PRIMARY RESULTS
of the Bank
"National Clearing Centre" Operations
in 2008
Table of Contents
1.General
2.Structure of Equity and Composition of Shareholders
3.Position of the Bank "National Clearing Centre" in the Industry
4.Primary (Top Priority) Directions of Activities of the Bank "National Clearing Centre" (CJSC)
4.1Clearing Activities in the FX Market
4.2Operations in financial markets
4.3Risk Management. Basic Risk Factors in NCC Activities
5.Primary Financial Results of Activities for 2008
6.Development Vision
7.Report of the Supervisory Board on the Bank "National Clearing Centre" Development Results in Priority Directions of Activities
8.Composition of the Supervisory Board and Information on Members of the Supervisory Board
9.Activities of the Board of the Bank "National Clearing Centre"
10.Information on the Chairman of the Board and Board Members
11.On Compliance with the Code of Corporative Conduct
12.Human Resources Policy
13.List of Clearing Participants in the FX Market
1.General
The full name of the Bank "National Clearing Centre":
- In Russian – Aktionernyy Kommercheskiy Bank "Natsionalnyy Kliringovyy Tsentr" (Zakrytoye aktsionernoye obshchestvo);
- In English – Bank "National Clearing Centre" Closed joint-stock company
Abbreviated name of Bank: ZAO AKB "Natsionalnyy Kliringovyy Tsentr."
Location:
Moscow, Bolshoy Kislovskiy lane, Bldg. 13.
Mailing address:
125009 Moscow, Bolshoy Kislovskiy lane, Bldg. 13
Bank of Russia certificate of the state registration as a credit organization No. 3466 dated 05.30.2006.
Certificate of the state registration as a legal entity Series 77 No. 010075586 dated 05.30.2006, General State Registration Number (OGRN) – 1067711004481.
Bank of Russia-issued license to conduct banking operations with funds in rubles or foreign currency (without the authority to seek the monetary funds of physical persons for deposits) No. 3466 dated 08.16.2006.
Management Bodies
In accordance with the Charter of the Joint-Stock Commercial Bank "National Clearing Centre" (henceforth the NCC or Bank), the management bodies are:
- The General Meeting of Shareholders is the highest management body.
- The Supervisory Board is the management body which exercises overall leadership of activities of the Bank "National Clearing Centre" (CJSC). The members of the Supervisory Board are elected by the General Meeting of Shareholders for the period until the next annual General Meeting of Shareholders.
- The Chairman of the Board (sole executive body) is the management body which exercises leadership of routine activities of the Bank "National Clearing Centre" (CJSC). He is elected by the General Meeting of Shareholders for a period defined by the General Meeting of Shareholders, which cannot exceed 5 (five) years.
- The Board (collegial executive body) is the management body which exercises governance of routine activities of the Bank "National Clearing Centre" (CJSC). The Board members are elected by the Supervisory Boardl. The period of authority of Board members is determined by decision of the Supervisory Board to form the executive collegial body of the Bank "National Clearing Centre" (CJSC), but cannot exceed 5 (five) years.
In the reporting year,the Bank of RussiaMoscow regional branch conducted an integrated audit of activities of the Bank "National Clearing Centre" for the period from 01 November 2007 through 01 November 2008.
As a result of the audit, it was found that the handling of accounting at the NCC meets the requirements of Bank of Russia regulations. In addition, the auditors confirmed that the NCC provides the Bank of Russia with reliable reports, structures its risk management in accordance with the nature and scope of operations in progress, exercises internal controle which covers all the basic areas of activities of the Bank, and assures the security of information technologies at a level corresponding to its missions and objectives.
Based on the results of the audit, it was concluded that the financial status of the NCC is stable, and that the Bank has built management systems which make it possible to implement chartered activities in accordance with the issued license.
The General Meeting of Shareholders has approved "Deloitte and Touche CIS" (CJSC) as the independent auditor of the Bank "National Clearing Centre" (CJSC) for 2008.
