National Settlement Depository (Russia)

NSD is the central securities depository in the Russian stock market, and provides services with respect to securities both in the capacity of the CSD under Russian Federal Law No. 414-FZ dated 7 December 2011 "On the Central Securities Depository", and in the capacity of a nominee holder of other Russian and foreign equity or debt securities. NSD provides services for the safekeeping of global certificates and depository recordkeeping of 100% of Russian federal loan bond (OFZ) issues, and 99% of Russian corporate and regional (sub-federal or municipal) bond issues.

In 2014, the large international securities depositories Euroclear and Clearstream gained full access to the Russian securities market, thus providing non-Russian companies and investment funds with investment opportunities. In 2014, in compliance with the FATCA requirements, NSD was registered with the U.S. Internal Revenue Service and was assigned a Global Intermediary Identification Number.[12]

NSD says it meets all of the requirements to "eligible securities depositories" and satisfies the criteria set out by Rule 17f-7 of the U.S. Investment Company Act of 1940.[13]

The Bank for International Settlements noted in 2015 that though the Bank of Russia has recommended that CSDs observe the "Principles for financial market infrastructures: Disclosure framework and assessment methodology," there was in fact no legal requirement that they do so.[14] It also noted that the NSD did not have in place arrangements to alert non-Russian regulators to certain information, and did not have in place certain information-sharing with non-Russian CSD regulators on an automatic basis.[14] It noted as well that NSD had not been in contact with non-Russian relevant regulatory authorities, such as those in the US and Europe.[14]

Since 2014, in accordance with the Russian Tax Code, NSD has been acting as a withholding agent when paying out income on Russian equity or debt securities.

On 1 October 2013, NSD started acting as a trade repository for all trade types (such as repo contracts, OTC derivative contracts, and other contract types entered into under a master agreement, as defined in Article 51.5 (paragraph 6) of the Russian Federal Law "On the Securities Market").[15]

NSD's Trade Repository:

• Gathers and registers information on derivative and repo contracts entered into under master agreements. As part of the first phase of the Trade Repository launch, NSD registers repo and currency swap contracts;
• Keeps a register of registered contracts;
• Provides confirmations of registered contracts to clients or the Russian regulator; and
• Is charged with ensuring the integrity and security of information.

By the end of 2014, the number of Trade Repository clients reached 1,130 market participants who registered, in aggregate, 138,000 reports on master agreements and trades.

As a systemically important payment system, the NSD Payment System was assessed by the Bank of Russia[16] for observance of the international standards, namely the Principles for Financial Market Infrastructures issued by the Committee on Payment and Settlement Systems of the Bank for International Settlements and the International Organization of Securities Commissions (CPMI-IOSCO) and recommended by the Bank of Russia for observance by Russian important payment systems.

In 2014, the number of cash transfers to or from clients' bank accounts held with NSD was 998.39 thousand; the total amount of RUB cash transfers to or from clients' bank accounts held with NSD was RUB 298.06 trillion; and the total amount of foreign currency cash transfers to or from clients' bank accounts held with NSD was equivalent to RUB 9.62 trillion.

NSD offers collateral management services for tri-party repo transactions with the Bank of Russia or the Russian Federal Treasury. Trades are entered not with an individual security, but rather with a basket of securities.

To clear trades, NSD applies a variety of settlement models, including DVP-1, DVP-2, and DVP-3. Delivery versus payment or DVP is a form of settlement for securities that involves simultaneous delivery of securities by the seller to the buyer and cash by the buyer to the seller. The service is based on NSD's clearing platform that allows for making DVP transactions in more than one clearing session, with securities being settled on a gross basis and cash being settled on a net basis (DVP-2); or with net settlement of both securities and cash (DVP-3); or outside clearing sessions with settlement on a trade by trade basis (DVP-1). The DVP settlement mechanism allowed clients to settle trades both in Russian rubles and—until 2022—non-Russian currencies (USD or Euro).

NSD offers the opportunity to settle trades on a DVP basis using correspondent accounts with the Bank of Russia via the Real Time Gross Settlement System (BESP).[17] With the launch of the electronic matching service, NSD's clients were provided with the opportunity to receive information on the availability of potentially matching instructions, i.e., unmatched instructions that differ from each in one data field.[18] NSD says that the Hold & Release functionality offered by NSD contributes to greater reliability of settlements and their control by clients.[19]

The number of Bank of Russia's repo transactions with a basket of securities was 3,727 in 2013, and 8,858 in 2014. The value of Bank of Russia's repo transactions with a basket of securities amounted to RUB 14.04 trillion in 2013, and RUB 57.22 trillion in 2014.

NSD acts as the National Numbering Agency for Russia and the Substitute Numbering Agency for the CIS countries and as such assigns ISINs and CFIs to securities or other financial instruments issued or registered in Russia or other CIS countries.

• In September 2013, CSD.Austria, the Austrian central securities depository, and NSD established an international direct link to the Russian securities market. As a result, Austrian and international custodian banks holding securities accounts at CSD.Austria obtained the opportunity to make direct settlement of Russian securities and hold them using CSD.Austrias' foreign nominee account opened with NSD, and NSD expanded its access to potential foreign investors.[20]
• In November 2013, the U.S. Internal Revenue Service, the agency of the United States federal government responsible for tax collection and tax law enforcement, signed an agreement with NSD recognizing it as a Qualified Intermediary (QI).[21]
• In December 2013, NSD and BNY Mellon joined forces to help Russian-based investors trade depositary receipts.[22]
• In 2013, FTSE Global Markets named NSD among 20 most influential financial market players in 2013.[23]
• In 2014, the large international securities depositories Euroclear and Clearstream gained full access to the Russian securities market, providing foreign companies and investment funds with investment opportunities, and provided issuers in the Russian securities market with investors.[24] First, in spring 2013, they started settling trades with Russian federal loan bonds (OFZ), before accessing the Russian corporate bonds market in January 2014.[25]
• In 2014, NSD opened a foreign nominee account to the central securities depositories of Armenia and Kyrgyzstan.[26]
• In 2014, Thomas Murray Data Services, the specialist custody rating, risk management, and research firm, issued a CSD rating for NSD at AA-, which translated as 'very low Overall Risk', with 'Stable' outlook.[27]

• On March 16, 2022, Thomas Murray downgraded NSD's rating to B.[28]
• On March 18, 2022, NSD's accounts were blocked and frozen at Euroclear and Clearstream (CSDs which together held €50tn of assets on behalf of investors).[2][3]
• In March 2022, the European Central Securities Depositories Association (ECSDA) suspended NSD from membership in the association.[29][30]
• In June 2022, the European Union added NSD to its sanctions list, blocking NSD's accounts in euros, and in Euroclear and Clearstream; as a result, NSD was not able to service forex-denominated bonds issued by Russia and Russian companies.[4]
• Also in June 2022, the NSD suspended transactions in euros.[4]