- The value of securities under custody reached RUB 44.97 trillion
- OFZ balances in foreign nominee accounts amounted to RUB 1.7 trillion
- NSD registered the first transaction as part of Bank of Russia’s Marketplace project
- NSD provided clients with the opportunity to open individual accounts with ICSDs for settlements
- Sberbank CIB and MTS issued the first Russian bonds via smart contracts based on NSD’s blockchain platform
- NSD summed up ICO results in the Bank of Russia’s sandbox
Central Securities Depository (CSD) services
In 2018, the value of securities under custody reached RUB 44.97 trillion – this was a 14% increase compared with 2017 (RUB 39.45 trillion). The total number of securities issues serviced by NSD grew 30% – from 15.4 thousand in 2017 to 20.1 thousand in 2018.
The number of foreign securities issues serviced by NSD grew 48% – from 8.5 thousand to 12.6 thousand.
In 2018, NSD continued to develop a centralized system for record keeping for mutual fund units (Mutual Fund Distribution Platform) focused on unifying interactions between brokers, asset management companies, and specialized depositories/registrars on the collective investment market.
The process of integrating the Mutual Fund Distribution Platform with QUIK software was successfully completed. This allowed brokers’ clients (nominees) to access the collective investment market. The integration generated interest from brokers, asset management companies, and investors in transactions with mutual fund units on the primary market. In 2018, eight new clients, including four asset management companies, connected to the Mutual Fund Distribution Platform.
The number of inventory operations in CSD increased 11% Y-o-Y and reached 3.4 million operations in 2018 (compared with 3 million in 2017), including 2.6 million exchange trade operations (+10%; 2.4 million operations in 2017) and 769 thousand OTC trade operations (+16%; 666 thousand operations in 2017).
In 2018, the amount of OTC DVP trades increased and reached RUB 8 trillion; this was 9% more than in 2017 (RUB 7.3 trillion).
At the end of 2018, NSD implemented integration with Moscow Exchange’s OTC system; in 2019, NSD clients will be able to transfer information on trades from the OTC system to the Web Office of Depository and Clearing Services, generating clearing instructions in an easier way.
There were positive dynamics in the growth in the number of client trades using new settlement services such as linked transactions and instruction prioritization; by the end of 2018, the number of such transactions reached 5,059.
The value of federal loan bonds (OFZ) balances in foreign nominee accounts with NSD was RUB 1.7 trillion; this was 21% less than in 2017 (RUB 2.2 trillion).
In 2018, ten commercial bond programs with an aggregate maximum amount of the issue equal to RUB 648.99 billion and 38 commercial bond issues with the total sum of RUB 79.67 billion were registered (37 issues for a total amount of RUB 79.52 billion were placed in 2018).
In 2018, 13 general meetings of shareholders were held using E-voting technology. Participants at several meetings were able to use both NSD’s E-voting system and their registrars’ systems; thus, investors and issuers were provided with an expanded option to use NSD’s E-voting service.
Companies that utilized these E-voting solutions for shareholders included: Novolipetsk Steel, Alrosa, Rostelecom, IC Russ-Invest, Moscow Exchange, and Gazprom Neft.
In 2018, NSD continued to develop projects based on blockchain technologies. In 2018, Sberbank CIB and MTS issued the first Russian bonds that had cash settlements controlled via smart contracts based on NSD’s blockchain platform. NSD and Sberbank summed up the results of the pilot ICO in Bank of Russia’s “Sandbox.” Sberbank and NSD will make a decision on developing this service for their clients, as soon as the expected regulatory framework goes into effect. NSD’s goal is to create infrastructure to account digital assets; its existence is a crucial condition for attracting institutional investors to the market, and it will also contribute to the market’s dynamic development and growth of capitalization.
In 2018, NSD actively developed new and promising channels for electronic communication with clients. In particular, the Company introduced additional options that facilitated work with the Web Office for Corporate Actions, accelerated the processing of corporate actions and instructions, and allowed to better control processes and reduce operational risks. NSD implemented 83 upgrades related to interfaces and 104 functional upgrades based on client requests.
