Russian Corporate Bond MarketRussian Corporate Bond Market: : Architecture &Architecture & ChallengesChallenges
AFDC Workshop on Developing Corporate Bond Market AFDC Workshop on Developing Corporate Bond Market
Georgy OksenoytGeorgy OksenoytChief AdvisorChief AdvisorMICEX Stock ExchangeMICEX Stock Exchange
Intro
Russian corporate bond market background:started in 1999 after the 1998 Russian financial crisis
build on the same fully automatic state-of-the-art technical platform as the Russian federal bond market
backed up by the experience of creating Russian government securities market and by it’s robust clearing and settlement infrastructure
now it is an exchange-traded and the most fast growing Russian securities market and may be the World’s biggest on-exchange corporate bond market
Scope of Contents
Regulation
Instruments
Market Segmentation
Infrastructure
Market Participants
Listing & Trading
Clearing & Settlement
Market Monitoring
Information Disclosure
Future Developments
Regulation
Russian Securities Market Regulator:
Federal Financial Markets Service of the Russian Federation (FFMS)
Overall regulation under the Federal Law on the Russian Securities Market
Central Bank of Russia:
Banks participation & supervision on the Russian securities market
Under the Federal Laws on the Central Bank of Russia and on the Russian Banking System
Russian Domestic Market Segmentation
Corporate bond domestic market segmentation:
Exchange-traded marketIncluding corporate bonds traded on the government securities market
OTC market
Corporate bond market turnover breakdown (October 2006):
MICEX Stock Exchange – 87,7% (in average -70-80%)
OTC – 12,3% (in average – 20-30%)
MICEX Group: Background
MICEX was established in 1992 as a currency exchange in the form of a closed-end joint-stock companyShareholders:
Central Bank of RussiaAssociation of Russian BanksSberbank RFVneshtorgbank12 other leading commercial banks
In 2004 on the base of MICEX stock market the MICEX Stock Exchange (MICEX SE) was founded
MICEX Settlement House
MICEX
National Depositary Center
E-Stock
• Settlement Bank• Settlement Depository
• Technological support of the MICEX projects
• Currency, derivatives & federal bonds markets• Clearing & IT services
Regional currency & stock exchanges
MICEX Stock Exchange
National Mercantile Exchange
• Listing & Trading in Equities, Corporate & Regional Bonds
• Trading in commodities
• The State commodity interventions in the grain market
National Clearing Center
St.-Petersburg Yekaterinburg Samara N. Novgorod Novosibirsk Rostov-on-Don Vladivostok
MICEX Group: Organization Chart
MICEX Stock Exchange: Shareholder Structure
Banks
MICEX
Brokers
Central Bank of Russia
MICEX SE
69%
28%
69%
19%12%
MICEX Stock Market: Advanced Information Technologies
Two computer centers: main & back-up
Trading software X-stream developed by Computershare (now - OMX) with similar systems at SWX, Shanghai SE, TSX
Hard- & software complex is built on Hewlett-Packard UNIX-servers (over 80)
MICEX TE currently processes:
up to 500 000 orders per day
up to 250 000 trades per day
11 telecom providers & more than 1500 trading workplaces connected
International vendors of broker systems: GL Trade, ORC Software, ION Trading
MICEX Stock Exchange: Core Russian Financial Infrastructure
St.-Petersburg
Moscow
N. Novgorod
Novosibirsk
Rostov-on-Don Yekaterinburg Vladivostok
Samara
Instruments
Corporate bonds issuers:
Financial institutions
Private corporations
Quasi-government companies
Types of corporate bonds:
Book-entry form only
All maturities (short, medium, long term)
Coupon (fixed, index/inflation-linked), discount (zero-coupon), amortization bonds
Corporate Bond Market Size(MICEX Stock Exchange)
