1. Risk Hedging in Cash Management on the Single Treasury Account
Yekaterina Semyonova–
Head,
Federal Budget Execution Department,
Treasury of Russia
Vienna, Austria May 2017

2. Role of the Russian treasury in cash management
Models of public debt management and execution
Of active operations
Centralized Model – one managing entity
Decentralized Model – several managing entities
Russian MoF- budget balance support
billion Roubles
Balancing by sources
Russian Federation
France (case study)
Agence France Trésor
public debt
active operations … …
Russian
MoF
December
January
public debt
sovereign wealth funds
period t
- receipts
- expend-s
- surplus
- deficit
Coordination of common parameters
reporting, cash plan, operational information
Russian
Treasury
Russian Treasury - liquidity management
active operations
billion Roubles
STA balance
«notional zero
Buffer volume
January
December
- active operations
Use of rough and fine-tuning tools
- Passive operations 2

3. key risk hedging tools involved in cash management
Managing Entities
Objects of Management
Risks
Hedging Tools
Ministry of Finance
Public Debt
Sovereign wealth funds
Lack of resources to cover a federal budget deficit – default risk;
Irrecoverable loss of financial assets from sovereign wealth funds
A balanced fiscal policy;
A balanced debt management policy;
Diversification of tools to manage sovereign wealth funds;
Development of requirements to counterparties
Federal Treasury
STA liquidity
Cash gap- default on obligations;
Default on counterparties’ obligations– loss of placed amounts
Setting of requirements to counterparties;
Development of strategy and tactics for placement/ raising of funds;
Establishment of an account buffer balance;
(auction) bid parameter control;
Diversification of active and passive (reactive) operations;
EFL*;
Development of a rapid response liquidity management mechanism in case of a cash gap;
Information security of payments
* EFL=expenditure financing limit - a tool applied by the Russian MoF based partially on the Federal Treasury information

4. Requirements to counterparties
Placement of federal budget funds in bank deposits
Purchase (sale) of securities through REPO agreements
Budget credits
General License issued by the Bank of Russia
Capital at least 25 billion Roubles
(FT may change the requirement))
One of the requirements:
- To be under direct or indirect control of the Bank of Russia;
- Agreement with the Deposit Insurance Agency on a Subordinate Loan and provision of federal bonds
No overdue payables on deposits
participation in the mandatory deposit insurance system
Other requirements
General License issued by the Bank of Russia
Capital at least1 billion Roubles
No overdue payables on deposits and REPO
No currently active measure enforced by the Bank of Russia for a failure to meet a mandatory requirement
The limit is 1/12 of the budget revenue amount as approved by the Budget Law or Regulation (except for grants, subsidies and inter-budgetary transfers)
Maximum credit period is 50 days (the credit repayment due date is November 25th of the current year)
No resources placed in bank deposits 4

5. Development of STA day-by-day cash flow forecasts– knowledge of future liquidity levels
1st Stage: Forecasting of cash flows for a long period (broken down by days)
2nd Stage: Identification of temporarily surplus cash amounts for various periods
billion Roubles
V 3
V 4
V 2
t+15
t+20
V 1
t+75
notional zero
‘buffer’ volume
t+90
t+15
t+50
t+70
t+75
t+90
V 1 = 50
V 2 = 150
V 3 = 200
V 4 = 200
3rd Stage: development of placement program and daily targeting perimeter

6. outcome: Effective liquidity management – use of every rouble; *
placement of funds for t+1-a source of ‘instant’ liquidity
18:00
decision making matrix
outcome:
Decision endorsement by Commission
Signature by the Commission Chairperson
17:30
Identification of the amount to be placed
(decision-making) *
17:00
Effective liquidity management – use of every rouble;
Control of liquidity changes for t+1 – volatility-resistant approach;
Source of ‘instant’ liquidity *
Identification of maximum amount of temporarily surplus cash
16:30 *
Collection of major applications and generation of information on all federal treasury regional offices
16:00
Federal Treasury local offices
Profile unit 1
Profile unit 2 *
routine interaction/communications
Fine-tuning of liquidity
Outcome of daily targeting
Before placement program
billion Roubles
Daily targeting perimeter V6 V2 V3
V 4 V5 V6
V n V1
notional zero
‘buffer’ volume t

