Following on from our blog last week, RUB Derivatives are still trading, I wanted to take a deeper look at the data for USDRUB Non-Deliverable Fowards.
In SDRView we can look at USD/RUB FX derivatives traded by US persons in the month of February 2022.
- NDF, by far the largest with 10,939 trades and greater than $65 billion nional (not shown)
- Vanilla Options with 667 trades ( and $19b notional)
- Non-Deliverable Options with 139 trades (and $5b notional)
- Some Fowards and Spots also reported.
- (Don’t know why as deliverable fx trades are not derivatives that need reporting to SDRs under CFTC rules, so either there is a specific reason these are reported e.g. part of a derivative package or portfolio maintence or just bad data?)
The increasing sanctions imposed on Russian entities and persons since the invasion on February 24th, will reduce the particpants able or needing to transact RUB FX.
Let’s see if the data shows this for NDFs, by looking at daily volumes for the past 12 days.
- A high of $6 billion, on Feb 24th,
- the day Russia invaded Ukraine to start the war, the highest volume this year
- Other days similar to prior days in 2022
- While Mar 7 and 8 with lows of $800 million each
- Majority of trading is Off SEF and not On SEF
In SDRView Professional, we can look at tenors traded and prices on specific business days.
For February 21, 2022, we see:
- A wide range of tenors traded, from <1W to 6M
- 3m-6m with $430m from 10 trades and avg price of 81
- 1w with $400m and avg price of 78
- 1m-2m with $340m and avg price of 78.1
And the same chart for March 8, 2022:
- 1w-2w with $250m from 30 trades and avg price of 128
- 1m-2m with $200m from 33 trades and avg price of 140
- 3m-6m with $30m from 4 trades and avg price of 152.7
1M RUB rates jumping or rather gapping from 78 to 140.
The way NDFs work is that as well as agreeing a price/rate for the non-USD currency on entering into the trade, when it comes to delivery in say 1-month, we need a FX fixing to convert the non-USD leg into USD and then a net USD amount is exchanged between the parties.
The standard NDF templates published by EMTA (Trade Association for Emerging Markets), can be found here and these show that the Settlement Rate Option is RUB MOEX (RUB05), which is described in the notes as:
The RUB MOEX (RUB05) rate is determined at approximately 12:30 pm (Moscow time)
and reported at approximately 12:35 pm (Moscow time) pursuant to the methodology for
such rate published by Moscow Exchange, as amended from time to time.
MOEX is the Moscow Exchange, whose website is not currently reachable, so I am not able to see if rates are still being published or read the methodology document.
It has been widely reported in the press that the MOEX market has not traded for days, at least for Equities while for FX some news outlets are reporting that the FX Fixing is still being published.
The EMTA template has the following:
Which allows for a Price Source Disruption with a valuation postponement to a succeeding day, up to a maximum number of days (defined as 14 calendar days elsewhere in the document).
And the CME Rulebook for its’s Ruble contract, available here, has the following:
So consistent and referring to EMTA, though I will leave it to those of you interested to lookup what Rule 812 says…
I don’t know if these Valuation Postponements have been applied in practice (if any readers know, please email us at firstname.lastname@example.org), but clearly NDFs are still trading, either as MOEX Fixings are still being published reliably or contracts have a fallback or have used an alternative source. Even if MOEX Fixings are being published, in such a market, it is going to be difficult for them to be representative, meaning hedge relationships are going to breakdown leading to further unexpected losses.
Cleared RUB NDFs
Using CCPView we can look at the outsanding notional in USD/RUB NDFs.
- $15.5 billion on 21-Feb
- Continuing to trade as evidenced by the increased in OI
- $18 billion on 4-Mar
There is more I wanted to look at.
But have run out of time today.
Blame it trying to keep up to date on the latest from Ukraine.
Who would have thought 2 weeks ago, we would be where we are now.
War in Europe, 2 million Ukraninan refugees and unprecdented sanctions on a nation.
We all hope for a rapid end to hostilities.