1. Risk Management System of the Anonymous trading on the RTS Classic Market
Sergey Gorbachenko
RTS Clearing Center
12th and 14th of October 2005
Saint-Petersburg - Moscow

2. Average monthly trading volume
Groups of Participants
Credit Organization
Group
Own Capital I
More than 20 bln. Rubles II
More than 5 bln., but less than 20 bln. Rubles
III
Less than 5 bln. Rubles IV
All the other credit organizations
Investment Houses
Group
NAUFOR Rate
Average monthly trading volume I
AAA
More than $10M II
Not lower than АА
More than $1M
III
Not lower than B
More than $10T IV
All the other investment houses
RTS Clearing Rules
Supplement №21

3. RTS Clearing Rules Supplement №18
Limits for Participants Lo
Maximum total risk for the participant Lb
Maximum volume of unsettled trades without margin Km
Average market risk index (0.25) Lt
Maximum responsibility of the Clearing Center for the participant F
Not reimbursed sum used from the Guarantee Fund (debts the the Guarantee Fund) i
Margin level
S(i)
Deposit at the margin level
K(i)
Margin ratio of the level
RTS Clearing Rules Supplement №18
Supplement №22

4. RTS Clearing Rules Supplement №21
Limits for Participants (2)
Group
Lt - Maximum responsibility of CC
i - Level of margin
K(i) – Margin ratio
Maximum volume of unsettled trades
S(i) – Amount of money deposited to the margin accounts I $
Lb $
$ 0 1
0.25 $
from $ 0 to $ 2
0.4 $
from $ to $ 3
0.5
No limit
from $ II $
Lb $ $
from $ 0 to $ $
from $ to $
from $
III $
Lb $
from $ 0 to $
from $ to $
More than $ is ignored IV
Lb $ 0
от $ 0 to $
More than $ is ignored
RTS Clearing Rules Supplement №21

5. RTS Clearing Rules Supplement №18
Limits for Participants (3)
A participant belongs to the Group II.
No debts to the Guarantee fund.
1. No money is deposited to the margin accounts
Maximum risk exposure is limited to: $3M * 0.25 = $0.75M
2. $1M is deposited
Maximum risk exposure is limited to: $0.75M + $1M
The sum is less than $1.75M, К(1)=0.25, $1M * 0.25/0.25 = $1M
$5M is deposited
Maximum risk exposure is limited to: $0.75M + $1.75M + $ M
The sum less than $1.75M, К(1)=0.25, $1.75M *0.25/0.25 = $1.75M
The sum more than $1.75M but less than $5.75M, К(2)=0.4, $3.25M *0.25/0.4 = $ M
$8M is deposited
Maximum risk exposure is limited to: $0.75M+$1.75M+$2.5M+$1.125M
The sum less than $ 1.75 M, К(1)=0.25, $1.75M *0.25/0.25 = $ 1.75M
The sum more than $ 1.75M to $5.75M, К(2)=0.4, $4M * 0.25/0.4 = $2.5M
The sum more than $ 27.5M К(2)=0.5, $2.25M * 0.25/0.5 = $1.125M
RTS Clearing Rules Supplement №18

6. RTS Clearing Rules Supplement №18 Supplement №20
Limits for Participants (4)
A participant belongs to the Group II.
No debts to the Guarantee fund.
1. No money is deposited to the margin accounts
Trading limit: $3M * 0.25 = $
2. A trade is executed for stocks at $5 per stock with market risk index 0.25
Trading limit: $ – $5 * * 0.25 = $
The next trading day. Current market price is $5.6
If the stocks were sold:
Trading limit: $ – * ($5.6 – $5) = $
If the stocks were bought:
Trading limit: $
Убрать 3-ю колонку, добавить колонку «параметры двухсторонних котировок»: спред в рублях, объем в штуках, добавить цена на 1 марта 2005 года, фрифлоат.
RTS Clearing Rules Supplement №18 Supplement №20