7. Depends on a fine-tuning toolkit
Buffer volume on sta– a source to cover urgent payments
Periods of ‘moderate’ and ‘large’ receipts
‘buffer’ volume:
Depends on a fine-tuning toolkit
Correlates with a period of fine-tuning
A revisable value
Covers expenditures and payments t+1, t+2
A current targeting benchmark – ‘a corridor’ (a collar) of billion Roubles
billion Roubles
Period of ‘moderate’ receipts
Период II
Period of ‘large’ receipts
Key tax receipts (mineral extraction tax, value added tax)
notional zero
‘buffer’ volume
Algorithm # 1
Algorithm # 2
Targeting options:
Algorithm # 1: Vpl= Sf-Exp-P+Rpl-Buf
Algorithm # 2: Vpl= Sf-Exp-P+Rpl+85%Rev-Buf
Vpl – volume of surplus cash (to be placed)
Sf – projected surplus funds for t+1
Exp – expenditures t+1
P – payments (sources, ‘long monies’, other) t+1
Rpl – recovered from placement t+1
Rev – revenues t+1
Buf - ‘buffer’ volume

8. Minimum amount of funds per one application
Control of (auction) selection parameters of applications for deposits and repo deals
Minimum placement/
deposit interest rate
Cutoff rate*
Volume
of cash
Minimum amount of funds per one application
Form of
selection of
applications
Placement
period
* In extreme cases may be used as a strict cut-off tool for applications from credit institutions (this cut-off method is practically not used)

9. Diversification of active and passive operations
Active liquidity management – asset-liability operations related to STA residuals
Active operations– placement of temporary surplus
Passive (reactive) operations– raising of funds to cover temporary cash gaps in the STA (outlook)
STA liquidity management goals:
to ensure coverage of cash gaps
to generate income
Budget Credits
to RF Constituents
February 2014
Days in foreign currency
Deposits from 8 to 29
November 2014
Overnight REPO
January 2015
to Municipalities
Budget Credits
April 2015
Forward REPO
January 2016
Reverse РЕПО
Short-term loans
Demand Deposits
Currency SWAP
Deposits in Roubles from 5 to 294
April 2008
Your Text
For your information:
Active operations are possible with budget-in-deficit as well

10. Procedure for EFC Setting
expenditure financing ceilings (EFCs) – long-term liquidity tuning
Projections (Key Administrators of Budget Funds)
Development of EFC Setting Framework
Information on STA Status
Procedure for EFC Setting
MoF is making a decision on EFC setting No
Yes
Other options to increase liquidity are available
(e.g., expansion of sources: securities, etc.)
If STA liquidity is insufficient– EFCs are fortified with a parallel expenditure cuts
If liquidity is sufficient on STA – EFCs stay at the level of declared projections
Liquidity rough-tuning
EFCs setting
billion Roubles
Development of Long-Term Placement Programs
Initial liquidity
Notional zero
Buffer volume
Months
January
February
March
April
May
June
July
August ……
December

11. liquidity rapid response mechanism
Liquidity balancing options:
Outcome:
Execution of a payment within an intra-day debit balance on the STA
Reduction of one-day placement rate
Withdrawal of funds from placement
Fund raising in the capital market
Application of payment due date ? 1
withdrawal of funds or fund-raising shall be assessed and the option with the highest expected yields shall be selected
Yes NO 2
Yes NO 3 4
conclusion: balancing is only possible if a wide range of rapid response tools is available 11

12. fine rough placement of funds from t+5*to t+n deposits from t+5
A wide range of fine tuning liquidity management tools –
a guarantee for temporary cash gap coverage
rough
fine
placement of funds from t+5
deposits up to t+5
REPO up to t+5, overnight REPO
placement of funds from t+5*to t+n
deposits from t+5
REPO from t+5
withdrawal from placement
Fund-raising in the capital market to cover temporary cash gaps (nearest future)
demand deposits (nearest future)
Expenditure Financing Ceilings (EFCs)
application of due date (nearest future)
STA debit balance mode (being considered)
*t+5 - nearest future (current time - t+3)

13. conclusion
100%
Diversification and enhancement of risk hedging tools is a mandatory condition for bringing liquidity down to a ‘notional’ zero
Liquidity , total %
STA balance
Hedging zone
Risk zone 0/
«условный» 0
Period

14. Thank you for your attention!