Legal changes have borne fruit, says Russian exchange chief

Goryunov was optimistic about the prospect for future growth, saying: “the market is developing rapidly. In the last few years it has become one of the leading world players in derivatives – at least in the top 15. Of course there are a few specific problems, but there are no serious hindrances to growth”.

His optimism is founded on the belief that Russia has for the most part escaped the stigma attached to the western derivatives market during the recent financial crisis.

“The problems in the world are not linked with derivatives but with the way in which they were traded. They were not regulated, and neither the regulator nor market participants saw the volumes and risks on the balance sheets of the leading investment banks. In Russia we didn’t have these problems because those complicated and poorly understood products were not widespread,” he said.

Until September, 2008 was a good year for the Russian derivatives market with the volume of contracts on RTS’ derivatives exchange, Futures and Options on RTS (Forts), increasing throughout the year. However, since September the number of deals at RTS has significantly decreased as the effects of the global financial crisis have been felt in Russia.

On January 9, the first trading day of the year, there were 373,758 contracts traded on Forts with a value of 24.9 billion RUB ($921.8 million). By April 1 this had increased to 1.23 million contacts worth 46 billion RUB, rising still further to 1.75 million contracts worth 69.2 billion RUB on September 10.

Throughout the second half of September and the first half of October, trading volumes declined dramatically. At close of trade on October 22, Forts reported 847,852 contracts traded totalling 22.78 billion RUB, down 67.1% from September 10.

The recent crisis situation is not the only inhibitor on derivative trading in Russia. There are some long-standing hindrances, most important among which Goryunov considers to be a lack of experience and expertise among Russian traders. For many investors, derivatives are “new instruments which are not fully understood, and therefore many investors enter the market gradually and do not actively use these contracts,” he noted.

In the future, Goryunov expects that the growth witnessed before September’s crisis will continue, while the client base for derivatives contracts from both domestic and international traders will expand. His exchange also plans to develop new products including a clearing house for over the counter (OTC) trades.

Additionally Goryunov believes that recent market turbulence will produce a bigger desire for exchange-traded derivatives contracts at the expense of over-the-counter (OTC) deals as the level of counterparty risk is substantially decreased. “Many traders who earlier preferred to go down the OTC route, thinking that it is significantly cheaper, will now come to the exchange,” he said.

And he said that there are now no substantial legal obstacles to growth in the derivatives market: "This problem was solved a while ago," he said. "Derivative deals in Russia are covered by legal safeguards."

Until January 2007 the law restricted derivatives trading, classifying them as a form of gambling. Since then, legal reforms have given protection to futures, options and swaps in currencies, equities, commodities, and interest rates.

However, credit derivatives are excluded from these reforms, with no credit products traded on any of Russia’s exchanges.

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