Russian RUB FX spot & derivatives markets in 2014

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1 Russian RUB FX spot & derivatives markets in 2014 Dmitry Piskulov, Ph.D. (econ.) Chairman of NFEA Board; Member of Monetary Policy Council of Association of regional banks Russia Moscow, 20 November 2014 Moscow Conference 1

2 Current trends in RUB markets 1. Continued RUB depreciation against USD 2. CBR monetary policy: inflation targeting is fully in force by BKT-RUB corridor abandoned 3. CBR increased Key rate from 5.5 to 9.5% - higher RUB %% 4. High capital outflow in the country: $120 bln. est. in RUB FX market volumes generally in decline 6. Declining RUB liquidity and volumes in domestic MM 7. Looming Banking crisis (capital adequacy down) 8. New refinancing from the CB: ccy repo,reverse FX swap 9. RUB increased use in CIS (prospects in BRICS) Moscow, 20 November 2014 Moscow Conference 2

3 Positive trends Improved current trade& C/A balance (reduction of import) Government budget fulfilled because of increased energy export revenues in Ruble terms Sanctions bad = sanctions good : create incentives for replacing import with local productions Facing eastwards: stronger ties with Asian partners (China, Vietnam, Hong Kong, North Korea) may use Ruble as foreign trade payment currency Moscow, 20 November 2014 Moscow Conference 3

4 RUB FX trading volumes Key features: On-shore: Declining volumes of RUB on-shore FX due to lower interbank trading, lower energy prices Off-shore (London) RUB volumes fluctuate: Increased in April 2014 But may go down again in Oct 2014 Increased volatility looming after 2015 Draft Federal Law on regulation of retail Forex dealers (brokers) should pass second reading at State Duma may potentially result in increased client FX flows to banks, require banks to create FX dealer subs Moscow, 20 November 2014 Moscow Conference 4

5 Average Daily Turnover of global FX market in U$ Bln Net turnover $355 $820 $1,527 $1,934 $3,971 $5,345 FX spot ,488 2,046 Forwards FX swaps ,759 2,228 FX options n.a CCY swaps n.a Moscow, 20 November 2014 Moscow Conference 5

6 CCYshares in global FX Rank Currency Share % 2007 Share % 2010 Share % USD (US Dollar) EUR (Euro) JPY (Japanese yen) GBP (Pound sterling) AUD (Australian dollar) CHF (Swiss frank) CAD (Canadian dollar) MXN (Mexican peso) CNY, CNH 0.5 (22-th) 0.9 (17-th) RUB (Russian Ruble) 0.8 (17-th) 0.9 (16-th) BRL (Braz. real) INR (Indian rupee) Moscow 0.7 Conference Moscow, 20 November 2014

7 Ra nk Largest on-shore FX mkt 2007,2013 Country 2007 ADT, $ bln Share global % 2013 ADT, $ bln Share global % 1 UK 1, % 2, % 2 USA % 1, % 3 Singapore % % 4 Japan % % 5 Hong Kong % % 6 Switzerland % % 7 France % % 8 Australia % % 9 Netherlands! % % 10 Germany % % 11 Denmark % % 12 Canada % % 13 Russia % % 7

8 Largest USD/CCY pairs in global FX EUR/USD 28% 24.1% USD/JPY 14% 18.3% GBP/USD 9% 8.8% USD/AUD 6% 6.8% USD/others 11.2% 4.0% USD/CAD 5% 3.7% USD/CHF 4% 3.4% USD/RUB 1.5% (11-th) Moscow, 20 November 2014 Moscow Conference 8

9 Global derivatives amounts Notional principal amounts outstanding, trln.us$ By underlying asset June 2012 OTC Exchanges* June 2014 OTC Exchanges* Foreign exchange Interest rate contracts Equity linked contracts Commodity contracts n.a Credit default swap 26.9 n.a n.a Other 42.2 n.a n.a Total contracts *Data for Exchange traded derivatives (futures&options) on Dec 2012 and Jun 2014 respectively Moscow, 20 Nov

10 Russian domestic cash & derivatives markets 2014 In 2013 CBR stopped provision of monthly statistics of volumes of FX and IR instruments, resumed in 2014 on short-tailed basis US$ bln. (ADT) Cash (underlying) Derivatives OTC Exchange FX instruments $50-68 bln. $2-3 $2-3 bln. Interest Rate instruments $10-11 bln.(ibl) $10.5 (Repo) $ $0.06 Equity $15-18 bln. $ $3-4 bln. Commodity n.a. n.a. $ bln Credit derivatives n.a Moscow, 20 Nov

