank of RUB (~ same as MXN PLN, KRW, TRL) 1517 Total ADT of UK market, $bln. $1699 bln.$1356 bln.

Volumes of RUB FX instruments in London UK FXJSC: Average daily volumes in Apr09 FX swaps:$4.0 bln FX spot:$1.8 bln. NDF$1.2 bln. Outright fwd$0.9 bln. FX options$0.5 bln. Ccy swap$0.14 bln Total$8.6 bln. Moscow, 23Nov09National Foreign Exchange Association, Russia 13

Global banks RUB trading Global banks – main promoters of RUB instruments RUB FX pricing and execution hub location: struggle between Moscow and Head office:  in London: 30%  in Moscow: 60%  other (Tokyo, Vienna, Helsinki, Dubai, Hong Kong): 10% Moscow, 23Nov09National Foreign Exchange Association, Russia 14

Moscow, 23Nov09National Foreign Exchange Association, Russia 15 Prospects of RUB as international currency Infrastructural prerequisites for global RUB trading (tasks for Russian authorities, CBR): 1.Promotion of RUB instruments in global electronic trading platforms (such as EBS, Reuters, Bloomberg etc.) 2.To remove obstacles in RUB clearing and settlements for international participants: - RTGS (BESP of CBR) - CLS Bank clearing currency (next ZAR, MXN) 3. Monitor RUB global trading volumes

Moscow, 23Nov09 National Foreign Exchange Association, Russia 16 About NFEA Established: October 1999 in Moscow as non-commercial organization; Membership: legal entities (local and global banks and brokers) working on/related to Russian spot/forward foreign exchange and money markets. Management: the Board (28 market practitioners), 4 co-chairmen, 3 Committees (on Market Indices; for Professionalism, Ethics & Education; on Legal Affairs) Projects up to date: – , 2006: Elaboration of Standards (Code of Conduct and Rules to Conduct Operations (Committee for Professionalism, Ethics & Education), –Market indices: MosIBOR (2001, RUR interbank % rates), RIBER (2004, USD/RUB), MosPrime Rate (2005, RUB money market reference rate) Projects in progress: -NFEA FX SWAP RATE – new index for USD/RUB and EUR/RUB forwards -Standard Documentation on Russian OTC derivatives transactions (Russian analogue of ISDA Agreement) – completed in Legal documentation on syndicated loans; International cooperation and working contacts: -ACI-The Financial Markets Association -ISDA (inclusion of MosPrime rate into ISDA definitions 2006)

Moscow, 23Nov09National Foreign Exchange Association, Russia 17 Contact Details 13 Bolshoy Kislovskiy Per., Moscow, , Russia, Tel.+7 (495) , Fax: +7(495) The Copyright National Foreign Exchange Association, All rights reserved. Any reproduction is only permitted with prior consent of NFEA.