Number of Issuers (traded)
Number of Issues
(traded)
Outstanding Volume
(traded), bln RUR
30.12.2005 202 251 382,8
31.10.2006 277 362
656,6 (24,3 bln USD)
Duration & Yield to Maturity of Corporate Bond Market
Indicators of corporate bond market in Russia
6
7
8
9
10
11
12
13
14
01.07.03 01.07.04 01.07.05 01.07.060
100
200
300
400
500
600
700
800
Yeild weighted average, % duration, in days (secon. axis)
Corporate Bond Market Outstanding Volume Breakdown by Sector (October 2006)
21%
12%
10%
10%
9%
7%
7%
24%
Financial Sector
Telecoms
Oil & Gas
Transport
Machinery
Metallurgy
Electric Power
Others
Trading Members & Clients(MICEX Stock Exchange)
Investors(1st level)
January 1, 2005
January 1, 2006
October 1, 2006
Total 117 382 134 440 239 650
Legal Entities 20 066 19 069 23 666
Private investors 96 529 109 714 207 110
Non-residents 787 1 145 2 041
Institutional Investors 4 512 6 833
Trading members
366
459
473
500
517
538
546
575
0 100 200 300 400 500 600
January 2000
January 2001
January 2002
January 2003
January 2004
January 2005
January 2006
September 2006
Membership Requirements
Single admission to trading on all exchange-traded stock markets (equities, corporate, municipal & subfederal bonds, REPO markets)
Russian residents (might be 100% foreign owned)
Broker-Dealer License of FFMS
Special categories of market participants:
Market-makers
Specialists
MICEX Stock Exchange:Membership base
All major players of all types:banksinvestment companiesinternet brokersnonresidentsinstitutional investors
Over 80% of the total capitalization of Russian banking system & investment community
Members Participants - Global Players(MICEX Stock Exchange)
ABN AMRO Bank
BNP PARIBAS
Citibank
СOMMERZBANK
Credit Suisse First Boston Bank
Deutsche Bank
HSBC
ING BANK
Goldman Sachs
J.P. Morgan Bank International
Morgan Stanley Bank
Raiffeisenbank
UBS Securities
Others
Russian Exchange-traded Corporate Bond Market Composition
On-exchange corporate bond market:
Listed corporate bonds:List A1 - 22 issues (MICEX SE)List A2 – 24 issues (MICEX SE)List B – 63 issues (MICEX SE)List V (new)List I (innovation and growing companies)
Corporate bonds admitted to on-exchange trading without listing – 293 issues (MICEX SE)
Listing Requirements(MICEX Stock Exchange)
Requirement A1 Listing A2 Listing B Listing
One person and/or his affiliated persons can own no more than 75% of the issuer’s common registered equities (only for shares)
No more than 90%
Market value of the issueCS — 10 bln RURPS — 3 bln RUR
CS — 3 bln RURPS — 1 bln RUR
CS — 1.5 bln RUR PS — 500 mln RUR
Period of issuer’s existence not less than
3 years 1 year
Break-even years 2 our of 3 last years —
Volume of the bond issue 1 bln RUR 500 mln RUR 300 mln RUR
Net assets of mutual fundopen/interval — 10 mln RUR
closed — 50 mln RURopen/interval — 5 mln RUR closed — 10 mln RUR
Monthly trading volumefor last 3 years
for shares — 25 mln RURfor bonds — 10 mln RUR
for shares — 2.5 mln RUR for bonds — 1 mln RUR
for shares — 1.5 mln RURfor bonds — 500 thousand RUR
Monthly average volume for 6 months
for shares — 50 mln RURfor bonds — 25 mln RURfor mutual fund shares —500 thousand RUR
for shares — 5 mln RURfor bonds — 2.5 mln RUR for mutual fund shares —300 thousand RUR
for shares — 3 mln RUR for bonds — 1 mln RURfor mutual fund shares —100 thousand RUR
Issuer’s observance of the Corporate Governance norms
The formalized requests on observance of the Corporate Governance norms with confirmation documents
Financial statement Compilation and disclosure the financial statements according toaccounting standards IAS and US GAAP —
Information disclosure According to standards of FFMS
Russian Domestic Capital Market in Figures
