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Russian tri-party may ‘dramatically’ increase

24 January 2017

Moscow’s National Settlement Depository is set to widen its collateral management system to OTC repos in the inter-dealer markets in March

The National Settlement Depository (NSD), part of the Moscow Exchange Group, is to increase the scope of its collateral management system (CMS) to allow it to be used to process over-the-counter (OTC) repos with counterparties other than the Bank of Russia and Federal Treasury in March.

NSD and Bloomberg have been testing the new inter-dealer facility since December 2016 and it is set to go live commercially in March 2017.

Alina Akchurina, managing director for CMS development at NSD, said: "The service for inter-dealer repo is being launched in March 2017 and the tri-party repo volumes may be varied dramatically.

"The volume depends on the major market players and the inertia period while the participants are still working on the bilateral basis. But at the first stage we are focusing on the quantity coverage."

NSD CMS system doesn’t have any limitations and can be used by any category of clients, therefore corporate sector, banks, brokers and foreign participants use the new services. The only requirement is that a market participant need to open a direct account with NSD to operate with the CMS system.

The tri-party service will allow new OTC repos to be processed with similar functionality to OTC repos currently done with the Bank of Russia and the Federal Treasury.

"The NSD’s CMS platform means that client can boost its operational efficiency using the CMS solutions for both global lenders [the Federal Treasury and the Bank of Russia] and OTC inter-dealer segments as well as outsourcing post-trade activities to NSD," said Akchurina.

"The main idea is to outsource the collateral management function to NSD. Hence the participants will be delivered with the full range of post-trade services – allocation, daily mark-to-market, margining, corporate actions processing and reporting to a trade repository. 

"As far as NSD provides clearing services, participants will also benefit from using DVP settlement and multilateral netting in the clearing batch."

Last year the Moscow Exchange Group focused on repos using general collateral certificates (GCC) – a local version of GG pooling. The NSD holds GC and basic assets and automatically selects the clients’ securities for the pool to be used as collateral on the basis of certain parameters as well as margin calls. 

The NSD CMS services mostly OTC trades but also on-exchange repos with global collateral certificates.

"The advantage of the CMS platform that is universal. It has an open architecture thus can be compatible not only with OTC products, but also on-exchange ones," said Akchurina. 

"NSD is also developing the valuation centre. All this makes our platform attractive for the development of tri-party services on the inter-dealer market. Moreover, we looking forward for further perspectives for CMS use upon coming mandatory margining of OTC derivatives legislation in force."

The NSD CMS is used by 192 market participants.

Russia repo trends

2016 was marked by excess liquidity on the money market, since the Bank of Russia has transitioned from a policy of providing liquidity to a policy of absorbing excessive liquidity.

The value of OTC repo transactions with the Federal Treasury performed with the use of the NSD CMS more than doubled year-on-year from RUB15.5trn ($0.26trn) in 2015 to exceed RUB37.4trn in 2016. 

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