Thomas Murray Awards A+ CSD Rating To Russia CSD The National Depository Centre

Thomas Murray, the London based custody rating, risk management and research firm, has given an A+ Public Depository Rating to the National Depository Center (NDC) of Russia. The rating signifies a low overall risk. NDC is the major depository for

By None

Thomas Murray, the London-based custody rating, risk management and research firm, has given an A+ Public Depository Rating to the National Depository Center (NDC) of Russia. The rating signifies a low overall risk.

NDC is the major depository for fixed income securities in Russia, but it also has a significant share of equity business in terms of safekeeping and settlement.

The Central Bank of Russia, Moscow Interbank Currency Exchange (MICEX) and eleven commercial banks all have stakes in NDC.

The NDC is also a member of the European Central Securities Depositories Association (ECSDA) and owns material interests in two other depositories in Russia: the Depository Clearing Company (DCC) and the Settlement Depository Company (SDC).

“Thomas Murray is delighted to be able to announce the public rating of National Depository Centre,” says Simon Thomas, CEO and Chief Ratings Officer of Thomas Murray. “NDC has employed good risk management controls and adopts processes that work well within the current Russian marketplace. It has continued to grow its business especially in the safekeeping and settlement of equities while maintaining its share (almost 100%) of the fixed income safekeeping and settlement business. Nevertheless NDC faces considerable challenges in the future with the expected consolidation of the Russian capital markets infrastructure, which will create some uncertainties. NDC appears to be well-placed to feature strongly in any future infrastructure arrangements. The rating reflects NDC’s capabilities and commitment to mitigating risk in the Russian securities marketplace.”

Thomas Murray says in a statement that NDC is run on sound operating principles and good control measures are in place. It is regulated by The Federal Financial Markets Service (FFMS) of the Russian Federation, to whom it provides reports on a quarterly basis. Internally, adds Thomas Murray, it has good corporate governance practices, which includes a Risk Management Committee and a Depository Committee.

NDC demonstrates a low overall risk management profile and has been awarded a rating of A+ with an On Watch outlook by Thomas Murray. The outlook reflects the uncertainties surrounding the developments in the Russian market towards rationalizing the infrastructure and implementing a central counterparty, the National Clearing Centre (NCC), which will have an impact on the clearing and settlement arrangements of NDC.

In addition, says Thomas Murray, there is an almost complete reliance on pre-funding to manage liquidity and counterparty risk at NDC. While this works for the exchange transactions in the current market, it is likely to be less effective and may not be sustainable as the market grows, which could result in significant future liquidity difficulties. Other issues that influenced the outlook include a significant IT development project for a new settlement system that NDC has under way.

Thomas Murray says that NDC demonstrated particular strengths in the areas of corporate information services and corporate action processing, and by law it must assume full liability for any errors attributed to it in its operations. The depository has implemented an on-line messaging and reporting tool, Electronic Document Interchange, and also makes use of SWIFT messaging.

Counterparty risk is reduced by employing delivery versus payment (DvP) settlement processes on a near-simultaneous basis. Financial risk is considered to be low, as NDC has made annual profits and has boosted its reserves through retained earnings. It has announced a target to grow its reserves to RUB 1.5 billion (US$ 55 million) by 1 January 2010, in line with the average capitalisation of European CSDs.

“National Depository Centre is pleased to have worked closely with Thomas Murray on the Central Securities Depository rating,” says Nikolay Egorov, Director of The National Depository Centre. “We found that Thomas Murray’s rating methodology provided our business with a comprehensive benchmark assessment of our operating processes and has been helpful in identifying areas on which to focus our future risk development efforts. The A+ rating is an indicator of the progress and improvements that have been made by the depository over recent years. We are sure that from the point of view of both the regulatory authorities and clients, the rating from Thomas Murray being an independent expert will give National Depository Centre a platform on which to further develop its business and compete in any future infrastructure arrangements in the Russian securities market”.

The Thomas Murray Central Securities Depository rating aims to assess the performance of the CSD to mitigate risk in its activities of safekeeping and the clearing and settlement of securities, where applicable. It assesses six main risks. The methodology considers the capabilities of the depository and the quality and effectiveness of its operational infrastructure. It also assesses the depository’s willingness and ability to protect its participants or clients from losses. As part of the rating, the scope and quality of the depository’s services is assessed. The ratings are on a consistent global scale, using the familiar AAA to C ratings scale. Once the rating is assigned there is an ongoing surveillance process to monitor the depository.

Separately, Thomas Murray has maintained proprietary assessments of over 140 CSDs globally as part of the Thomas Murray Depository Risk Assessment services. These reports are available at www.thomasmurray.com.

«