11 Domestic FX market volumes (all ccy vs USD/RUB) all CCY USD/RUB2 Moscow, 20 November 2014 Moscow Conference 11

12 Russian domestic FX spot market volumes (ADT) Month Source: CBR, Moscow Exchange, NFEA FX market ADT(hi,low), all currencies MOEX Jul 2008 $ bln. $10.5 bln. Oct 2009 $ 54.2 bln. $10.6 bln Oct 2010 $ 66.7 bln. $11.3 bln Oct 2011 $ 74.8 bln $13.9 bln. Jan-Dec 2012 $ bln $16.6 bln. Jan-Dec 2013 $ bln. $17.8 bln. Jan-Oct 2014 $ bln. $25.7 bn! Moscow, 20 November 2014 Moscow Conference 12

13 On-shore OTC FX volumes 2014 ADT bln.us$ FX spot* FX derivatives 2014 Q1 $66.2 bln. $2.8 bn Q2 $57.4 bln $2.4 bln Q3 $53.8 bln $2.3 bln Q4 (October) $51.2 bln. $3.9 bln. Moscow, 20 Nov

14 On-shore vs Off shore FX market Total FX on-shore London RUB FX 20 0 Apr 08 Oct 08 Apr 10 Apr 11 Apr 12 Apr 13 Apr 14 Moscow, 20 November 2014 Moscow Conference 14

15 RUB markets outside Russia Trading volumes(adt) reported off-shore: FX instruments: $ bln. Money market instruments: $ bln. Interest rate derivatives: $ bln. RUB bonds trading: $ 1-2 bln. Total (FX,MM,Derivat.): $30-35 bln. daily Moscow, 20 Nov

16 Volumes of USD/RUB FX in London Bank of England UK FXJSC: ADT in Instrument Oct 2009 Apr 13 Oct 13 Apr 14 FX spot $1.9 bln $14.3 $10.7 $13.9 NDF $1.2 bln $4.2 $2.3 $2.1 Outrights $0.3 bln. $5.1 $1.3 $2.4 FX swaps $4.3 bln $8.7 $7.9 $8.0 Ccy swaps $0.1 bln $0.4 $0.2 $0.2 FX options $1.2 bln $1.7 $0.9 $1.9 Total: $9.0 bln $34.4 bln. $23.3 bln. $28.5 bln. Moscow, 20 November 2014 Moscow Conference 16

17 Russian initiatives to promote Ruble settlements for export 24 April: meeting at First Vice-premier I.Shuvalov: MinFin and MinEconomy were tasked to elaborate measures to increase Ruble payments avoid use of USD in export May: V.Putin adopted legislation enabling Russian exporters receive Rubles as export proceeds. August: Gazpromneft pioneer contract in Rub September: I.Shuvalov We need to reduce USD payments with Asia. New export contracts should be in Rubles THIS MAY INCREASE FX MARKET TURNOVER in long-run Moscow, 20 November 2014 Moscow Conference 17

18 Rank by share RUB prospects as reserve CCY Currency Currency Share % 2013 Global GDP % In 2013 Rank by GDP Share in COFFER (IMF) Q USD (US Dollar) ,7% (0) 61.2% (1) 2 EUR (Euro) ,5% (1) 24,5% (2) 3 JPY (Japanese yen) % (3) 3,9% (4) 4 GBP (Pound sterling) % (6) 4.0% (3) 5 AUD (Australian dollar) 8.6 2,0% (12) 1,6% (6) 6 CHF (Swiss frank) % (20) 0,2% 7 CAD (Canadian dollar) 4.6 2,5% (11) 1,7% (5) 8 MXN (Mexican peso) 2.5 1,8% (14). 9 CNY, CNH ,4% (2) Others 2.9% 12 RUB (Russian Ruble) 1.6 2,9% (8-th) 19 BRL % 18

19 About NFEA Established: October 1999 in Moscow Membership: institutional (local and global banks and brokers) operating in Russian spot/forward foreign exchange, money markets and derivatives; Management: the Board (28 market practitioners), 4 co-chairmen, 3 Committees (on Market Indices; for Professionalism, Ethics & Education; on Legal Affairs) Projects up to date: , 2006: Elaboration of Standards (Code of Conduct and Rules to Conduct Operations (Committee for Professionalism, Ethics & Education), Market indices: MosPrime Rate (2005, RUB money market reference rate), NFEA FX SWAP RATE new index for USD/RUB and EUR/RUB forwards - Standard Documentation for Russian OTC derivative transactions (Russian ISDA Agreement) completed in 2009, new version in 2011 (approved FFMS) - RUONIA Russian analogue of EONIA, SONIA (since Sept 2010) - ROISFIX OIS interest rates index (since April 2012) - CLS Bank: inclusion of Rub into CLS clearable currencies (since end 2011) NFEA will merge with NSMA by end of 2015 Moscow, 20 November 2014 Moscow Conference 19

20 Contact Details 12 Bolshaya Nikitskaya st, Moscow, , Russia, Tel.+7 (495) , The Copyright National Foreign Exchange Association, 2012 All rights reserved. Any reproduction is only permitted with prior consent of NFEA. Moscow, 20 November 2014 Moscow Conference 20

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