Managing directors of the exchange-members of the Russian Currency Exchange Association (RUCEA) made a decision to establish the National Currency Association. They also discussed the first results of the Unified Trading System introduction

July 9, 1999

A decision to establish the National Currency Association was made at the Russian Currency Exchange Association (RUCEA) meeting that took place on July 9, 1999 in Moscow. This National Currency Association will unite currency exchanges as well as the banks √ currency market participants. MICEX CEO Alexander Zakharov argues that ⌠the new association is called to work out business conduct rules for currency market community, introduce relevant mechanisms to ensure adherence to these rules and besides that represent market participants' interests. Its establishment will be the next step on the way of the Russian currency market integration■.

Managing directors of the Russian exchange-members of RUCEA discussed the situation in the currency market. They pointed out that introduction of the United Trading Session boosted regional currency markets liquidity and stimulated regional foreign trade organisations to participate in exchange trading. The exchanges expressed their intention to continue their co-ordinated activities to develop national currency and securities trading infrastructure that would ensure reliable system of investors' protection and forward investments into the productive sector of the Russian economy.

Apart from MICEX, managing directors of all regional exchange-members of RUCEA took part in the meeting, namely: Oseevsky M.E. √ Managing Director of the St. Petersburg Currency Exchange (SPCE), Anokhin N.V. √ President of the Siberia Interbank Currency Exchange (SICE), Margolina I.N. √ General Director of the Rostov Currency and Stock Exchange (RCSE), Smirnov S.V. √ Vice-President of the Urals Regional Currency Exchange (URCE), Mestcherov A.V. √ President of the Samara Currency Interbank Exchange (SCIE), Garastchenkov O.P. √ Chairman of Board of the Nizhny Novgorod Currency and Stock Exchange (NCSE), Koldin A.M. √ General Director of the Asian-Pacific Interbank Currency Exchange (APICE).

The main topic of the RUCEA meeting was transition to the United Trading Session which allowed to integrate local regional currency-financial markets into one. Analysis of the first results of exchange trading in the Unified Trading System framework demonstrated the following:

• Total volume of exchange currency trades is on the rise. For several days from June 29 to July 7, 1999, the volume of trades in the Unified Trading System exceeded USD 1 billion. Daily average volume of exchange trades in July, 1999, was USD 190 million which is USD 42 million more than in June, 1999, when the Special Trading Session was functioning.
  
• Due to liberalisation of access to trading in the Unified Trading System the number of bank-participants is increasing. 317 banks participated in trading on July 7, 1999, while on the first day of trading only 292 banks participated.
  
• Regional participants are very active, trade volumes on a number of exchanges have considerably increased. On URCE and NCSE daily average turnover exceeded that at the Special Trading Session twice, on SICE -- by 72%, on APICE -- by 20%.
  
• Interregional organized currency market is becoming the core of the Russian currency market. It dominates any other segment of the currency market in terms of trade volumes, liquidity and representation of participants. High liquidity, reliability and guarantee of settlement as well as easy access made it competitive with the over-the-counter interbank market that is now in a tough situation as a result of financial instability of many banks.
  
• Increase in the number of participants and higher trade volumes ensure representation of an exchange rate formed in the market. Average weighted rate of the Unified Trading System serves as a benchmark for an official rouble rate. This rate is a guideline for participants of daily sessions on regional currency exchanges and the OTC market participants.
  
• Formation of interregional currency market boosted the process of liberalising trades in the currency market. Commercial banks are able to buy currency at their own expense including funds they need to service exchange outlets. Thus influence of interregional trading has embraced cash currency market.
  
• Possibility of arbitrage between different segments of the currency market contributes to smoothing exchange rate differences between currency market segments.

Thus introduction of the Unified Trading System has altered the architecture of Russia's currency market. It is for the first time since the Russian currency market emerged that an interregional organised currency market was formed contributing to consolidation and intergration of the internal currency market.

Introduction of the Unified Trading System integrating currency exchanges has become the main precondition for establishing the National Currency Association (NCA). It is called to unite on a voluntary basis participants of the currency market. The idea to establish it was put forward by managing directors of the exchange-RUCEA members at their recent meeting. New organisational structure of currency market participants √ NCA is to take into consideration new features of the market and to adequately represent and protect legal interests of the exchange market as well as the OTC market.

The main objectives of the National Currency Association could be:

• achieving best combination of the state regulation and self regulation in the currency market;
  
• summarising business co-operation experience;
  
• representation and protection of NCA participants' interests;
  
• unification of rules and procedures of trade conduct and paper work for the NCA participants;
  
• development of recommendations to improve legal and regulatory base for the currency market;
  
• development of business conduct rules for currency market participants and formation of a control system to ensure adherence to them;
  
• study and analyses of the global and Russian currency market.

The world experience proves that volunteer associations of the currency market participants play a considerable role in:

• developing and implementing unified activity standards in the market;
  
• unifying principles of functioning in the market;
  
• ensuing transparency of trades in the market;
  
• developing common understanding of terms and concepts used in the currency market;
  
• carrying out efficient negotiations with regulatory bodies regarding alteration of existing national regulatory norms and bringing them in accordance with international experience.

Information transparency, trade standardisation, common understanding of market requirements and conditions could considerably simplify interaction of the currency market participants.

Associations like this one have been established and are functioning almost in all countries. Business conduct rules approved by their participants are the basis of their activities. In the USA these are the main guidelines for managing operations in the currency market. It is the London Code in England, it is the main guidelines of Tokyo market activities in Japan, the guidelines of banking activities in the German currency market, the guidelines of business conduct for the Canadian currency market in Canada, etc.

Managing directors of the exchange-members of RUCEA expressed their belief that establishment of the National Currency Association will be a new step in the development of the national currency market. It will enable to efficiently serve the interest of Russia's foreign trade activities as well as to contribute to the introduction of new advanced technologies into the market infrastructure.

Reference

The Russian Currency Exchange Association (RUCEA) √ is an independent non-commercial organisation. It unites the currency exchanges that are the centres of interbank communities in the leading financial productive regions of Russia. RUCEA was founded in November 1993 by the Moscow Interbank Currency Exchange (MICEX), the St.Petersburg Currency Exchange (SPCE), the Siberia Interbank Currency Exchange (SICE), the Asian-Pacific Interbank Currency Exchange (APICE), the Rostov Interbank Currency Exchange (RICE) and the Urals Regional Currency Exchange (URCE). The Samara Currency Interbank Exchange (SCIE) and the Nizhny Novgorod Currency and Stock Exchange (NCSE) joined the association in 1995. RUCEA adheres to the principles of willingness and self-regulation in all its activities. The highest managing body of the association is the meeting of RUCEA participants that is gathered no less than once a year.

The main tasks of RUCEA are to co-ordinate activities of the currency exchanges with regard to development of the financial market exchange infrastructure, introduce new financial instruments into the exchange circulation, standardise exchange technologies and unify trading rules, ensure regular exchange of information and carry out analytical research on Russia's financial market.

MICEX Information Analytical Department
tel. 705-9609