In 2006 MICEX Stock Exchange’s share in the Russian exchange-traded stock market turnover is up to 90% (from June 2006)Volume of transactions in 2005 was 49,2% over 2004Volume of transactions in Jan-Sept 2006 reached 500,7 bln USD which is:
3,4 times more than in Jan-Sept 2005already 2,2 times more than the total 2005 turnover
Turnover of the Russian exchangesin 2003-2006, bln USD
2003 2004 2005Jan-Sep
2006
MICEX /
MICEX SE99,1 151,2 225,6 500,7
RTS Group
13,3 26,1 43,8 55,2
MICEX Stock Exchange:Average Daily Turnover
0.49
0.71 0.740.84
0.580.75 0.77 0.85
1.30 1.311.20 1.22
1.75
2.19
1.94
2.61
3.37
3.12
2.65
3.17
3.40
0
0.5
1
1.5
2
2.5
3
3.5
4
Jan
-05
Fe
b-0
5
Ma
r-0
5
Ap
r-0
5
Ma
y-0
5
Jun
-05
Jul-0
5
Au
g-0
5
Se
p-0
5
Oct
-05
No
v-0
5
De
c-0
5
Jan
-06
Fe
b-0
6
Ma
r-0
6
Ap
r-0
6
Ma
y-0
6
Jun
-06
Jul-0
6
Au
g-0
6
Se
p-0
6
bln USD
Corporate Bonds On-Exchange Trading(MICEX Stock Exchange)
Primary on-exchange market:Price auctionsCoupon rate tendersMixed (price + coupon rate) auctions
Secondary on-exchange market:Anonymous (order-driven) marketNegotiated deals mode (named orders, quote-driven market)
Fully electronic markets World-wide Internet access
MICEX Stock Exchange: Basic Market Features
Anonymous Market Negotiated Deals Market REPO Market
Insruments - Equities, Corporate, Municipal & Subfederal Bonds
Screen-Based Trading, Remote Terminals, Global Internet Access
Order-Driven Market Quote-Driven Market Negotiated Deals Mode
Locked-in-Trades
Real Time Positions Monitoring (Worst Case Scenario)
Multilateral Netting (without CCP)
Rolling Settlement, Forced Settlement (T+0)
DVP (3d Model, BIS)(Central Bank Money, intraday finality, same day funds, no zero-hour rule, without CSD)
-Mark-to-market, margin calls,
haircuts
Pre-funding of assets
before the trade
Pre-funding of assets on the settlement date
Settlements (RUR)"T+0"
Settlements (RUR) from "T+0" to "T+30"
Settlements (RUR)from "T+0" to "T+180"
Corporate Bonds Primary Placements(MICEX Stock Exchange)
Number of Issuers (placed)
Number of Issues
(placed)
Placed Volume (face
value), bln RUR
2005 year 126 145 259,5
Jan-Oct 2006 160 165 335,7
Primary Placements Parameters(MICEX Stock Exchange)
Average Issue Size, bln. RUR
Average Maturity, days
2005 year 1,79 1302
Jan-Oct 2006 2,03 1404
Corporate Bond Market Dynamics 2005-2006
Indicators of corporate bonds market at MICEX SE
0
100
200
300
400
500
01.2005 04.2005 07.2005 10.2005 01.2006 04.2006 07.2006 10.200601020304050607080
Emission, bln. RUB (secondary axis)Turnover of secondary market, bln. RUB (including REPO)
Corporate Bond Secondary Market Parameters
Turnover, bln USD
Number ofTrades
Average DailyTurnover, bln USD
AverageDeal Size,mln USD
AverageDaily
Number of
Trades
2005 year 41,7 192 931 168,0 0,22 778
Anonymous 4,8 136 294 19,3 0,04 550
NDM 25,2 37 031 101,7 0,68 149
Repo 11,6 19 606 47,0 0,59 79
Jan-Oct 2006 99,7 230 953 483,9 0,43 1221
Anonymous 7,6 146 724 37,1 0,05 712
NDM 43,8 41 437 212,6 1,06 201
Repo 48,2 42 792 234,2 1,13 208
Corporate Bond Market Liquidity Indicators (MICEX Stock Exchange)
Overall market velocity (10 month 2006) = 4,09 times including:
anonymous market velocity = 0,31 times
NDM market velocity = 1,8 times
The most liquid corporate bond issues (RZD, Gazprom, FSK EES):
average daily bid-ask (closing) spreads = 9-12 b.p. (Oct 2006)
average Intraday Volatility (max/min) = 10-20 b.p. (Oct 2006)
Market Concentration (October 2006): TOP 5 Corporate Bonds’ Market Share (turnover)
8% 7%4%
4%2%
75%
РЖД об06
ФСК ЕЭС об02
РЖД об07
УК ГидроОГК об01
РАФ об03
Прочие
Corporate Bond Secondary Market Structure by Type of Participant (October 2006)
Market concentration (top 30 = 84,4%):top 10 participants – 44,1% of the market turnovernext 10 – 18,8%next 10 – 11,5%
