The Russian government plans to turn Moscow into an international financial centre

As Russia seeks to reform its capital markets, changes to the country’s National Settlement Depository highlight a move towards bringing securities trading rules and infrastructure into line with international standards.

In 2009, the G20 nations agreed that they needed to reduce systemic risk in financial markets. To do this, they resolved to cut down on complex OTC derivatives, which had been widely implicated in the financial crisis. By mandating central clearing and reporting of OTC derivatives and standardisation of contracts, the G20 hoped to provide a more transparent and stable securities market.

In Russia, the Natrional Securities Depositary is planning to apply for repository status; if successful, it will begin providing information about Repo and OTC transactions and currency swaps in the repository from 3 December. That would bring centralised clearing and reporting of OTC derivatives in Russia closer for market participants. The NSD is currently testing the repository software with customers, prior to full implementation.

The move by the NSD is the latest step to bring the country’s OTC derivative markets into line with global standards. In May, Russia’s Federal Financial markets Service obliged market participants to register their REPO and derivatives agreements in the repository. According to Benjamin Ernest-Jones, capital markets industry solutions at Progress Software, some 79% of Russian derivatives are contracts for FX. That proportion may be declining, he says – but not because there is less FX trading; rather, there is growth in other kinds of derivatives.

Meanwhile, the Russian government is supporting the reforms to OTC markets as part of its wider push to transform the country’s trading infrastructure and a parallel drive to turn Moscow into an international financial centre. In August, Russia joined the World Trade Organisation, ushering in reductions in import and export duties and placing the country on the same page in terms of trading procedures as other global markets.

“Russia has lifted a lot of restrictive controls in recent months,” said Ernest-Jones. “The government is pushing for reform. Regulations are improving, and confidence is growing about the opportunities on offer for international investors.”

The establishment of a single Moscow Exchange earlier this year, following the merger of the country’s RTS and MICEX exchanges, has also been widely seen as a strategic move to attract international investment into the country. Previously, the two exchanges traded in dollars and rubles respectively and operated different settlement cycles. However, integrated clearing for the two order books is expected to be introduced early next year, potentially leading to significant cost savings for market participants. Russia is currently the world’s sixth largest economy according to statistics cited earlier this month by Russian broker Otkritie.