Page 141 - IFR Opportunities in Russian capital markets

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ifrintelligence reports/Opportunities in: Russian Capital Markets
0 The amounts of such claims are determined based on the fluctuation of prices for goods or securities, in the exchange rate of a particular currency, variable interest levels, inflation figures (or any values dependent on any combinations of the above), or any other circumstances stipulated by legislation that may or may not come into effect;
0 At least one party to the transaction is a legal entity licensed to engage in banking or to act as a professional on the securities market or, if applicable, a legal entity licensed to execute transac- tions on an exchange.
The Federation Council vetoed the bill on 27 December 2006, saying the definition of the transac- tions were unclear – the word ‘derivative’ does not actually appear in any of the amendments – and did not agree to the limitation of an individual’s rights based on the place of an agreement. Russian senators sent the bill back, asking for something a little more specific that defines derivatives so that they can be explicitly included in the civil code.
At the time of writing, the lawmakers were thrashing through the options to find a workable formula, but given that Putin has been personally pushing for the development of Russia's exchanges, few doubt that the issues will be resolved.
OTC trading
Due to weak regulation of the OTC derivatives market in Russia, most OTC trading is conducted by non-Russian legal entities and is governed by English law. Troika Dialog has been a pioneer of the futures market, after it set up one of Russia's first dedicated futures and options desks at the start of 2005. Chief trader, Georgy Mirel, says that option deals remain simple and opaque as most are OTC, but the market is growing very fast.
“Most options are still a plain vanilla market. Some 90% of the deals are simply futures calls. The more exotic products will come, but there are still a lot of clients out there that are thinking about derivatives but have yet to test the market”, says Mirel.
The problem with OTC is that it is very hard to get a fix on what price the market is setting for trades, so the first thing Troika did was to put two-way buy-sell prices on a screen so investors could judge at what level they wanted to price their options.
“Before we did this there was no firm pricing,” says Mirel. “Transparent prices are what triggered the real-time trading in options.”
Volumes traded on Troika’s options desk have grown exponentially. Since the bank launched its services it has seen volumes more than double in 12 months to several hundreds of millions of dollars, and it expects them to continue to double each year for at least another two years.
FORTS
Future Operations on the Russian Trading System (FORTS) has emerged as the main derivative trading platform and is the most liquid market-place for futures and options on Russian equities and the RTS index.
Having grown exponentially over the last four years, average daily trading volume on FORTS is now US$500–600m (see Figure 12.1 and Table 12.1). The most traded equity derivatives include futures and options on blue chip stocks such as LUKOIL, Gazprom, Norilisk Nickel, Rostelecom, Surgutneftegas and UES, as well as on the RTS index (see Table 12.2).
The RTS already has diesel futures in 2007 and is planning to roll out a wide range of new products this year, including aviation fuel and weather derivatives and a number of corporate bond futures, including futures for bonds issued by Russian Railways and gas giant Gazprom, some time in January–June 2007, according to RTS CEO, Oleg Safonov.
The RTS launched future trading of oil and gold to the existing dozen blue chips, interest rates and index products in June 2006, but on the first day a total of 5,342 contracts were signed, worth US$3.4m. Gold trading produced a similar result.
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