Frequently asked questions (FAQ's)
- General questions
- General risk management system
- Managing risks associated with trading positions
- Corporate events
- Securities lending and margin trading
- Clearing membership, clearing participants
I. General questions
- What is the T+2 settlement model intended for?
The settlement model implying partial pre-funding and deferred settlement on T+2 allows reducing market participants' funding costs, improving market liquidity, optimizing the service model for non-resident clients and HFTs.
- What technology platform will serve T+2?
The T+2 market employs the technology platform ASTS (which is now used in the Main Market Sector).
- Will the after-trade auction be maintained in the T+2 mode?
Since September 2nd, 2013 in the main trading mode Closing auction for shares has been held.
- Will dark pool trading be still available in the T+2 mode?
Dark Pool trading has been held with T0 settlement since September 2nd, 2013, but quotations of the T+2 order book are used for settlement. We plan to further develop tools available in this mode to bring them closer to T+2.
- Will the trading mode "Qualified investors" be still available?
Yes, it will. For mutual funds, which are specialized on qualified investors, trading will be held in T+2.
- Will it be necessary to make changes in the brokers" contracts with clients?
Brokers provide new services for clients, which require changes in rules and regulations of brokers" services as well as in the contract relations between a client and a broker. In connection with this, project reregistration of existing clients on the stock exchange is not needed, as this technology is accessible for all existing clients.
- What are the trading hours for T+2? Will the time interval between the main and additional trading sessions be increased? Will the evening session be remained?
Trading in the T+2 mode is opened during the main trading session (09:30 −19:00). We do not plan to launch the T+2 evening trading session.
- What tickers are used for T+2 in Bloomberg and Reuters?
In Reuters an extension ".ME" must be added to Moscow Exchange's tickers, i.e. GAZP.ME
In Bloomberg an extension "2" must be added to Moscow Exchange's tickers, i.e. GAZP2 Equity <Go>.
- What company clears T+2 trades?
National Clearing Center (NCC) acts as the CCP and the clearing house for T+2 trades executed in the Main Market Sector.
- Will NCC and NSD disclose their investment policies?
We expect that the investment policies will be disclosed.
- Has the international practice been applied to calculate the amount of the Guaranty fund, in particular an option of risk coverage in case of default of two largest clearing participants?
Yes, the international practice is taken into account while calculating the amount of the collective fund on the assumption of probable default of two largest clearing participants and considering price dynamics on the market (including in 2008).
- How will the default waterfall be arranged?
In case of a default event collateral posted by a defaulting participant is used at first. Then contributions made by such participant into the Guarantee fund are enabled. In case of insufficient assets of the clearing participant specially-purposed funds of the clearing house are used. If after these three steps are taken the default remains to be uncovered the Guarantee fund is to be involved (part of contributions of non-defaulting clearing participants). And the last resort is a use of clearing house's assets in the amount that would not entail a decrease of the clearing house's equity capital to a level at which the requirements under the license are not met.
- What is a legal status of the collective fund (Guarantee fund) contribution? Will securities including Russian Federation government bonds (OFZ) be accepted?
The collective (guarantee) fund means the assets being an object for collective clearing collateral (as per clause 24 of the Federal Law No 7-FZ "On clearing and clearing activities"). Initially, the Guarantee fund will be made up of cash. Assets contributed to the fund can be deemed as own funds of professional securities market participants, asset management companies (managing mutual funds) and non-government pension funds (as per clause 3.7.3 of the Orders No 08-41/pz-n "On approval of provisions on determining own funds of professional securities market participants, fund management companies, mutual funds and non-government pension funds ..." of the FFMS).
- Will assets of a clearing participant posted on the FX market be used in case of a default of such clearing participants on the securities market?
This will be available after clearing is combined for the FX and securities market.
- How NCC handles a withdrawal of cash from the member's Guarantee fund contribution in respect of taxation and accounting?
