may 11 - 12, 2006 the derivatives market of the micex group alexander balabushkin deputy head of...

May 11 - 12, 2006

The Derivatives Marketof the MICEX Group

Alexander BalabushkinDeputy Head of Derivatives, MICEX

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Moscow Interbank Currency ExchangeMoscow Interbank Currency Exchange

MICEX

● MICEX was established in 1992 as a currency exchange in the form of a closed-end joint-stock company

● Shareholders:

۰ Central Bank of the Russian Federation

۰ Association of Russian Banks

۰ Sberbank RF

۰ Vneshtorgbank

۰ International Moscow Bank

۰ Rosbank

۰ Bank of Moscow

۰ 9 other leading commercial banks of Russia

● Mission:

To be the core Russian financial marketplace, providing market participants with full spectrum of trading, clearing and settlement services based on high-end state-of-the art solutions

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MICEX Group

N.Novgorod Novosibirsk Ekaterinburg Samara S.Petersburg Rostov Vladivostok

MICEXNational

Mercantile Exchange

MICEX Stock

Exchange

National Depository

Center

National Clearing Center MICEX Settlement House

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MICEX Group: Financial Supermarket

● The MICEX Group offers trading and settlement services for 5 markets:

۰ currency market (since 1992)

۰ federal bonds market (since 1993)

۰ derivatives market (since 1996)

۰ equity market (since 1997)

۰ corporate and regional bonds market (since 1999)

● Operates under the licenses of:

۰ Central Bank of the Russian Federation (currency market)

۰ Federal Service for the Financial Markets (securities market)

۰ Ministry for the Antimonopoly Policy (derivatives market)

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MICEX Group: National Financial Infrastructure

St.-Petersburg

Moscow

N. Novgorod

Novosibirsk

Rostov-on-Don Yekaterinburg Vladivostok

Samara

• 1500 banks and companies

• 10 000 clients

• 11 telecom providers

• 318 brokerage systems

• 500 000 orders a day

• 250 000 trades a day

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Moscow Interbank Currency ExchangeMoscow Interbank Currency ExchangeMICEX Group: Advanced Information Technologies● Screen-based trading with

remote access

● Possibility of numerous trade vehicles

● Integrated services: trading, clearing and settlement facilities in the ‘one-stop shopping’ environment

● Good scalability, flexibility and universality of the system

● According to the Gartner Group, the reliability of the Micex system is 99,99%

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MICEX Group: Daily Average Volumes

USD mln

PeriodMarket

2004 2005 Jan-Mar 2006

Foreign exchange

1400 2397 3216

Equities 434 574 1407

Corporate bonds 165 339 561

Federal bonds 187 409 516

Derivatives 2 26 100

Total 2188 3745 5800

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MICEX Group: Market Shares

Leading Russian exchanges’ market shares in 2005

PeriodMarket

MICEX RTSSPCEX and

other

Foreign exchange

94% 2% 4%

Equities* 79% 21% -

Corporate bonds

97% - 3%

Federal bonds 100% - -

Derivatives 21% 76% 3%

(*) Gazprom stocks had been in limited circulation till the end of 2005 and were traded on the Stock Exchange “Saint-Petersburg” (RTS SE Group) only. Gazprom stocks market share amounted to 15%.

• MICEX spot markets – basis for derivatives

• On-line funds transfers between MICEX markets

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Underlying USD / RUB Euro / RUB Euro / USD

Trading unit USD 1000 Euro 1000

Contract months Next 6 months + 2 months in quarterly March cycle

Next 6 months Next 6 months + 2 months in quarterly March cycle

Final settlement day 15-th of contract month

Delivery Cash settled

Final settlement price Micex USD / RUB exchange rate

Central Bank of Russia Euro / RUB exchange rate

ECB Euro / USD exchange rate

Tick 0,0001

Tick value RUB 0,1 RUB 0,1 RUB 3

Fee RUB 0,3 per contract RUB 0,3 per contract RUB 0,5 per contract

Initial margin(=Deposit margin)

RUB 600 - 1000 (depending on contract month)

RUB 1600 – 3500(depending on contract month)

RUB 1000 - 3500(depending on contract month)

MICEX Derivatives Market: Products

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MICEX Derivatives Market

Marketplace – MICEX

Clearing – MICEX

Settlement bank – MICEX Settlement House

• MICEX authorized capital: RUB 800 mln

• Derivatives Market Reserve Fund: RUB 200 mln

• MICEX SH authorized capital: RUB 255 mln

• MICEX SH is a specialized institution for providing

settlement services – “non-banking credit organization”