As part of modernizing EDI channels and transitioning to online technologies, the Company launched the Web Office for Depository and Clearing Services. In 2019, it will replace LUCH software providing settlement and depository operations.
NSD prepared recommendations for Russia’s OTC market participants related to the settlement cycle on OTC trades (T+2). Settlements conducted in accordance with the established settlement cycle will allow NSD clients to optimize their operations and to manage their positions more effectively. Moreover, they will be able to mitigate operational and systemic risks due to the reduced impact of counterparties’ activities. This will also minimize the liquidity risk of counterparties when conducting transactions.
NSD continues to develop services focused on working with foreign assets and on international markets. In 2018, its first clients connected to the service “Individual accounts with ICSDs,” ten segregated accounts were opened for NSD with Euroclear Bank; this provided for separate record keeping for client securities. The key advantage was the opportunity to conduct settlements in back-to-back mode, when a trade was funded by the difference between the receipt and delivery of securities. Additional advantages include more services for dealing with ICSDs (such as technical netting, linked transactions, instruction prioritization, etc.) which will increase liquidity and allow a transaction to be funded right before settlement.
In 2018, the average open position of Federal Treasury repos with the OFZ basket conducted via NSD’s CMS amounted to approximately RUB 300 billion; meanwhile, the average maturity of repos serviced via NSD’s CMS increased from 2.89 days in 2017 to 6.17 days in 2018.
Having responded to the situation on the liquidity market, the Federal Treasury in conjunction with NSD’s CMS developed and introduced new money indicators for repos which were tied to RUONIA , the ruble-denominated money market benchmark, and took into account banks’ payments to the Mandatory Reserve Fund. Repos with a floating rate which were calculated based on these indicators were launched in April 2018. This instrument takes into account key rate fluctuations and mitigates interest risk. It lets market participants attract funds for longer terms and makes borrowings more attractive and cheaper. For instance, transactions with 30-140-days maturities were added to overnight, 7- and 14-days trades conducted by the Federal Treasury from 2017. NSD, being a tri-party agency, calculates daily values of new money indicators, fully automating the post-trade servicing of repos for parties to these transactions.
In 2018, work on connecting Federal Treasury’s repos to the Moscow Exchange’s OTC terminal began. In December 2018, Bank of Russia began conducting repos with securities basket on the St. Petersburg Currency Exchange in addition to utilizing the existing MOEX and Bloomberg channels.
In late 2018, NSD successfully implemented pilot tri-party services in the blockchain network. NSD settled the first tri-party repo transaction in the world concluded by Sberbank and BC Region via a smart contract and provided post-trade services. The independence of settlements conducted using smart contracts, combined with the neutrality of NSD as a collateral management agent, resulted in the most flexible and reliable mechanism for making OTC transactions. The utilization of NSD’s collateral management services by its clients let NSD not only act as a settlement depository, but also allowed the Company to strengthen its status as an innovative leader in the collateral management sphere.
Moscow Exchange Group companies continue to improve interactions with clients and to increase the level of customer satisfaction with their services. In December 2018, NSD and NCC launched the second phase of the Single Account service automating the standard transfer of client assets based on the rules established by clients within the Moscow Exchange Group. The Single Account accelerates the settlement on trades via automatic transfers, and saves client resources due to automation on NSD’s side, reducing operational risks. As of 1 January 2019, 11 clients connected to this centralized infrastructure solution.
NSD plans to continue to develop its collateral management system by engaging new client segments and expanding the range of financial instruments.
In 2018, the Repository’s clients were very active: the number of transactions registered by NSD’s Repository exceeded 12.5 million (compared with 11.3 million in 2017). The value of transactions registered was RUB 434.8 trillion (down from RUB 472.3 trillion in 2017).
