Information notice an update on the implementation of the OTC derivatives market reform in Russia

The Bank of Russia hereby provides an update on the implementation of its plans¹ to reform the OTC derivatives market in Russia followed the decisions made by the Group of 20 and aimed at increasing the global financial market stability.

1. The Bank of Russia issued its Ordinance No. 5352-U dated December 16, 2019 ‘On the cases when derivatives shall be concluded only if the other party to such contract is a central counterparty’ (hereinafter referred to as the ‘Ordinance No. 5352-U’)².

   The Ordinance No. 5352-U adopts the mandatory central clearing of the standardized OTC interest rate swaps (IRS) nominated in Russian rubles provided that either party’s aggregate notional amount of such IRS exceeds 200 billion Russian rubles (threshold amount) as of the last business day of three consecutive quarters. The threshold amount will not include hedging derivatives as defined in the Russian Tax Code or the International Financial Reporting Standard (IFRS) 9 ‘Financial Instruments’.

   IRS with certain counterparties will not be subject to mandatory central clearing, e.g. with foreign counterparties, the Russian Federation and its regions, the Bank of Russia, affiliated entities (intra-group transactions), the central counterparty (if acting in its capacity as a dealer), non-financial entities (until January 1, 2024).

   The Ordinance No. 5352-U recognizes the legal mechanisms of submission for CCP clearing of the OTC derivatives such as ‘open offer’ and ‘novation’, with a time limit for novation — the next business day after the execution date of the contract to be novated.

   The Ordinance No. 5352-U comes into force on January 1, 2021 and will apply to the IRS executed after its effective date. Given that the Ordinance No. 5352-U contains the threshold amount calculation provision (200 billion Russian rubles as of the last business day of three consecutive quarters), the central clearing obligation will take effect in the fourth quarter of 2021.

2. Regarding the next phase of the OTC derivatives market reform, i.e. mandatory margining of the non-centrally cleared OTC derivatives, the Bank of Russia informs that due to the new coronavirus infection (CoVid-19) its implementation may be deferred.
3. Taking into account the international approach³ and the Ordinance No. 5352-U effective date, the Bank of Russia considers appropriate to launch the mandatory margining of non-centrally cleared OTC derivatives in Russia no earlier than in 2022.

16.06.2020