PJSC Sberbank : Sber makes suggestions for development of derivatives market – Marketscreener.com

Sber served as a platinum partner of the 16^th International Russian Derivatives Market Forum, Derivatives 2021, held on September 30.

Sberbank experts took part in a number of the discussions at the forum, including Alexey Lyakin, vice president and treasury director, Boris Sheraizin, head of trading, Evgeny Ageshin, head of client operations, Pavel Pereldik, head of rates trading, and Lyalya Vildanova, executive director of the legal support center for the derivatives market and client operations. They discussed how Sber works with financial derivatives and made suggestions for developing the market.

Alexey Lyakin, vice president, treasury director, Sberbank:

“One of the trends affecting the derivatives market in Russia is the shift away from LIBOR as part of the global reform of financial benchmarks. When transitioning to new risk-free indicators, banks need to take a number of nuances into account. In particular, a new approach will be needed for calculating interest on a transaction, considering that there are different options for averaging benchmark values over an interest period. Greater communication with clients is also important because, unlike banks, many clients have not been following the indicator reform and are not familiar with the features of the new indicators.”

Clients can familiarize themselves with how to prepare for the end of LIBOR on the SBER.pro website.

Lyakin also noted that the lessons learned from the global reform would facilitate the development of risk-free indicators in Russia. The experience gained by Sberbank with SOFR and the fine-tuning of SOFT IT infrastructure will allow the bank to use the RUONIA or RUSFAR overnight indicators.

Sheraizin, who is head of trading at Sberbank, shared that less than 10% of Russian companies currently use derivatives to manage market risks, though this figure surpasses 80% in developed countries. He explained that developing a hedging culture will have a number of positive effects. For companies, it will reduce the probability of default, the cost of external financing, and the volatility of cash flow. For banks, it will minimize market and credit risks and the cost of reserves. For the budget, it will result in stability in stress scenarios and better predictability of revenue and expenditure.

Sheraizin noted that the infrastructure of the derivatives market is ready for the implementation of efficient hedging practices. Banks are proposing a broad range of derivatives, have created the relevant products and infrastructure, and have the necessary expertise. Commodity, exchange, and interest rate instruments are being traded on Russian exchanges. Over-the-counter and exchange-traded derivatives are on the rise, much like the number of instruments.

At the same time, there are also constraints to the development of market risk management practices: Russian Tax Code restrictions, transaction requalification risks, mandatory central clearing, the risks of implementing mandatory margining for hedging transactions, the absence of impetus for systemic market risk management, lack of expertise, and negative experience. Suggestions to resolve these issues include reducing tax risks related to hedging for companies and exempting over-the-counter hedging derivatives from mandatory central clearing and margining.

Avgeshin, head of client operations at Sberbank, explained that the structure of the derivatives transaction portfolio has changed over the past year. Interest rate derivatives (swaps, options, including barrier options) and commodity derivatives (non-ferrous and precious metals, steel, coal, oil products, soft commodities) have significantly grown in popularity. The proportion of cross-currency swaps and currency derivatives has decreased. This was facilitated by interest rate fluctuations, high commodity prices, and the transition of corporate client financing to floating rates. In Avgeshin’s opinion, these trends will continue in 2022. Avgeshin also made a number of suggestions regarding the formation of new segments of the Russian derivatives market and increased synergy between over-the-counter and exchange-traded derivatives markets.

According to Pereldik, head of rates trading at Sberbank, the local ruble interest rate derivatives market has grown by a factor of 7.5 since 2017 (data from the National Settlement Depository). The main – though not the dominant – reference rate is MosPrime. The proportion of the key interest rate is growing steadily, while that of the RUONIA benchmark is falling. Despite significant growth, the market remains small, both compared to other developing markets and to the requirements of Sber’s clients. Sber is actively building up floating rate lending.

The 16^thInternational Russian Derivatives Market Forum was dedicated to the various aspects of derivatives. The forum participants discussed issues including goals and objectives for the development of the Russian market, international trends, new technology, innovations on the exchange-traded derivatives market and the standardized derivatives market with a central counterparty, the structure of the liquidity of the Russian interest rate derivatives market in terms of indicators, commodity derivatives as hedging and investment instruments, the prospects for opening the over-the-counter interest rate derivatives market to pension funds, the G20 derivatives market reforms, market regulation, updating standards (RISDA), etc.