National Settlement Depository (Russia) Overview and Functionality

The National Settlement Depository (NSD) is a vital player in Russia's financial landscape. It was founded in 2002 as a result of the merger of the Russian Central Depository and the Russian Federation's Central Securities Depository.

The NSD is responsible for registering and maintaining records of securities issued by Russian companies. Its main office is located in Moscow, Russia.

The NSD provides a range of services, including record-keeping, settlement, and custody of securities.

MICEX Settlement House was incorporated on 27 June 1996 as a credit organization that provided settlement services, including cash settlement services for trades in the financial market.

National Depository Center (NDC) was established on 21 January 1997 to serve as the principal securities depository in the government securities market.

NDC started acting as the principal securities depository in March 1998 and began providing services for corporate, sub-federal, and municipal securities the same year.

By 2014, NDC had gained the leading position in the Russian debt securities market and was growing the scope of transactions with shares, investment units, and Eurobonds.

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On 3 November 2010, MICEX Settlement House merged with NDC, resulting in the establishment of National Settlement Depository (NSD), a unique organization for Russia.

NSD was assigned the central securities depository (CSD) status by the Russian Federal Financial Markets Service's Order No. 12-2761/pz-i dated 6 November 2012.

In 2012, the Bank of Russia recognized NSD as a systemically important central securities depository, systemically important settlement depository, and systemically important trade repository.

The NSD Payment System was recognized by the Bank of Russia as a systemically important payment system on 25 December 2012 and as a nationally important payment system on 16 July 2012.

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The National Settlement Depository (NSD) has a clear structure and management system. The Moscow Exchange holds a majority stake of 99.997% in NSD's share capital.

NSD's shareholders have a say in the company's management, thanks to the Shareholders Agreement signed in 2011. This agreement ensures a balance between majority and minority shareholders' interests.

The agreement also allows major customers of NSD to become shareholders and participate in managing the company.

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NSD's majority shareholder is the Moscow Exchange, holding a 99.997% interest in NSD's share capital.

The remaining shares are owned by a number of banks and securities market participants.

The Shareholders Agreement, signed on 30 June 2011, secured for NSD's customers the right to participate in managing NSD and ensured a balance between the interests of NSD's majority and minority shareholders.

Up to five major customers of NSD may become its shareholders every year, thus becoming entitled to participate in managing the company.

Eddie Astanin serves as the Chairman of NSD's Executive Board.

Bella Zlatkis holds the position of Chairperson of NSD's Supervisory Board.

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NSD is the central securities depository in the Russian stock market. It provides services with respect to securities both as the CSD under Russian Federal Law No. 414-FZ dated 7 December 2011 and as a nominee holder of other Russian and foreign equity or debt securities.

The NSD meets all the requirements to be considered an "eligible securities depository" and satisfies the criteria set out by Rule 17f-7 of the U.S. Investment Company Act of 1940. This means it's a reputable and trustworthy institution.

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In 2014, international securities depositories Euroclear Bank and Clearstream Banking SA gained full access to the Russian securities market. This opened up investment opportunities for non-Russian companies and investment funds.

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 bond issues. This is a significant responsibility, and NSD takes it seriously.

The Bank for International Settlements noted in 2015 that NSD did not have in place arrangements to alert non-Russian regulators to certain information. This is something NSD has worked on since then.

NSD was registered with the U.S. Internal Revenue Service in 2014 and was assigned a Global Intermediary Identification Number. This registration is a requirement under the FATCA regulations.

The value of Bank of Russia's repo transactions with a basket of securities was RUB 14.04 trillion in 2013, and RUB 57.22 trillion in 2014. This highlights the importance of the Russian stock market and the role NSD plays in it.

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The NSD Payment System is a systemically important payment system that was assessed by the Bank of Russia for observance of international standards.

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.

Foreign currency cash transfers to or from clients' bank accounts held with NSD were equivalent to RUB 9.62 trillion.

The assessment was based on 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.

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

The number of Bank of Russia's repo transactions with a basket of securities increased significantly from 3,727 in 2013 to 8,858 in 2014. This indicates a substantial growth in the use of basket securities for repo transactions.

The value of Bank of Russia's repo transactions with a basket of securities also increased dramatically, from RUB 14.04 trillion in 2013 to RUB 57.22 trillion in 2014.

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In Russia, there's a specific role that some financial institutions play when it comes to paying out income on securities.

As a withholding agent, NSD has been acting in this capacity since 2014, in accordance with the Russian Tax Code.

The Moscow Exchange is one of the financial services companies established in 1996, which also plays a role in the financial system.

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These companies, including the Moscow Exchange and central securities depositories, are all based in Moscow, which is a key part of their role as withholding agents.

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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. This allows for more efficient and streamlined transactions.

To clear trades, NSD applies a variety of settlement models, including DVP-1, DVP-2, and DVP-3. These models enable simultaneous delivery of securities and cash.

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The DVP settlement mechanism allows clients to settle trades both in Russian rubles and non-Russian currencies. This was the case until 2022, when the service was discontinued for non-Russian currencies.

The number of Bank of Russia's repo transactions with a basket of securities was 3,727 in 2013, and 8,858 in 2014. This represents a significant increase in just one year.

NSD's clients can also settle trades on a DVP basis using correspondent accounts with the Bank of Russia via the Real Time Gross Settlement System. This adds an extra layer of convenience and efficiency to the transaction process.

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.

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In 2013, NSD expanded its international presence by establishing an international direct link to the Russian securities market with CSD.Austria, the Austrian central securities depository.