2.Structure of Capitaland Composition of Shareholders
The general meeting of founders of the Bank "National Clearing Centre" approved the Bank charter capital when it was founded in the amount of 235,000 thousand rubles, divided into 235,000 common registered shares with a face value value of 1,000 rubles each.
On October 24, 2006, a special General Meeting of Shareholders adopted the decision to increase the charter capital of the Bank "National Clearing Centre" from 235,000 thousand rubles to 700,000 thousand rubles by placing additional common registered uncertificated shares of the Bank "National Clearing Centre" as declared shares.
On June 6, 2007, the Moscow Regional Branch of the Russian Federation Central Bank registered the report on results of the first additional emission of shares of the Bank "National Clearing Centre" (CJSC).
As of 01.01.2008, the registered charter capital of the Bank was 700,000 thousand rubles.
On March 18, 2008, a special General Meeting of Shareholders adopted a decision to increase the charter capital of the Bank "National Clearing Centre" from 700,000 thousand rubles to 1,735,000 thousand rubles byplacing additional common registered uncertificated shares of the Bank "National Clearing Centre" as declared shares.
On July 2, 2008 the Russian Federation Central Bank registered the report on the results of the second additional emission of shares of the Bank "National Clearing Centre" for a sum of 1,035,000 thousand rubles.
As part of the additional emission, 1,035,000 common registered uncerificated shares were placed with a nominal value of 1,000 rubles (value of the placement 1,000 rubles).
On the reporting date, the registered capital of the Bank has been 1,735,000 thousand rubles.
As of 01.01.2009, two following legal entities are in the shareholder register:
No. / Full Name of Shareholder / Number of Shares (each) / Percentage of Charter Capital1. / Moscow Interbank Currency Exchange (CJSC) / 1,730,300 / 99.729
2. / Non-profit PartnershipNationalDepositaryCenter / 4,700 / 0.271
The Bank "National Clearing Centre" maintains the shareholder register independently.
3.Position of the Bank "National Clearing Centre" in the Industry
In order to maintain the necessary financial stability of NCC as a central counterparty in the growing MICEX FX market, to provide an opportunity for market participants to establish operating limits at the NCC for participation in transactions in the exchange currency market in accordance with their requirements, as well as, in the scope of preparations for implementation of projects in 2009 with NCC participation in other markets, the MICEX Group increased the NCC shareholder equity. The NCC total equity more than doubled, and the value of shareholder equity tripled.
The growth in financial and operational indices of activities characterizes the NCC as a reliable and rapidly developing clearing and financial organization, which promotes the stable functioning and development of the MICEX exchange currency market and supports the execution of exchange transactions, including under conditions of crisis phenomena in financial markets.
Dynamics of NCC Activities
12.31.2007 / 12.31.2008 / Growthrel. to 2007NCC shareholdersequity / 0.7 billion rubles / 1.735 billion rubles / by 2.5 times
NCC total equity / 0.72 billion rubles / 2.159 billion rubles / by 3 times
NCC currency balance / 16.8 billion rubles / 425.7 billion rubles / by 25 times
Balance of funds in NCC accounts in dollars and euros in ruble equivalent / 8 billion rubles / 178.3 billion rubles / by 22 times
In 2008, the Bank "National Clearing Centre" confirmed its role as the largest clearing organization in Russia, - the central counterparty which implements operations in the FX market of the MICEX Group.
The risk management system created by the Bank "National Clearing Centre" has demonstrated its reliability and flexibility in practice, which has made it possible to guarantee the requisite level of fulfillment of obligations by the clearing participants even under the conditions of financial crisis and high market volatility.
The start of implementation of clearing services in the FX market in late 2007, against the background of the 2008 reduction in confidence between participants in the interbank currency market and the increasing instability in the financial markets, helped to increase the share of the MICEX Group (including NCC) in the total volume of conversion operations. Thus in 2008, in the scope of trading in the euro-ruble pair, the share of the MICEX Group was 55.2%, and in the dollar-ruble pair it was 23.5% (in 2007 the shares were 19.4% and 21.3% respectively).