Clearing participants register their Guarantee fund contributions as the NCC's receivables. If NCC uses the participant's contribution it shall notice it thereof by the EDI system. The non-defaulting participant decreases value of assets deposited with NCC (the Guarantee fund contribution value) by recording the non-operating expenses on its book thereby reducing the NCC's receivables.
If the defaulting participant (debtor) repays a debt to NCC, it returns the cash in the amount required to the participant's account. The participant records this operation on its book in the non-operating revenues section. Non-operation revenues are subject to income tax. The Guarantee fund contributions related to the T+ mode are recorded on the NCC's account 30422 at NCC and participant's account 30425. Cash flow recordkeeping of clearing participants is governed by Regulations on Accounting Rules to be Applied in Credit Organizations Located on the Territory of the Russian Federation (as approved by the Bank of Russia on 16.07.2012 under the number 385-П, and amended on 26.09.2012)
- Will be it possible to monitor margin by clients?
We expect that trading participants will implement per client margin monitoring on their own (if necessary). The clearing house performs margining by settlement accounts T+ (including all trading and clearing accounts linked to such settlement account) thereby reducing funding costs for participants compared to margining by each client of a clearing participant.
- Will it be possible to use securities in specialized depositories as collateral? Yes, securities deposited in the specialized depositories are included in the calculation of a limit on the corresponding trading and clearing account. (It is also necessary to create a collateral section in the specialized depository account).
- Does the new risk management system imply use of collateral deposits on the T+2 market?
No, collateral deposits will not be applied for short-term trades with settlement on T+2. We assume that a trading participant can withdraw excessive assets from the accounts intended for collateral while the clearing house can require posting additional assets to such accounts (in case of insufficient collateral after marking-to-market or increased price band).
- Is the price corridor applied in T+2? What would happen if the price approaches the price corridor limit? Will collateral requirements be adjusted?
Yes, the price corridor will be set for each instrument. It will be based on instrument's volatility level. Upon the price approaches the corridor's limit collateral requirements will be recalculated.
- Will it be possible to withdraw cash in the amount of planned position?
Cash may be withdrawn to the extent of the planned position provided that the single limit does not come to a negative value following such withdrawal.
- How often and when does marking-to-market take place? What is the time limit for executing a margin call?
Collateral is marked to the market once a day, in the morning, before trading starts at 9:30. A margin call must be performed until 17:30. The Single Limit will be recalculated upon each change of a position.
- Are margin requirements determined by net value of positions or partially netted positions?
Securities deposited on the trading and clearing accounts and cash deposited on the settlement accounts are now fully netted.
- What is the maximum amount of securities to be accepted as individual collateral (by a security type)? Is a broker entitled to provide collateral consisting of securities of one type/class or issued by one issuer?
The concentration limit is to be applied. This limit implies an increased requirement for collateral consisting of a certain security (of one issuer/category/type). Securities of a clearing participant being an issuer thereof or affiliated entity towards the issuer will not be accepted.
- How will individual collateral be blocked?
Assets on the collateral sub-accounts are blocked upon the Single Limit approaches zero value and further withdrawing may cause the Single Limit to be negative (i.e. the position may turn to be partially uncovered). Up to this moment a member may withdraw any assets kept on the collateral accounts.
- Are foreign currencies accepted as the individual collateral?
Yes, foreign currency is possible to use as the individual collateral (US dollars and euro). Foreign currency may reach 100% of the collateral.
- Will sufficiency of collateral be determined entirely by a trading member's positions or by its proprietary/client/trust positions or in any other way?
Sufficiency of collateral includes two aspects:
the Single limit is calculated by a settlement account T+ (for all trading and clearing accounts linked to one cash position) and
At the moment of settlement sufficiency of collateral is determined by trading and clearing accounts: by the settlement account for cash and by collateral section (sub-account) for securities.
- What are the options "No unsecured selling/buying" based on?
The options "No unsecured selling/buying" became available on 8 July 2013:
- The option "No unsecured selling" allows clearing participants to sell securities available on its depository's account.