7. RTS Clearing Rules Supplement №18
Limits for Participants (5)
Trade Margin
Margin of the Buyer
Margin of the Seller
Price of the trade is less than the current price P
P+R
Price of the trade is more than the current price
Price of the trade is equal to the current price
Potential market risk
P = Q * Ct * K R
Realized market risk
R = Q * |(Ct – C)| Q
Quantity of stocks Ct
Price of the trade K
Market risk index of the stock C
Current market price
Убрать 3-ю колонку, добавить колонку «параметры двухсторонних котировок»: спред в рублях, объем в штуках, добавить цена на 1 марта 2005 года, фрифлоат.
RTS Clearing Rules Supplement №18

8. RTS Clearing Rules Section III
Limits for Participants (6)
Trading Limit
L= Lo - D L
Trading limit at the start of the trading day Lo
Total maximum risk of the participant
 D
Margin for all the unsettled trades
Then a trade is executed the trading limits is decreased with the trade volume multiplied by the market risk index
Then a trade is settled limit is increased with the trade margin.
Then some money is deposited to a margin account the trading limit is increased with the change of total maximum risk of the participant.
Убрать 3-ю колонку, добавить колонку «параметры двухсторонних котировок»: спред в рублях, объем в штуках, добавить цена на 1 марта 2005 года, фрифлоат.
RTS Clearing Rules Section III

9. RTS Clearing Rules, Section III
Margin Calls
A participant belongs to the Group II.
No debts to the Guarantee fund.
1. No money is deposited to the margin accounts
Trading limit: $3M * 0.25 = $
stocks are sold at $5 per stock with market risk index 0.25
Trading limit: $ – $5 * * 0.25 = $
T+1. Current market price is $5.6
Trading limit: $ – * ($5.6 – $5) = $
Realized market risk of the trade: * ($5.6 – $5) = $
If the trade is not settled the Clearing Center will have to pay the penalty from its Guarantee fund.
The penalty has to cover the realized market risk that is calculated using the current market price of the day then trade is cancelled and the penalty is paid.
RTS Clearing Rules, Section III

10. RTS Clearing Rules, Section III
Margin Calls (2)
4. T+2. Current market price is $6.2
Trading limit: $ – * ($6.2 – $5) = $15 000
Realized market risk: * ($6.2 – $5) = $
Maximum responsibility of the CC to the participant of the Group II is $
If the trade settlement is failed the Clearing Center will not be able to pay the penalty in full.
To prevent such cases Clearing Center uses the Margin calls – the requirements to the Clearing Member to deposit additional margin.
RTS Clearing Rules, Section III

11. Margin Calls (3) MC = R – (S + Lt*Kt – F) MC R S Lt Kt F
Sum of the Margin Call (for Groups I-III) R
Total realized market risk for all the unsettled trades S
Amount of money deposited to the margin accounts Lt
Maximum responsibility of the Clearing Center for the participant Kt
Margin Call threshold (0.5) F
Sum of the debts to the Guarantee Fund
If MC>0, then a Margin call is sent to the participant.
Margin Call has to be paid before the next trading day.
In the above example when the current market price is $5.6:
МС = $ ($0 + $ *0.5 - $0)= $30 000
RTS Clearing Rules
Supplement №21

12. Margin Calls (4)
Margin is called before the trading day (before 10:00am).
Margin call is sent to the participant via RTS EDI system as a report which indicates the sum of the Margin Call and the list of the trades that may be cancelled if the Margin Call is not paid.
Margin Call has to be paid before the next trading day.
If the Margin call is not paid in full then the trades are cancelled (that is the condition of the trade). The trades are cancelled one by one from the earliest until the realized market risk of all the remaining trades is higher than Lt*Kt.
For all the cancelled trades the fines and penalties are paid after the trading session.
RTS Clearing Rules
Supplement №21

13. Thank you. Questions, please!
Contacts:
Sergey Gorbachenko
Tel: +7 (095)
Web: