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The Association of Russian Banks (ARB) together with the National Foreign Exchange Association of Russia (NFEA) and the National Association of the Securities Market Participants (NAUFOR) announced a tender among international law firms on elaboration of the model Master Agreement on Forwards & Derivatives on the Russian financial market (the Master Agreement on Derivatives).
The Master Agreement on Derivatives is intended to be used by various types of participants of the local OTC derivatives market, both domestic and international ones including banks, professional participants of the securities market as well as non-regulated organizations.
By consensus of the associations the new Master Agreement should be based on the international practices and primarily on the 2002 Master Agreement of the International Swaps and Derivatives Association (ISDA); as well as it should take into account certain distinctions of the Russian legal system and the local business practices, such as the NFEA Standard Agreement application experience (based on the 2001 publication of NFEA Standards and Rules). The efficiency of the new Master Agreement on Derivatives will in many ways depend on expected amendments to the current Russian legislation on insolvency (bankruptcy) of credit and non-banking organizations aimed at introducing close-out-netting procedures adopted in the majority of the developed countries.
The tender is to be completed in September 2007 with the draft Master Agreement to be prepared in the first quarter of 2008. The drafting process of the Agreement should include the discussion of its basic terms and conditions with the working group of ARB, NFEA and NAUFOR experts. The Agreement will also require endorsement of the market regulators and international associations (such as ISDA). Thereafter the Agreement will be recommended for application by the participants of the financial markets in Russia.
The need to build up new legal documentation covering bilateral OTC transactions with derivatives in a wide range of underlying assets (including foreign exchange, interest rates, securities, commodities, credit defaults, etc.) is primarily driven by the rapid development of the derivatives market in Russia in 2006-2007. Mr. Dmitry Piskulov, Chairman of the Committee for Professionalism, Ethics and Education of NFEA, notes that a large number of banks and investment companies have entered this market in the past year, while the volumes of interbank market of Ruble-denominated foreign exchange and interest rate derivatives alone are doubling up every six months having reached a monthly level of US$ 4-5bn at the beginning of 2007.
Mr. Joerg Bongartz, Chairman of the Board of Deutsche Bank Ltd. Moscow, and Co-Chairman of the ARB Committee on the Development of the Derivatives Market, comments that after the adoption of the amendments to the Civil Code Article 1062 at the beginning of this year, which provided legal enforceability and protection of non-deliverable (cash settled) derivative transactions, the initiative of the Russian professional associations to create the Master Agreement on Derivatives is a next important step towards the creation of the civilized forward and derivatives market in Russia.
