 | Thomas Murray Market Flash |
| Date: 20 Dec 2006 |
Thomas Murray Issues a CSD Rating for The Depository Clearing Company
LONDON – Thomas Murray, the specialist custody rating, risk management and research firm is pleased to announce the issue of a Public Depository Rating to The Depository Clearing Company (DCC) of Russia. DCC has been awarded a Public CSD rating of ‘A’, being a low overall risk rating made up of the following components:
Overall Rating: A
Asset Commitment Risk: A-
Liquidity Risk: A-
Counterparty Risk: A-
Financial Risk: A
Operational Risk: A
Asset Servicing Risk: A+
The Depository Clearing Company is the major depository for equities in Russia although there are other depositories that also have a share of equity business in respect of safekeeping and settlement activities. DCC has a sound ownership structure with the Russian Trading System (RTS), the National Depository Center (NDC) and three market participants all having an ownership interest. DCC has relationships with a number of other depositories, holding nominee accounts with NDC, the Gazprombank depository network, Citibank, Vneshtorgbank (VTB) and Sberbank. DCC 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 it adopts good corporate governance practices, which includes a Risk Management Committee and a Depository Committee.
DCC 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 rationalising the infrastructure, the need to significantly increase the capital of the company to obtain a CSD license under the terms of the new draft Russian law and the impact of recent management changes within the organisation. In addition DCC has indicated that it will undertake a SAS70 audit in March of 2007 thereby undertaking a comprehensive check on its operational controls. Another matter that has impacted DCC’s rating has been the stance of the foreign investors who have steadfastly provided an adverse interpretation of whether DCC complies with the SEC 17f-7 requirements. Any change in this stance will result in a move from settlement in the registries to the settlement depositories which carries significantly lower risk. Another issue that influences the outlook includes a significant IT development project for a new settlement system that DCC has underway with progress up to phase II of the project.
DCC demonstrated strengths in the areas of corporate information services and corporate action processing and by law it must assume liability for any errors attributed to it in its operations. The depository uses an on-line messaging and reporting tool, Electronic Document Interchange and also makes use of SWIFT messaging. DCC has addressed Counterparty Risk by employing Delivery versus Payment settlement processes although as mentioned, this is not being used extensively as yet, largely because of the foreign investors who transfer securities on a FOP basis. Financial risk is considered to be low as DCC has made annual profits for a number of years and has gradually increased its reserves through retained earnings. It will need to further increase its reserves to RUB 1 billion (USD 37 million) by 2008 under the new (draft) CSD law. It has recently significantly increased its insurance to USD50 million to further help mitigate financial risk.
Simon Thomas, CEO and Chief Ratings Officer of Thomas Murray said: “Thomas Murray is delighted to be able to announce the public rating of The Depository Clearing Company. DCC has employed sound 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 and has developed a highly-respected asset servicing business. Nevertheless DCC faces considerable challenges in the future particularly from the likely eventual consolidation of the Russian capital markets infrastructure. DCC has operated a successful business that is well-supported by the market participants. The rating reflects DCC’s capabilities and commitment to mitigating risk in the Russian securities marketplace.”
Mikhail Laufer, President of The Depository Clearing Company, said “The Depository Clearing Company is pleased to have worked closely with Thomas Murray on the Central Securities Depository rating. 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. While the ‘A’ rating is a good indicator of the progress that has been made by the depository over recent years, we believe that it is a starting point from which we can make further progress. 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 the Depository Clearing Company a platform on which to further develop and improve its business for the benefit of future infrastructure arrangements in the Russian securities market”.
The Central Securities Depository rating assesses 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 key 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 via the Thomas Murray on-line store at www.thomasmurray.com.
For further information contact:
Simon Thomas/John Woodhouse
Thomas Murray
+44 (0) 207-830-8300
sthomas@thomasmurray.com
jwoodhouse@thomasmurray.com
Victor Grushin
The Depository Clearing Company
+7 (495) 956 0999
Victor.Grushin@dcc.ru
About Thomas Murray
Thomas Murray is a specialist custody rating, risk management and research firm specialising in the global securities services industry. Thomas Murray was established in 1994. The Company tracks and analyses over 250 custodians globally and monitors the risk of over 100 capital market infrastructures. The Company has a strong position as a provider of public and private ratings and risk assessments on global custodians, domestic custodian banks and capital market infrastructures.
http://www.thomasmurray.com
About Depository Clearing Company
DCC was established on 29 October 1993 under the Federal Commission on Securities Market project sponsored by US AID. It began operations in 1993. DCC provides depository, settlement and some clearing services for equities traded on the RTS Classic Market, RTS Stock Exchange, the MICEX Stock Exchange and the Stock Exchange “St Petersburg” (SPBEX). It is supervised by the Federal Service for Financial Markets of the Russian Federation.
Attachments
Whilst reasonable care has been taken in the compilation of this information, neither Thomas Murray, its affiliates or information contributors shall have any liability for any errors, omissions, delays or inadequacies in the information or for any loss or damage however occasioned (whether arising directly or indirectly), to any person or company relying on this information, or any decision made, action or inaction taken by any party in reliance upon this information (except to the extent permitted by law).