Dealer trades – 41,2% including:Dealer-to-Dealer trades – 17,2%Dealer-to-Customer trades – 24%
Customer operations – 58,8% including:nonresidents – 20,8%corporations – 29,5%trustees – 8,1%natural persons – 0,3%
MICEX Stock Exchange:Basic Clearing & Settlement Data
Cash Obligations Netting Rate (2005):Banks - 73,6%Non-banks - 88,6%Total – 84,53% (86,4% in 2006)
Corporate Bonds Netting Rate (2006):Gazprom Bonds A6 – 62,4%FSK EES Bonds 02 – 65,2%RZD Bonds 06 – 58%
Cash Pre-deposits/Obligations (coverage) Rate (2005):Gross – 1,09 timesNet – 5,87 times
Cash Future/Total Obligations Rate (2006): 50-60%
Russian Repo Market
MICEX:
100% of the Central Bank of Russia repo operations (CBR monetary policy operations with federal & CBR bonds, euro-, corporate & municipal bonds)
100% of the inter-dealer repo market with federal bonds (OFZ)
MICEX Stock Exchange:
> 80% of the total Russian repo market with equities, corporate & municipal bonds
MICEX Repo Market Milestones
1997 – Central Bank of Russia (CBR) started its repo operations with federal bonds (GKO-OFZ) at MICEX2002 – start of repo at MICEX’ equity, corporate & municipal bond marketSwitch to modern repo technologies (according toICMA/TMBA GMRA-2000):2003 – MICEX federal bond market (for both repo with the CBR and inter-dealer repo markets)2005 – MICEX Stock Exchange corporate & municipal bond market2006 – MICEX Stock Exchange equity market
Repo Average Daily Turnover (Jan-June 2006)
MICEX Stock Exchange (MICEX SE):equities – RUR 9,0 blncorporate & municipal bonds – RUR 7,3 bln
MICEX:federal bonds (OFZ) & CBR bonds – RUR 9,5 bln
All data refer to the 1st legs of repo only
MICEX Repo Market Main Features
Repo with federal bonds
(MICEX)
Repo with corporate & municipal bonds
(MICEX SE)
Repo with equities (MICEX SE)
International Standards GMRA-2000, classic repo, term, special collateral, cash-driven, fixed rate
GMRA-2000, classic repo, term, special collateral, both cash-and stock-driven, fixed rate
Classic repo, term, special collateral, both cash-and stock-driven, fixed rate
Trading mode On-exchange, fully electronic, negotiated deals mode (named
orders)
On-exchange, fully electronic, negotiated deals mode (named
orders)
On-exchange, fully electronic, negotiated deals mode (named
orders)
Repo maturity 0-180 days 0-180 days 0-90 days
Risk management Upon the agreement between counterparties: haircuts, fully automatic daily mark-to-market, margin calls notices and manufactured payments, other risk management tools (blocking of collateral, limits)
Upon the agreement between counterparties: haircuts, fully automatic daily mark-to-market, margin calls notices and manufactured payments, other risk management tools
Upon the agreement between counterparties: haircuts, fully automatic daily mark-to-market, margin calls notices, other risk management tools
MICEX Stock Exchange: REPO in Bonds & Equities
2,9 5,6 7,1 10,7 12,9
26,1
36,8
2,63,3
4,9
9,511,3
20,4
25,1
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
1Q
20
05
2Q
20
05
3Q
20
05
4Q
20
05
1Q
20
06
2Q
20
06
3Q
20
06
bln USD
Bonds REPO
Stocks REPO
REPO trading volume in January-September 2006 reached 132,6 bln USD which is 5 times more than in January-September 2005
MICEX SE Repo Trading Volumes(RUR bln)
0
100
200
300
2002 2003 2004 2005 2006(1st Half a Year)
Equities Bonds Total
MICEX SE Quarterly Repo Trading Volumes (RUR bln)
0
200
400
600
800
1 кв.2005
2 кв.2005
3 кв.2005
4 кв.2005
1 кв.2006
2 кв.2006
Bonds Equities
MICEX SE Repo vs Secondary Trading Volumes
0
100
200
300
2002 2003 2004 2005 2006(1st Half a Year)
Equities Bonds Total
Number & Average Size of Repo Deals
Equities
0
20
40
60
80
100
2002 2003 2004 2005 2006(полугодие)
Сдел
ки(т
ыс.