• The License and regulations of the Bank of Russia

do not allow active operations with clients' funds

deposited with MICEX SH (lending)

• This guarantees safety of clients' funds

Market Structure

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Membership Structure

MICEX Derivatives Section

General Clearing MemberIndividual Clearing

MemberAssociated Clearing

Member

Clients

General Trading Member

Individual Trading Member

Clients Clients Clients

GCM ICM GTM ITM ACM

Right to trade all types of contracts USD, EUR

Right to trade on its own account

Right to trade for and on behalf of its Clients

Right to settle its own and clients’ trades directly with MICEX

Right to settle Trading Members’ trades with MICEX Non banksBanks

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March 2006

1 International Moscow Bank

2 Gazprombank

3 Metallinvestbank

4 MDM Bank

Membership Dynamics & Market Participants Rating

2005

1 Metallinvestbank

2 Vneshtorgbank

3 Eurofinance Mosnarbank

4 Sberbank

Date Total GCM ICM ACM GTM ITM Active

01.01.05 156 24 57 4 56 15 39

01.04.05 161 25 58 7 56 15 42

01.09.05 161 25 58 9 54 15 51

01.01.06 164 26 60 10 53 15 62

01.04.06 168 26 62 11 53 16 62

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Market Dynamics

● September 2004 — largest Russian banks set up a pool of liquidity providers

● Trading volume in 2005 – 6.5 mln contracts or USD 6.5 bln in notional value

● Trading volume in Q1 2006 — 5.7 mln contracts (11 times Q1’05 volume)

● End-of-March open interest — 1.9 mln contracts or USD 1.9 bln

● Record daily volume — USD 640 mln

● Average transaction volume in 2005 — USD 7 mln (Q1 2006 – USD 10.5 mln)

contracts, or USD ths.

0300 000600 000900 000

1 200 0001 500 0001 800 0002 100 0002 400 0002 700 0003 000 000

Oct 04 Dec 04 Feb 05 Apr 05 June 05 Aug 05 Oct 05 Dec 05 Feb 06

Trading volumeOpen interest

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14 times

December 31, 2004

March'05

73.36%

January'05

22.98%

June'05

0.04%

February'05

3.63%

USD 140 mln

December 31, 2005

December'06

5%

March'06

10%February'06

7%

June'06

6%

May'06

16%

September'06

12%

January'06

34%

April'06

10%

USD 2 bln

Open Interest

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* Based on official data from Internet sites of the exchanges

USD/RUB Futures MarketDaily average trading volume (USD mln.)

0

20

40

60

80

100

120

140

2004,Oct.

2004,Dec.

2005,Feb.

2005,Apr.

2005,Jun.

2005,Aug.

2005,Oct.

2005,Dec.

2006,Feb.

MICEX СМЕ RTS

Month-end open interest (USD bln.)

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2004,Oct.

2004,Dec.

2005,Feb.

2005,Apr.

2005,Jun.

2005,Aug.

2005,Oct.

2005,Dec.

2006,Feb.

MICEX СМЕ RTS

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* Based on official data from Internet sites of the exchanges

Futures and Options on Russian Exchanges

SPCEX0,4%

RTS73,1%

MICEX26,5%

MICEX68,5%

RTS29,8%

SPCEX1,7%

Q1 2006 trading volume

MICEX97%

RTS2%

SPCEX1%

End-of-March 2006 open interest

MICEX96%

RTS2%

SPCEX2%

FX only

All products

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Plans for 2006: STIRs

Short-term interest rate futures –

new instruments for the Russian market(1) Underlying - 3-month MosPrime Rate Calculated by the National Foreign Exchange Association Methodology is approved by EBRD which uses MosPrime Rate for quarterly setting coupon for

its floater Contributor Panel consists of 8 leading participants of the Russian money market:

ABN Amro, Citibank, Gazprombank, IMB, Raiffeisenbank, Sberbank, Vneshtorgbank, WestLB

Vostok Expected launch time – June 2006

(2) Underlying – compounded MosIBOR Overnight Rate Analogs – BM&F One-Day Interbank Deposut Futures, EONIA Futures O/n deposits account for 70% of Russian money market Contributor Panel consists of 16 leading participants of the Russian money market Expected launch time – July 2006