- The option "No unsecured buying" allows clearing participants to buy securities to the extent of cash available on the cash account.
- NCC applies the option "No unsecured selling" for all trading and clearing accounts of the category "V" clearing participants.
- The option "No unsecured selling" may also be applied to participants of the categories "B1" and "B2" regarding proprietary clients for each specific trading and clearing accounts (provided that an application for clearing manager powers has been filed).
- NCC applies the option "No unsecured buying" for category "V" clearing participants for all settlement accounts.
- The option "No unsecured buying" may also be applied to participants of the categories "B1" and "B2" regarding proprietary clients for each specific settlement account (provided that an application for clearing manager powers has been filed).
The powers of clearing manager are obtained by participants by filing the Application for changing the powers associated with the clearing ID.
- Is the Exchange involved in transferring incomes to a Buyer in case of a failed trade executed before T-2?
Incomes are transferred only in case of repo trades. In any other cases the rule "the holder is deemed to be the beneficiary" is applied. All trades are settled, i.e. there is no room for default. For non-routine events causing ultimately the CCP to fail the delivery of a security to a non-defaulting participant, a fine is paid to such participant. The fine is based on the market repo rate adjusted by the CCP to include risks incurred by the participant. As a result, the fine will cover the coupon risk.
- How will corporate events be treated in T+?
Corporate events require involving a shareholder when they occur regardless of whether it has an obligation to deliver the securities later. This is not applied to repo trades.
- Will the transfer of dividends under repo trades be remained?
The obligation to transfer an income (including in the form of dividends) received between the settlement dates of the first and second repo parts is provided for in the Russian law (the Federal law No 39-FZ "On the securities market", article 13, clause 51.3).
- How will coupon/amortization payments under repo trades in bonds be transferred?
Unlike in the current system, coupon payments under CCP repo trades are transferred within the special board "Refunds" (RFND) on the coupon date, and the repo amount is not changed. This transaction is shown in the trading system and in the Income Transfer Obligations/Claims Report (EQM98).
- When should I buy Gazprom shares in order to receive the dividends if the record date is 13.05.2013?
To be eligible for receiving dividends on shares you must be the owner of such shares (i.e. the shares must be registered on your NSD's securities account) as of the record date for general meeting of shareholders at which the decision to pay out the dividends is to be made.
For this purpose you should execute a trade to buy the shares during trading on Moscow Exchange:
- in the T+2 mode such trade may be executed until 19:00 MSK at least two days prior the record date. Thereby the shares are to be delivered on the record date;
- in the T0 mode such trade may be executed until 19:00 MSK on the record date. The shares are thus also to be delivered on the record date. The trading session in the T+ and T0 modes ends at 19:00 MSK.
On each trading day at 19:00 MSK, by the end of the trading day, National Clearing Center (the clearing arm of Moscow Exchange) notifies NSD (the settlement depository of Moscow Exchange) about trading day results by sending an instruction to make relevant transactions between sub-accounts.
NSD executes instructions to deduct/deposit securities from/to securities accounts sub-accounts until 20:00 MSK daily.
The registrar holding the company's shareholder register sends a request for a list of the securities owners as of the record date, to NSD. NSD makes up the list and sends it back to the registrar. Then the registrar sends the list to the issuer .
Note . The list of persons eligible to participate in the AGM at which the decision to pay out dividends is to be made, is drawn up by the registrar on a pre-defined date by the end of the business day. If the register is drawn up during a day (unlike in the sentence above), trades with settlement on T+2 must be executed at least three days, and trades with T0 settlement — one day prior the record date. In this case the securities are delivered one day prior the record date.
- What trading and clearing accounts are used for T+2?
For executing Trades T+ the Trading and Clearing Account (TCA+) comprising the following components is used:
- Collateral sub-account. It is the 36th sub-account of the securities account opened with NSD. This sub-account serves by NCC to register individual collateral in securities.
- Settlement account. It is used by NCC to register individual collateral in rubles (UTSR) and U.S. dollars (UTSD).
