Moscow Exchange plans upgrades for trading and settlement

Source: Moscow Exchange

Moscow Exchange announces a number of upgrades and new product roll-outs planned for the equity, bond, repo and derivative markets in April 2015.

All anonymous trading in Russian federal government bonds (OFZs) will move to T+1 settlement, creating a single order book. Block trading for OFZs will be introduced. Settlement in USD will be allowed for foreign stocks and depository receipts. Discrete auctions for stocks will be upgraded. Additional upgrades include expanded terms for repo with the CCP, new mechanisms for delivering bond futures and exercising options, and new clearing arrangements on the Equity & Bond Market.

Equity & Bond Market

Effective 27 April 2015 all anonymous trading in OFZs will settle on the T+1 cycle, replacing T0 and T+2 settlement. After 27 April, T0 settlement will be reserved for negotiated trades only.

The new system for block trading in OFZs will allow firms to fill large orders at the average market price, thereby reducing transaction costs for participants. Trading will take the form of discrete auctions held twice daily, from 11:47 am to 12:00 pm, and from 4:47 pm to 5:00 pm MSK. The new auctions will allow large orders to be filled as quickly as possible due to the liquidity concentrated in short periods of time when bids are collected and matched.

From 27 April, foreign securities (shares of companies incorporated outside Russia as well as depository receipts) will become technically eligible for settlement in USD, in addition to RUB. Moscow Exchange will announce the admission date for such securities in due course.

The discrete auction mechanism for shares will also be changed from 27 April. The auctions will be run once or twice a day (currently only once a day) and only for shares included in the MICEX Index (currently for all Level 1 List shares). Shares will continue to be available for block trading and repo with the CCP during the auctions.

The Exchange will also launch opening auctions from 9:50 to 10:00 am MSK for OFZs and equities, replacing the pre-trading period. The auctions will allow participants to enter market orders, ensuring that the opening price is a true market price and protecting the market price from manipulation.

The list of securities admitted to trading without full prefunding will be expanded due to the division of securities into "eligible as collateral" and "admitted to trading without full prefunding". To be eligible as collateral, securities will need to meet criteria set by the Central Counterparty, including parameters such as credit rating and inclusion in the Bank of Russia"s Lombard List or the MICEX Index.

Agency cross trades will be launched for clients of a single market participant provided that such trades are made via the Central Counterparty. Agency cross trades will be allowed in the central order book and negotiated trading. Member firms will be responsible for granting permission for cross trading to clients on an individual basis.

In addition, the Exchange will offer trading in bonds denominated in CNY and GBP with settlement in those currencies.

Money Market 

Settlement in USD and EUR will become technically available for repo and negotiated trades with the CCP, in addition to RUB settlement. This new service aims to offer participants an additional tool to manage liquidity.

The maximum term for repo and negotiated trades with the CCP will be increased to seven days. This will facilitate liquidity management over longer time periods and allow synchronization of CCP-cleared repo transactions with certain Bank of Russia repo transactions, as well as enabling participants to reduce interest rate risk.

Derivatives Market  

Beginning in April delivery of OFZ derivative contracts will be performed automatically via T+1 trades in the regime "Exercising of commitments under T+ derivative contracts". Participants will thus be able to cross-net delivery obligations with open positions in OFZs with T+1 settlement and enjoy the absence of full prefunding requirements (previously 100% prefunding was required).

An automatic mechanism for the exercise of options will be introduced to eliminate the risk of missing the deadline for exercising "in-the-money" options, reducing costs for market participants and making exercising options easier. In addition, options on quarterly USD/RUB and EUR/RUB futures will be exercised automatically during the intraday clearing session.

Clearing of trades in securities 

To coordinate clearing with settlement batches, the intraday clearing session on the Equity & Bond Market will begin one hour later, at 17:00 MSK, starting 27 April.

USD, EUR and OFZs will be accepted as contributions to the Guarantee fund.

The period for mandatory rollover of obligations carried out by the NCC as the CCP in the event of a default will be shortened to two consecutive settlement days for funds, and four settlement days for securities.

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