The top 3 instruments of registered transactions included:
The top 3 instruments in terms of the volume of reported transactions included (RUB trillion):
The formatting and logic check (FLC) service which was launched in 2017 improved the quality of information sent by clients to NSD’s Repository. The number of cancellations of messages completed incorrectly by market participants dropped 19% (from 101 thousand messages canceled in 2017 to 82 thousand messages canceled in 2018). This is due to updates in format descriptions and notes in the fields of messages. Meanwhile, the largest percentage of canceled messages (32,199) was attributed to the end of planned deadlines for executing documents (30 days). The FLC service minimizes the number of incorrect parameters of transactions, and reduces the number of cases of transferring data to the Repository after the deadline established by law.
NSD’s Repository acts as a Financial Transaction Registrar (FTR), a key element of the Marketplace system which is being created by the Bank of Russia and market participants. The Marketplace project will let individuals see offers from Russian financial institutions (banks, asset management firms, and insurance companies) online, compare them and buy them remotely from anywhere in the world; the FTR record on the purchased product will have a Gold record status.
In 2018, NSD registered first trades conducted as part of the Bank of Russia’s Marketplace project: A purchase of units of mutual investment funds issued by TRANSFINGROUP Asset Management Company and INFINITUM Specialized Depository, and an acquisition of bonds of the Tomsk Region via VTB Registrar which acted as the platform for the deal.
Corporate Action Center
In 2018, 3,969 meetings of security holders were held using e-voting technology. 338 repurchases of securities in the total amount of RUB 65 billion and 40 corporate actions to exercise the pre-emptive right to purchase shares worth RUB 6.3 billion were also initiated.
In total, 15,267 corporate actions involving Russian securities were conducted in 2018 (compared with 15,603 actions in the previous year). The number of corporate actions involving foreign securities grew significantly due to an increase in the number of securities issues serviced by NSD (from 15,689 issues in 2017 to 25,185 ones in 2018). The growth amounted to 61%.
In 2018, the amount of yield payments and repayments on securities made via NSD increased. The amount of payments on Russian securities increased to RUB 19.3 trillion (compared with RUB 13.4 trillion in 2017). This was mainly due to repayment of Bank of Russia short-term bonds. The amount of payments on foreign securities grew 22% to RUB 1 trillion (as compared with RUB 0.8 trillion in 2017).
In 2018, the number of contracts concluded with information service users grew 33% Y-o-Y and reached 534 contracts. The greatest growth in the number of users and subscribers (98%) was demonstrated by NSD’s Valuation Center (182 users in 2018 as compared with 92 users in 2017).
At the moment, NSD’s Valuation Center is the only fair price resource officially accredited by the Bank of Russia. Currently, NSD’s Valuation Center calculates the fair value of approximately 800 exchange-traded ruble-denominated bonds and mortgage bonds on a daily basis and issues indicative data on more than 1,500 financial instruments.
In 2018, NSD and Interfax launched the RU Data Price service to evaluate bonds’ fair price and risks. The new service uses data from NSD’s Valuation Center and Thomson Reuters.
In 2018, the Expert Council of NSD’s Valuation Center approved the Methodology for assessing the fair value of Russian Federation bonds placed by Russia’s Ministry of Finance on the international capital market. The Methodology is based on IFRS 13 principles; it uses data from the Russian and foreign OTC markets, as well as quotations, and the price behavior of issues of instruments with different maturities and interest rates to calculate fair values.
In December 2018, NSD’s Valuation Center began publishing the results of the calculation of Eurobond prices based on this new Methodology
In October 2018, NSD and Interfax launched a new product – the Single Disclosure Window service.
Payment and Settlement System
In 2018, the value of money transfers fell 18% to stand at RUB 288.8 trillion (compared with RUB 350.8 trillion in 2017); however, the value of money transfers in foreign currency grew 20% and reached RUB 46.9 trillion (RUB 38.9 trillion in 2017). The total amount of transactions in client bank accounts in Russian rubles and foreign currency stood at RUB 335.7 trillion.
The number of client transactions amounted to 1.16 million (3% less than in 2017).
In 2018, NSD improved the channel for interactions with clients via API, an online banking service. Now, client software can be connected directly to NSD payment services in real time without arranging a special process for transmitting messages from the automated banking system to the Online Bank system.