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Moscow Interbank Currency ExchangeMoscow Interbank Currency ExchangeMICEX SE: Leader Among Exchanges of the CIS and CEE

● The capitalization of the Russian

equity market is 84% of Russia’s

GDP or 647.4 bln USD (as of April

1, 2006)

● The trading volume in the Russian

stock market is over 60% of the

stock market of the countries of

the CIS, Central and Eastern

Europe

The turnover on the equity marketin January-February 2006 and the number of

issuers

bln USDThe number

of issuers

NYSE 2641.5 1817*

NASDAQ 2040.7 2816

London SE 1201.2 2762

Tokyo SE 1140.4 2337

Euronext 563.0 961

Deutsche Borse 420.5 645

Hong Kong Ex&Cl

125.8 1130

Shanghai SE 56.6 833

MICEX SE 49.6 186

Singapore Ex 26.6 458

Wiener Borse 12.4 91

Warsaw SE 8.6 234

*) January 2006

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MICEX Index: Dynamics

CountryGrowth of national

stock index in Jan-Mar 2006

Russia(MICEX Index)

+28.5%

China (SSEC) +11.8%

Germany (DAX)

+10.4%

United Kingdom(FT-SE)

+6.2%

Japan (Nikkei) +5.9%

USA (DJIA) +3.7%

Changes in world indexes2000 -2005, %

MICEX Index

DJ IA

SSEC

Nikkei

FT-SE

DAX

-200 0 200 400 600 800 1000

On April 26 MICEX Index exceeded the level of 1500

Growth from the beginning of 2006 – 41%

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Plans for 2006: Futures on MICEX Index

ISSUER STOCK TYPE

"Aeroflot" Common stock

"AvtoVAZ" Common stock

"RAO UES" Common stock

"RAO UES" Preference stock

"Gazprom" Common stock

"Norilsk Nickel" Common stock

"LUKoil" Common stock

"Mosenergo" Common stock

"MTS" Common stock

"RBC IS" Common stock

"Rostelecom" Common stock

"Sberbank" Common stock

"Sberbank" Preference stock

"Sibneft" Common stock

"Surgutneftegaz" Common stock

"Surgutneftegaz" Preference stock

"Tatneft" Common stock

"Transneft" Preference stock

"Uralsvyazinform" Common stock

Q1 2006 Turnover

RTS$5.84bln (6%)

SE "Saint-Petersburg" (Gazprom stocks)

$14.74bln (15%)

MICEX Index $77.59bln

(76%)

MISEX SE(other stocks)$2.67bln (3%)

• Potentially the most attractive product for domestic investors

• Expected time – October 2006

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Plans for 2006: Options

Underlying: futures contracts on USD/RUB, later other futures Settlement method: futures-style, new for the Russian market Expected time: October-November 2006

Plans for 2007

Single stock futures and options Futures on federal bonds Futures on corporate bonds

Common variant of “cheapest–to-deliver”

or cash settled futures on the basis of ZCYC

National Mercantile Exchange – wheat, white sugar, oil, gold,… (commodity

futures)

ZCYC:• recalculated on-line • methodology was developed by the Central Bank and MICEX

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Plans for 2006: Financial Safeguard System

MICEX Reserve Fund for derivatives market

• The Board of Directors decided to recommend to the Shareholders Meeting to allocate to the Reserve Fund additionally RUB 300 mln• As a result the MICEX Reserve Fund for derivatives market will be increased up to RUB 500 mln• The Clearing Fund will be set up by clearing members• The Reserve Fund and the Clearing Fund will be used proportionately in cases when the initial margin of a defaulting clearing member is not sufficient to close out its positions

SPAN

• MICEX and CME have signed SPAN License Agreement• SPAN implementation is under way• Expected time - October-November 2006

Step-by-step raising of requirements for clearing members

• The goal is to strengthen the guarantee system by restricting clearing membership to first-rate banks only

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SPAN Implementation Design

• Built in the trading system

• On-line margining

• Capital adequacy checks

orderprice

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Contacts

● Address:۰ 13, B. Kislovskiy per., Moscow, 125009, Russia

● Telephone:۰ +7 495 7059610

۰ +7 495 7059612

۰ +7 495 7059627

● Fax:۰ +7 495 2027504

● E-mail:۰ [email protected]

● Web-server:۰ www.micex.com

may 11 - 12, 2006 the derivatives market of the micex group alexander balabushkin deputy head of...

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