шт.
)
02 000
4 0006 0008 00010 00012 000
Сред
ний
разм
ер с
делк
и (т
ыс.
руб.
)
Количество сделок. Средний размер сделки.
Bonds
0
5
10
15
20
25
30
2002 2003 2004 2005 2006(полугодие)
Сдел
ки (т
ыс.
шт.
)05 00010 00015 00020 00025 00030 00035 00040 000
Сред
ний
разм
ер с
делк
и (т
ыс.
ру
б.)
Количество сделок. Средний размер сделки.
Maturity Structure of Repo(Jan-June 2006)
Equities
23%17%
29% 31%
Репо на 7 дней. Репо на 14 дней.Репо на 1 день. Другие даты исполнения РЕПО.
Bonds
27%18%
28% 27%
Репо на 7 дней. Репо на 14 дней.Репо на 1 день. Другие даты исполнения РЕПО.
Number of Instruments in Repo
0
100
200
300
400
500
2002 2003 2004 2005 2006
(1st Half a Year)
Equities Bonds Total
Number of Repo Participants
0
100
200
300
2002 2003 2004 2005 2006(1st Half a Year)
Equities Bonds Total
Repo Counterparties
Equities
37%
40%
17%2% 4%
Inter-dealer Legal entities
Nonresidents Private persons
Local mutual & pension funds
Bonds
61%
3%
0,03 %
1%
35%
Inter-dealer Legal entities
Nonresidents Private persons
Local mutual & pension funds
Future Repo Market Developments
Modes International Practice
(estimated market share) *
Trading Mode Anonymous repo (11-12%)
Repo participants Tri-party repo (11,3%)
Repo terms Open/Demand/Call repo
Repo-to-maturity
Roll (rollover) repo
Repo rates Floating/indexed rate (10,5% рынка)
Open rate (8,2%)
Types of collateral General collateral (GC)
(over 70%)
Collateral management Collateral management/substitution of collateral/CTD
(over 50% )
Manufactured payments Manufactured dividend
(equity repo)
Other modes Cross-currency repo, Flex repo,
build-in SWAPs, Structured products
* Market share estimations based on the 11th European Repo Market Survey by ICMA EU Repo Council (June 2006)
Russian Corporate Bond Market Prospects
International harmonization & standardization (MiFID, Prospectus Directive, Best Execution, etc.)
Full range of instruments (“Exchange-traded-only” short-term corporate bonds, RDR, ABS/MBS, SWAPs, derivatives, structured products, etc.)
Simplifying issuance procedures
Post-trade transparency (OTC trades reporting)
Corporate governance
Further infrastructure development (CSD, CCP, STP)
Investor base improvement (lack of institutional investors) etc.