- is given by NCC automatically after the 36th collateral sub-account was opened if the participant has already registered TCA0 comprising the account 30411 and the 31st sub-account.
- Is registered by a participant on its own (if a new settlement account is required or the trading and clearing account for trades with T0 settlement is not available) by filing a relevant application to NCC after opening the 36th sub-account with NSD.
- by NCC automatically if relevant trading and clearing account for T0 is available;
- by a participant on its own if it registered the Settlement account on its own.
- U.S. dollar-denominated securities may be registered on the 31st or 36th sub-account of the securities account;
- the Settlement account includes ruble positions (UTSR) and U.S. dollar positions (UTSD);
- in NSD, trading bank accounts must be opened individually for ruble and dollar positions. In the trading system such accounts are signed EQTV and EUSD for ruble and dollar respectively.
- Are any restrictions applied to assets to be withdrawn by instructions to NSD?
Withdrawal of securities is restricted as follows:
- from 9:15 to 20:30 MSK (breaks at 17:00-17:30 and 19:00-19:40 MSK) securities to the extent of the planned position but no more than the opening balance may be withdrawn from the 31st sub-account;
- from 9:15 to 20:30 MSK (from 16:00 to 17:00 MSK securities to the extent of net obligations value are blocked by NCC) securities to the extent of the planned position but no more than the opening balance may be withdrawn from the 36th sub-account provided that the single limit does not become negative.
- from 9:00 to 19:00 MSK (a break at 17:00-17:30 MSK) cash to the extent of the planned position may be withdrawn from the cash position EQTV opened with NSD;
- from 9:00 to 20:30 MSK (from 16:00 to 17:00 MSK cash to the extent of net obligations is blocked) cash to the extent of the planned position may be withdrawn from the cash position T+ (UTSR) opened with NCC provided that the single limit does not become negative.
- Is it possible to transfer funds from the trading sub-accounts to collateral sub-accounts via the trading system?
Clearing systems' remote workstations allow dynamic transferring of funds between relevant securities accounts (sub-accounts) and bank accounts to the extent of available account balances, including during the trading day. To be eligible for transferring funds as described in this clause, your ID must have clearing powers "Operator" or "Clearing manager".
- How can a clearing member transfer cash to collateral accounts without using the T0 sub-account?
It should submit an application for transferring cash to the account 30414 indicating the settlement account T+ of the relevant trading and clearing account. The application is to be submitted to NSD or any bank at which the account to be debited is hold.
- Will the 31st sub-account (the trading sub-account) of the securities account be used for whatever trading purposes after complete migrating to accounts T+?
The 31st sub-account (trading sub-account) of the securities account may be used for:
- Executing buy/sell trades (off order book) and repo trades in the non-CCP modes;
- Settling trades with settlement on T+2 and CCP repo trades provided that the option of the securities automatic transfer to the extent of net obligations amount (i.e. the 31st sub-account is to be used for settling trades with settlement on T+2 and CCP repo trades, while the 36th sub-account is to be used for providing collateral) is active;
- For securities custody (i.e. the option of the securities automatic transfer from T0 to T+ to the extent of net obligation amount or the option of securities transfer to the extent of insufficient funds for trades T+ are disabled).
- How can a participant post/withdraw cash (via the NCC's remote workstation) with a single cash account?
Cash may be posted as collateral by submitting a payment instruction or via the trading system. Cash is withdrawn from the single cash account by using the specific software NCC Clearing Participant's Versatile Client Workstation. The software is available on the NCC's website.
- Can cash and securities positions be unified?
Yes, they can. For the purpose of the positions unification you must indicate the TCA+ in orders to execute trades with settlement T0.