According to the published NCC ratings, based on the results of 2008 operations, in terms of net assets the NCC was in 17th place among the largest Moscow banks, and in 22nd place, among all Russian credit organizations.
The NCC also plans to further expand the clearing services sphere, including in the Russian securities market, by increasing its share in the latter.
Not restricting itself to the domestic market, the NCC will take steps to create the conditions for expansion of clearing technologies, and future provision of clearing services not only in Russian but also in foreign financial markets.
4.Primary (Top Priority) Directions of Activities of the Bank "National Clearing Centre" (CJSC)
4.1Clearing Activities in the Exchange Currency Market
In 2008, the activities of the Bank "National Clearing Centre" were aimed at strengthening the Bank's role as a central counterparty in the FX market, and confidence in it on the part of clearing participants, as well as at preparing for the introduction of a clearing services mechanism with a central counterparty in the other MICEX exchange markets.
For some significant time, the NCC has had to execute clearing activities under conditions of growth in the volume of trades and instability of world financial markets arising as a result of the global financial and economic crisis. Despite this, the Bank, acting as the party for transactions concluded by participants, and as a guarantor of their execution, played a stabilizing role in the MICEX currency market and virtually assured its stability even at the very peak of the financial crisis.
During the reporting period, Bank implementing the functions of a clearing organization and central counterparty in the MICEXFX market performed the following activities:
- Conclusion of transactions with clearing participants, acting as a party in each transaction: as the buyer for each clearing participant-instrument seller, and as the seller for each clearing participant-instrument buyer. In implementing the function of central counterparty in the MICEX currency market, the "open offer" mechanism was utilized, according to which, given the presence of two acceptable counter-bids in the trading system, a calculation is made of the terms of the two transactions. For the positive results, the NCC sends its confirmation of consent to the transaction terms to the trading system. This confirmation is the basis for registration in the trading system of two matching transactions, one of the parties to which is NCC.
- Maintenance of clearing registers, accounting of mutual obligations based on clearing results, calculation of the sum of obligations and requirements of clearing participants, transmission of reporting documents to clearing participants;
- Upon concurrence with the Bank of Russia, setting parameters for the risk management system, such as limit deviations of exchange rate values, standards for pre-funding, and central exchange rates;
- Monitoring of support of concluded transactions with participants and fulfillment of obligations in accordance with the PVP principle ("payment versus payment");
- Assessment of clearing participant risks, setting of net operation limits of Risk Coverage Fund participants, operations limits of counterparties (settlement banks, settlement centers of the organized securities market (ORTsB));
- Conclusion of transactions with unfair clearing participants and the Bank of Russia in the course of additional Unified Trading Sessions (UTS) for guaranteed fulfillment of obligations to fair clearing participants.
In 2008, NCC activities in the MICEX currency market were also aimed at improving client services.
Thus since August 25, 2008, with regard to market participants implementing settlements through the MICEX Settlement House (SH) and fulfilling their obligations with respect to clearing results, the NCC began to execute its obligations starting at 14:30 Moscow time rather than 17:00 as before.
As a result, based on euro clearing results, in the Q3- Q4 of 2008, every day at 16:00 Moscow time NCC fulfilled its obligations in euros for more than 60%, and in Russian rubles- for more than 80% of participants from the total number. The volume of fulfilled NCC obligations every day amounted to around 60% in euros and 50% in Russian rubles.
The above data testify that this service, as was expected, has become popular particularly with second-tier banks, which in their total share represent no more than 20% of the total volume of operations in the MICEX currency market.
Considering the results of a poll conducted among various operators of the exchange currency market, as well as the increasing demand for longer-term trading sassion, starting on November 17, 2008, trading was extended from 14:00 to 15:00 Moscow time for market participants executing settlements in Russian rubles through the MICEX SH in the dollar-ruble segment. Starting on December 15, the trades were also extended from 11:30 to 12:30 MT in the euro-ruble segment. In this regard, NCC began to conduct settlements with market participants at 15:30 MT.
The successful NCC activities in the MICEX exchange market in 2008, and its orientation towards satisfying the business interests of participants, helped to expand its client base.