MICEX: Federal Bond Market
MICEX organizes primary and secondary market for federal bonds & Bank Of Russia bonds
Volume of transactions in 2005 has reached 101 bln USD, which is 2 times more than in 2004
Volume of transactions in Jan—Oct 2006 has reached 100.5 bln USD, which is 1.7 times more than in Jan—Oct 2005
The volume of transactionsand the RGBI Index
95
100
105
110
115
120
125
1Q2003
2Q 3Q 4Q 1Q2004
2Q 3Q 4Q 1Q2005
2Q 3Q 4Q 1Q2006
2Q 3Q
points
0
10
20
30
40
50
60bln USD
MICEX: Market Value of Federal Bond Market
Market value of the federal bond market has grown 3.7 times during 2003-2005
Market value of the federal bond market in Jan—Oct 2006 has increased by 25.8% to 31.7 bln USD
Share of OFZ-AD in the market value of the federal bond market — 61.3%
Turnover velocity of the federal bond market in Jan—Oct 2006 was 64.4%
0
5
10
15
20
25
30
1H 2002
2H 1H 2003
2H 1H 2004
2H 1H 2005
2H 1H 2006
bln USD
Russian Sovereign Risk Reduction
Dynamic of government bond yields in Russia and USA
02468
101214
01.01.03 01.01.04 01.01.05 01.01.06
Yield of US Treasury 10YZero coupon yield in Russia 10Y
Source: investment company “Trust”
Short-term nature and high dispersion of yields
Source: investment company “Trust”
Two main types of bank bonds that differ by term and yield. Depends on quality
Source: investment company “Trust”
Among energy borrowers Gazprom and Lukoil are the best
MosPrime Rate: Key Russian Money Market Indicator
MosPrime Rate: Key Russian Money Market Indicator
Calculated by National Currency Association with EBRDCalculated by National Currency Association with EBRD support support fromfrom April 2005 (LIBORApril 2005 (LIBOR--type, 3 month, Tom, 12:30 Moscow time).type, 3 month, Tom, 12:30 Moscow time).
8 quoting prime banks8 quoting prime banks::ABN AmroABN AmroWestWest--East LBEast LBVneshtorgbankVneshtorgbankGazprombankGazprombankMIBMIBSaving Bank of RussiaSaving Bank of RussiaCiti BankCiti BankRaiffeizen BankRaiffeizen Bank
Firm quotes on the day of EBRD local bonds coupon calculation.Firm quotes on the day of EBRD local bonds coupon calculation.
MosPrime Rate Trend 2005-2006MosPrime Rate Trend 2005-2006
2%
3%
4%
5%
6%
7%
01.0
5.20
05
01.0
6.20
05
01.0
7.20
05
01.0
8.20
05
01.0
9.20
05
01.1
0.20
05
01.1
1.20
05
01.1
2.20
05
01.0
1.20
06
01.0
2.20
06
01.0
3.20
06
01.0
4.20
06
01.0
5.20
06
01.0
6.20
06
01.0
7.20
06
01.0
8.20
06
01.0
9.20
06
01.1
0.20
06
Outstanding volume of corporate debt linked to MosPrime Rate
Outstanding volume of corporate debt linked to MosPrime Rate
8-9) первые ипотечные кредиты в рублях с плавающей ставкой
Рост обязательств, привязанных к ставкам MosPrime Rate (публичные сделки)
0
5
10
15
20
25
30
35
40
45
апр.
05
май
.05
июн.
05
июл.
05
авг.
05
сен.
05
окт.
05
ноя.
05
дек.
05
янв.
06
фев
.06
мар
.06
апр.
06
май
.06
июн.
06
июл.
06
авг.
06
сен.
06
окт.
06
Мил
лиарды
Накопленный объемобязательств (руб.)
1
3
4
6
2
7
5
8
9
Russian Corporate Eurobonds
Eurobonds in Russia (amounts outstanding)
0
20
40
60
80
100
1.6.02 1.6.03 1.6.04 1.6.05 1.6.06
bln. USD
Government eurobonds Corporate bonds
Contacts
Address:
Bolshoy Kislovsky per. 13, Moscow, 125009, Russia
Phone:
(+7 495) 234-48-11
Fax:
(+7 495) 705-96-22
E-mail:
Web:
www.micex.ru
www.micex.com