The opportunity to unify cash positions became available in the 2nd release of the T+2 project. Therefore, starting 8 July 2013 clearing participant have been enabled to:
unify securities position to settle trades on T0 and T+2:
- securities registered on the 36th sub-account of the securities account may be used to both settle trades on T+2 and on T0 (provided that the cash position on the TCA+ is used in such settlement);
- the TCA for settling trades on T0 is chosen on order entry in the T0 mode:
- if the TCA T0 is indicated the trade is to be settled by using the 31st sub-account and cash position EQTV;
- if the TCA T+ is indicated the trade is to be settled by using the 36th sub-account and cash position UTSR.
- the cash position UTSR may be used to settle trades both on T+2 and on T0;
- the TCA comprising the cash position UTSR and the 31st sub-account may be registered. This cash position may be united for trades with settlement on both T0 and T+2. Furthermore,
- if the TCA T0 is indicated the trade is to be settled by using the 31st sub-account and cash position UTSR;
- How is operation of the unified cash and securities positions initiated?
To initiate the operation of the unified positions a participant must do the following one day prior to the migration to the unified position:
- Transfer securities from the 31st to 36th sub-account via the terminal Micex Trade SE. For this purpose it should go Menu/Request/Collateral for operations/Select all/To collateral/From a package to transfer/Insert all package ( Меню / Запрос / Обеспечениеподоперации / Выделитьвсё / Вобеспечение / Сформироватьпакетпереводов / Ввестивесьпакет ).
- Transfer all cash from the position EQTV (trading bank account at NSD) to the positions UTSR (the Settlement account at NCC) by the terminal Micex Trade SE. Cash must be transferred by each position individually (there is no package transfer available in the system).
- File the Application for replacing the trading and clearing account with relevant TCA+ (provided that open positions are available) in a paper form through the Single Window of Moscow Exchange. The application form (in Russian) is available on the NCC's website. This will allow clearing participants settling repo or negotiated trades executed previously by the TCA, by relevant TCA+ (by 36th sub-account and position UTSR).
- Check the options for automatic transfer of asset between the account T0 and T+ and switch off them, if necessary. The application form (in Russian) is available on the NCC's website (clause 23).
- What does the time 17:00 specifify?
17:00 is the time of settlement in T+2. By this time sufficient amount of funds (intended for both securing positions and settling matured trades) must have been deposited to the accounts designated for collateral to be delivered.
- Do members have to do something else on the day T+2 to initiate settlement of matured trades?
No, they just have to post cash and securities by 17:00 MSK on the relevant trading and clearing accounts.
- How does the Exchange notify trading members on insufficiency of assets for delivery?
Members monitor the sufficiency of the funds on their own. NCC delivers the report containing the amount of assets required for delivery (EQM13: ОтчетобобязательствахпоСделкам T+) at 16:00.
- Will the Exchange disclose information on mandatory closing of positions of a trading member upon the expiration of 45 days during which the central counterparty transferred positions of such trading member?
The organizer of trading is obliged to send notifications on failed trades executed on its marketplace to the regulator within 2 days from the default date as well as publish relevant information on its website (according to clause 7.13, Regulations on activities of the organizer of trading on the securities market).
- Will it be available for clearing participants to settle trades on the T+2 market through bilateral clearing?
The bilateral clearing is not expected.
- Does NCC provide netting for a trading and clearing account?
Yes, claims and obligations in securities on a trading and clearing account and in cash on a settlement account are fully netted for the delivery purpose.<
- How will the CCP act in case of a default event in the T+2 market? What penalties will be applied to defaulters?
In case of default by a clearing participant the central counterparty will roll over obligations of such clearing participant for one business day by executing repo trades or back-to-back trades to buy/sell securities for a value of failed net position on each trading and clearing account of the defaulter. The positions can be rolled over no more than 4 times, after that the central counterparty mandatory closes the obligations by executing a trade on market. If the central counterparty fails to execute the trade cash settlement procedure is carried out. The price of cash settlement is equal to the upper price limit for the security.
- Is it possible to transfer positions on deals, financed from pension savings?