This link allowed Austrian and international custodian banks to make direct settlement of Russian securities and hold them using CSD.Austria's foreign nominee account opened with NSD.

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The U.S. Internal Revenue Service recognized NSD as a Qualified Intermediary (QI) in November 2013, a significant milestone in its international recognition.

NSD also joined forces with BNY Mellon in December 2013 to help Russian-based investors trade depositary receipts.

In 2013, FTSE Global Markets named NSD among the 20 most influential financial market players.

Here are some key international milestones for NSD in 2013:

In 2014, NSD continued to expand its international presence by opening a foreign nominee account to the central securities depositories of Armenia and Kyrgyzstan.

Thomas Murray Data Services, a specialist custody rating, risk management, and research firm, issued a CSD rating for NSD at AA− in 2014, translating to 'very low Overall Risk' with 'Stable' outlook.

NSD's net income under IFRS in 2014 was RUB 3.31 bln, while its revenues reached RUB 6.62 bln.

The value of securities held in securities accounts with NSD as at 31 December 2014 was RUB 24.94 trillion, a 14% increase from the previous year.

NSD custodied 70 trillion roubles ($1.12 trillion) worth of client assets in June 2022, including 9 trillion roubles of foreign securities.

The Trade Repository, launched on 1 October 2013, gathers and registers information on derivative and repo contracts entered into under master agreements.

NSD's Trade Repository 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 138,000 reports on master agreements and trades.

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NSD's Trade Repository has been a key player in the Russian securities market, starting its operations on October 1, 2013.

It gathers and registers information on derivative and repo contracts entered into under master agreements, with a focus on repo and currency swap contracts in its first phase.

The repository keeps a register of registered contracts, providing a clear and transparent record of trades.

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NSD's Trade Repository has seen significant growth, with 1,130 market participants registering by the end of 2014.

These clients registered a total of 138,000 reports on master agreements and trades, demonstrating the repository's importance in the market.

Here are the key functions of NSD's Trade Repository:

Performance is crucial in maintaining compliance with sanctions regulations. OFAC's guidance in FAQ 1197 indicates that any securities in the possession or control of U.S. persons held at NSD after the expiration of GLs 99A and 100A should be treated as blocked.

Investors seeking to divest or engage in dealings with securities held through NSD or other sanctioned Russian custodians must apply for a specific license from OFAC if the dealings have a U.S. jurisdictional nexus. This can be a complex and time-consuming process.

Foreign financial institutions (FFIs) face the risk of U.S. secondary sanctions for dealing with persons blocked pursuant to E.O. 14024, which can lead to significant reputational and financial consequences. This highlights the importance of thorough due diligence and compliance checks.

OFAC's caution that transfers to other Russian custodians may not be authorized under the general licenses and may be considered null and void underscores the need for careful consideration and planning.

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NSD's performance has been impressive, with its net income under IFRS reaching RUB 3.31 bln in 2014.

In fact, NSD's revenues under IFRS reached RUB 6.62 bln in the same year, a significant milestone for the company.

The value of securities held in securities accounts with NSD was RUB 24.94 trillion as of 31 December 2014, a 14% increase from the previous year.

As of 2014, the value of foreign securities held in NSD's clients' securities accounts exceeded RUB 2.7 trillion.

Fast forward to June 2022, NSD custodied an astonishing 70 trillion roubles ($1.12 trillion) worth of client assets.

This includes 9 trillion roubles of foreign securities, such as Eurobonds linked to the Russian government.

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The National Settlement Depository (NSD) has been subject to various designations and sanctions. NSD was designated by the United States under Executive Order (E.O.) 14024 for operating in the financial services sector of the Russian Federation economy.

In June 2024, the United Kingdom and the United States introduced asset freezes/blocking sanctions on NSD, along with the Moscow Exchange (MOEX) and the National Clearing Center (NCC). This designation was made concurrently with the designation of MOEX and NCC.

General licenses (GL) 99A and GL 100A were issued by OFAC, allowing U.S. persons to wind down certain transactions involving NSD, MOEX, and NCC, and divest securities held at NSD.

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The European Union blocked NSD in June 2022, but it wasn't until June 2024 that the United Kingdom and the United States introduced asset freezes/blocking sanctions on NSD.

The sanctions were introduced concurrently with the designations of the Moscow Exchange (MOEX) and the National Clearing Center (NCC), which is the central counterparty and clearing agent for MOEX.

NSD was designated by OFAC pursuant to Executive Order (E.O.) 14024 for operating or having operated in the financial services sector of the Russian Federation economy.

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OFAC issued two general licenses (GL 99A and GL 100A) to authorize U.S. persons to wind down certain transactions involving NSD, MOEX, and NCC, and to divest securities held at NSD.

These general licenses expired on October 12, 2024, but a number of investors still hadn't been able to divest their holdings due to countermeasures introduced by the Russian government.

OpenSanctions is a free resource for non-commercial users, but businesses need to acquire a data license to use the dataset. It's licensed under the terms of Creative Commons 4.0 Attribution NonCommercial.

The data is enriched with information from external databases, including the Global Legal Entity Identifier Foundation (GLEIF) and the Russian Federation's Federal Tax Service (FNS). These external sources provide additional context to the data.

The data sources include government agencies, such as the Taiwan Ministry of Economic Affairs (MOEA), the Russian Central Bank (CBR), and the Ukraine's National Security and Defense Council (NSDC). These agencies provide official information on sanctions, banks, and other entities.

Here are some of the specific data sources used in OpenSanctions:

These data sources provide a wealth of information on designations and sanctions, which is essential for understanding the complex landscape of international sanctions.