In 2018, the project of switching to settlements via the Bank of Russia’s Prospective Payment System was implemented.
The basket of currencies used for client settlements was expanded.
Terms and Conditions of Settlement Services were amended; now clients can use an instruction for a prearranged transfer using client trading bank accounts. This will let clients manage their liquidity more quickly to participate in trading on the exchange and OTC markets.
NSD is Russia’s largest settlement non-banking credit organization in terms of the scale of settlement operations, capitalization, and the number of serviced participants in financial markets; it is also a nationally important payment system.
National and Substitute Numbering Agency, and the accredited Local Operating Unit (LOU)
NSD continues to act as Russia’s Numbering Agency and as the substitute numbering agency for CIS countries, assigning ISINs, CFIs, and FISNs. In 2018, NSD, as the National Numbering Agency assigned 1,754 ISINs, CFIs and FISNs to Russian financial instruments and as the substitute numbering agency – 34 respective codes to financial instruments of CIS countries.
In 2018, NSD, having responded to market demand and having acted as the substitute numbering agency, began assigning ISINs, CFIs and FISNs to securities of Moldova’s issuers and transferring them to the global database of the Association of National Numbering Agencies (ANNA).
In accordance with Bank of Russia Ordinance No. 4561-U, dated 3 October 2017, “On the Qualification Procedure for Foreign Financial Instruments as Securities,” which went into effect in April 2018, NSD launched an updated service on its website. The service provides information about foreign financial instruments that comply with the new laws regardless of the version of ISO 10962 based on which CFI had been assigned to these instruments. In October 2018, when the Ordinance was amended, the service was also changed to reflect information about foreign structural products that comply with Russian laws.
In January 2018, NSD was granted the status of an accredited LOU, passing all phases of the accreditation process of the Global Legal Entity Identification Fund (GLEIF).
NSD is the first and only company in Russia and the CIS countries that has received accredited LOU status and can assign LEIs to legal entities and conduct annual verification of LEIs. In addition to the Russian Federation, NSD, as a LOU, services other jurisdictions, including CIS countries, and certain Western and Eastern Europe states, as well as other countries whose market participants may request LEI assignment and verification services from NSD. Based on market participants requests, in 2018, NSD expanded the list of serviced jurisdictions from 10 at the beginning of 2018 to 28 as of the end of the year. It passed a standard GLEIF jurisdiction accreditation procedure. NSD will continue to expand the list of jurisdictions it services to satisfy market participant demand.
In 2018, NSD assigned 125 new LEIs, verified 485 LEIs, and accepted for servicing nine LEIs previously serviced by other LOUs. LEIs assigned by NSD are recognized by regulators, market participants, and LOUs of other countries.
NSD’s activities as the numbering agency and LOU guarantees implementation of international codification standards in the Russian and CIS markets. It also improves their transparency, contributes to the integration in the global market infrastructure, and facilitates and optimizes transactions on the financial market.
NSD as the central infrastructural link of the financial market pays special attention to developing the reliable IT platform and partner programs, and ensures a high level of information security.
In 2018, 13 new users connected SWIFT services via NSD’s SWIFT Service Bureau, and the total number of users reached 69. Service Bureau clients’ average daily traffic increased 43% compared with 2017 and reached 332 thousand messages per month. In 2018, the Bank of Asia became the first client of NSD’s SWIFT Service Bureau in the Republic of Kyrgyzstan.
NSD continues to implement the Transit 2.0 project (a platform allowing banks and corporations to exchange financial messages) developed by NSD on the basis of Transit, the previous version of the system. Prior to this, its users were represented only by professional securities market participants who exchanged electronic documents in the course of depository operations and cash settlements. Transit 2.0 considerably expands the list of users and options: now the system can be used by corporations and banks to automatically exchange payment and other documents, including ISO 20022 messages.
In 2018, Alfa Bank and Dixy conducted the first payment via NSD’s Transit 2.0 system. Slavneft Oil Company also connected to the Transit 2.0 platform.