Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4

Recommendation 5 Recommendation 6 Recommendation 7 Recommendation 8

Market selection

Recommendation 5

The major risks in Securities Systems should be mitigated by five key measures:

• the implementation of real delivery versus payment
• the adoption of a trade date plus one settlement cycle in a form that does not increase operational risk.
• the minimisation of funding and liquidity constraints by enabling stock lending and borrowing, broad based cross collateralisation, the use of repos and netting as appropriate
• the enforcement of scrip-less settlement
• the establishment of mandatory trade matching and settlement performance measures.

1.	Does the market use DvP settlement procedures in accordance with one of the recognised BIS models? If so, which one? If the model is not BIS model 1, are there plans to move to this model?	The only one centralised fully developed DVP system is MICEX, which is the leading securities-trading exchange in Russia with turnover of more than 90% of the total exchange-traded securities market and more than 60% of the gross turnover of securities market in Russia. On MICEX securities and cash are cleared on-line during the trading session with the transfer instructions for both securities and cash settled on a net basis with final transfer of both securities and cash occurring at the end of the processing cycle, which make it closer to Model 3. At the same time, MICEX clears and settles the trades on the terms of pre-funding of cash and securities only with unconditional finality of settlement upon acceptance of a trade order by the trading and clearing system, which may be interpreted as interference with elements of Model 1. In fact, MICEX does not completely correspond with any of the described BIS models.
2.	Does the market have a rolling settlement cycle of T+3 or shorter for all exchange traded instruments?	For the instruments traded at the stock exchange (MICEX) the settlement cycle is TD+0, i.e. the trades are cleared on-line and settled within the trade date. For OTC market, including the electronic market, the settlement period is longer than TD+3. DCC is in the process of development of an alternative DVP model with cash part of settlement in USD through an international bank, which is currently used by a group of major Russian brokers more often for the purpose to decrease the counterparty risk rather than improve the liquidity. The alternative scheme assumes pre-funding of securities at DCC and cash on special accounts with the international bank. DCC transfers the securities from a seller's account to a buyer's account upon confirmation of the cash settlement by the international bank.
3.	Could the market reduce the current settlement period to T+2 or below, without increasing fails rates? If so, how would this be achieved, and what plans are there to shorten the existing settlement cycle?	N/A, the stock exchange trades are settled at TD+0 with no fixed settlement cycle for OTC trades yet.
4.	Is matching of trade details achieved on trade date, at least for direct market participants; and by trade date plus one for indirect participants?	In most cases the direct participants achieve the matching of trades on TD and indirect participant on TD+1, but no market standard has been established with regards to this procedure and the process is subject to negotiations between the parties to each individual trade.
5.	Is the depository scrip-less, and, if not, is it working to enable scrip-less settlement?	The securities in Russia are mostly script-less. State bonds (GKO/OGZ) and equities are issued in non-paper form. Minfin bonds exist in physical form, but the majority of the them (80% of all outstanding bonds) are immobilised at VTB, which de-facto acts as a centralised depository for Minfins and arranges transfer of the bonds across clients accounts without physical movement.
6.	Does the market allow partial settlements?	Partial settlements are not allowed in the market.
7.	Can the depository accommodate same day turnarounds?	DCC can accommodate same day turnarounds for their direct participants; VTB can do it on best effort basis only as their system cannot match the settled incoming receive to the outgoing delivery automatically; NDC can support same days turnaround once the turnaround trades have been processed and cleared by MICEX.

Bank of International Settlements (BIS) Settlement Models

Model 1:	Systems that settle transfer instructions for both securities and funds on a trade-by-trade (gross) basis, with final (unconditional) transfer of securities from the seller to the buyer (delivery) occurring at the same time as final transfer of funds from the buyer to the seller (payment).
Model 2:	Systems that settle securities transfer instructions on a gross basis, with final transfer of securities from the seller to the buyer (delivery) occurring throughout the processing cycle, but settle funds transfer on a net basis, with final transfer of funds from the buyer to the seller (payment) occurring at the end of the processing cycle.
Model 3:	Systems that settle transfer instructions for both securities and funds on a net basis, with final transfers of both securities and funds occurring at the end of the processing cycle.