On 01.01.2008, the NCC client base consisted of 380 credit organizations to which NCC provided clearing services.
In 2008, the number of credit organizations accepted by the NCC for clearing services grew by 11.8% and amounted to 425 credit organizations.
Through the use of various mechanisms to support fulfillment of obligations of clearing participants with regard to the results of currency exchange transactions, including by providing liquid assets to complete settlements, in 2008 the NCC did not once resort to acquiring liquidity from the Central Bank in the scope of an additional session.
In order to reduce the legal results of NCC participation in exchange markets as a clearing organization performing the role of central counterparty, the NCC actively worked to develop proposals to improve the legislation regulating clearing activities.
In 2008, in the scope of work in the Russian Union of Industrialists and Entrepreneurs (RSPP) Commission for Banks and Banking Activities to discuss ways to improve legislation in the Russian Federation financial market as regards the regulation of clearing activities, proposals developed NCC to improve the laws on clearing activities were put on the agenda and discussed.
These initiatives included proposals:
- To define clearing and centralized clearing, including clearing with a central counterparty;
- To establish the legal status of a clearing organization implementing clearing with a central counterparty;
- To establish the legal regime (status) of property transferred to a guarantee fund;
- To establish the legal regime of deposited funds;
- To impose restrictions on the use of attachment, collection, and interim relief with respect to clearing participant funds transferred to a guarantee fund and carried in the accounts.
The RSPP commission acknowledged the need to improve the legislation on clearing in the RF and formed a working group for these purposes. At present the work of the Working Group on this issue continues.
In addition, in 2008 NCC developed and approved the basic provisions on the Bank's execution of clearing activities in the equity market of the MICEX Group.
At the end of 2008, the NCC submitted a package of documents to the Federal Financial Markets Service (FFMS) for issuance of a license to the NCC for clearing activities.
Under the conditions of the ongoing crisis, the NCC updated its risk management system (henceforth RMS), based on the increased probability of bankruptcies and revocation of banking licenses by the Bank of Russia from a number of commercial banks. In the prevailing situation, in order to reduce exchange risks, NCC acted preventively and forestalled the onset of a situation in which a UTS trading participant stripped of his license to work in the exchange currency market was involved in transactions which settlement period had not yet arrived.
Such RMS modernization was implemented after changes had been made in the regulations governing the MICEX currency market, according to which NCC is given the right to terminate clearing service for one or several instruments, particular for the T+1 instrument, to those participants whose financial status does not meet the requirements of the Regulations for Clearing Activities of the Bank "National Clearing Centre" during conduct of a Unified Trading Session of Interbank Currency Exchanges (henceforth the Clearing Regulations).
Also in the accounting year, standards were included in the Clearing Regulations which provide a mechanism for guaranteed conclusion of settlements based on clearing results with a market participant whose banking license has been revoked (cancelled) by the Bank of Russia.
In 2008, the positive results of NCC provision in the new scheme of clearing services in the MICEX currency market demonstrated the promise of the chosen course -- participation of the clearing organization in exchange markets with highly liquid assets in the capacity of central counterparty.
4.2Operations in financial markets
In 2008 there was a significant increase in the volumes of currency exchange operations. This was related to the sharp reduction in operations in the Russian interbank market under the crisis conditions. As a result, in Q4 of 2008, the Bank "National Clearing Centre" in the capacity of central counterparty and clearing organization in the MICEX market serviced up to 40% of dollar-ruble operations and up to 70% of euro-ruble transactions in the total volume of Russian interbank currency operations.
The increase in turnover of the MICEX FX market by a factor of 1.8 to 2.7 trillion dollars led to considerable growth in the volume of funds deposited by clearing participants for the conduct of currency exchange operations. Therefore NCC devoted the greatest attention during its work in financial markets in 2008 to issues of maintaining reliable and continuous functioning of clearing activities in the currency market. The basic efforts were directed towards complying with the mandatory requirements of the Bank of Russia and reducing its risk in placement of free funds. Considerations of liquidity and reliability of placement over profitability held absolute priority.