The technology of transferring positions in case of "non-delivery" of the asset is used regardless of category/type of the client, who submitted an order to make the corresponding deal. Implementation of position transferring can be done in two ways:
- By closing a Repo deal
- By closing two-sided transaction
- Is a partial delivery allowed if there are insufficient assets to meet obligations?
Trades are settled to the extent of assets available on T+ accounts. Mandatory rollover is applied to the extent of insufficient assets.
- How the trading and clearing account is segregated from the analytical accounting point?
The following accounts are intended for trading and settlement of trades on T+2:
- trading securities accounts with 31st sub-account (for trading) and 36th sub-account (for collateral);
- trading bank account (30411) and settlement accounts.
- What sub-account is used in order to write off cash/securities to settle trades on T+2?
Assets are written off from the account T+: cash — from the settlement account and securities — from the 36th sub-account.
- Is a variable penalty for a defaulter (the rollover rate) be applied depending on corporate events of a relevant issuer?
Corporate events are included in the market repo rates that are used for setting penalties for defaulters.
- Will the Exchange withdraw assets from the trading sub-account of the trading account automatically if there is an insufficient amount of assets on the collateral sub-account?
As a participant may wish, the Exchange may do the following if there is insufficient individual collateral for the delivery purpose:
- transfer securities from the trading sub-account to collateral subaccount of the securities account for the settlement (delivery) purpose;
- transfer cash from the trading bank account to the settlement account.
- Is a trading member allowed to borrow securities from NSD?
NSD is developing that option. However, this is an independent project not related to the implementation of T+2.
- Can a participant rollover client obligations to CCP?
If a participant foresees a client failure to deliver assets, it may lend necessary securities to it beforehand by rolling over the client positions on a voluntary basis.
Rollover of client positions are carried out by executing one repo trade (two orders on both counterparties) or two negotiated trades (two orders on both counterparties).
Trades to rollover client positions may be executed in the following modes:
- repo trades: Repo Trades and CCP Repo Trades Modes;
- negotiated trades: Negotiated Trades Mode and CCP Negotiated Trades Modes.
- 70 kopecks for a repo trade;
- 35 kopecks for each negotiated trade.
The reduced fees for client positions rollover are expected to be introduced in the 4Q 2013.
VIII. Clearing membership, clearing participants
- What qualification requirements (criteria) have been introduced for clearing participants?
According to requirements stipulated in the Section II, National Clearing Center Clearing Rules for the Securities Market, clearing participants are qualified to be included in categories A, B1, B2 or V. To be able to execute CCP trades, any clearing participant must:
- open the 36th sub-account at NSD;
- Register the Settlement account and TCA+ at NCC.
Category V clearing participants execute trades with settlement on T+2 and CCP repo trade only on the basis of full pre-funding of assets.
Categoty B clearing participants execute trades with settlement on T+2 and CCP repo trade only on the basis of partial pre-funding of assets. To be admitted to the trading with partial collateral a contribution to the Guarantee fund is required. The Guarantee fund contribution is as follows starting 08.07.2013:
- RUB5 mn for category B clearing participants admitted to executing trades with settlement on T+2 on the own behalf and on client account and CCP repo trades only on their own behalf;
- RUB10 mn for category B clearing participants admitted to executing trades with settlement on T+2 on the own behalf and on client account.
Clearing participants whose own capital is more than RUB180 mn, is given the category B1.
Clearing participants whose own capital is below RUB180 mn, is given the category B2.
Only category B1 participants are admitted to CCP repo trades on the basis of book orders (CCP Repo Order Book Mode).
Category A clearing participant is the Bank of Russia only.
- What additional requirements for financial solvency of clearing participants are expected?
At a later stage of the T+2 mode development process certain categories of clearing participants will be imposed with additional financial solvency requirements. Such requirements can include the following:
- profitability of the company;
- compliance with the Bank of Russia's statutory ratios for credit organizations;
- the requirement for a clearing participant to provide sufficient money and operations capability for fulfilling its obligations under trades executed on the T+2 markets that is in line with standards of the CCP activities developed by CPSS and IOSCO.