The stock market of the Moscow Exchange is called the Main Market Sector. It includes:
- Stock and share market, where Russian and foreign stocks are traded, as well as depositary receipts, investment shares of mutual funds, ISU, ETF.
- Bond market, where OFZ, regional and municipal bonds, Russian corporate (including exchange-traded) bonds denominated in rubles and foreign currency, corporate Eurobonds and sovereign Eurobonds of the Russian Federation.
Stock Trading Modes
The main mode of trading on the market for shares and shares is called "DOM T+2". In this mode, trades are conducted according to the technology with a central counterparty - partial collateral - deferred execution. Cash Settlements with the seller for the purchased securities and their delivery to the buyer is carried out on the second day from the date of the transaction. This is called the "settlement cycle - T + 2". Main trading mode - Т+
Bond Trading Modes
The bonds are traded in three main modes: "DOM T0", "DOM T+1", "DOM T+2".
- "Glass T0" - day-to-day settlements Regional and municipal bonds, as well as corporate bonds, Eurobonds of the Ministry of Finance, Eurobonds (denominated in rubles) are traded in the main trading mode "Glass T0". Sellers and buyers are obliged to ensure the execution of the transaction by 100%. The seller's account must contain bonds, and the buyer's account must contain money. Settlements in the Main Trading Mode ("T0 order book") take place on the day of the transaction. The settlement cycle is called T+0.
- "Glass T+1" - settlements for the next day OFZ - Federal Loan Bonds - are traded in the main trading mode "Glass T+1" using the technology with a central counterparty - partial collateral - and deferred execution. Main trading mode - Т+. Settlements and delivery are carried out on the next day from the moment the transaction is concluded in the settlement cycle - Т+1.
- "Glass T+2" - settlements in two days Bonds denominated in US dollars are traded in "Glass T+2". Mutual settlements between sellers and buyers are carried out on the second day after the conclusion of the transaction in the T+2 settlement cycle. Main trading mode - Т+.
Yesterday, the Moscow Exchange announced the forthcoming change in the mode of trading in federal loan bonds (OFZ). From April 27, anonymous OFZ trading (in the main section) will only be possible in T+1 mode. This mode involves settlements on concluded transactions in one day and partial pre-deposit of funds and valuable papers. Until now, the exchange has been dominated by OFZ trading (as well as bonds in general) in the T0 mode - with settlements on the day of the transaction and 100-deposit. From March 23 to April 26 will last transition period, during which it will be possible to make transactions both in T0 and T+1 modes.
The Moscow Exchange is gradually switching trading on various markets to the T+ mode. Thus, since September 2013, trading in shares, units and RDRs has been switched to the T + 2 mode. In the bond market, there was an opportunity to trade in T+2, but, as before in the stock market, as long as investors had the opportunity to choose, they traded in the mode that was more familiar to them. As a result, for example, according to the results of March 13, the volume of OFZ trading in T+2 amounted to 2 thousand rubles. Now the entire main OFZ market is being switched to T+ mode. After April 27, it will be possible to make transactions in T0 only in the non-anonymous negotiated transactions mode (NTC). “The share of anonymous trading in the total volume of trading in bonds over the past two years has reached 16% for OFZ. Our goal is to offer all categories of participants convenient way trade through partial security of transactions and deferred settlements,” Anna Kuznetsova, Managing Director for the Stock Market of the Moscow Exchange, commented on the innovation. The question why the T+1 mode was chosen for OFZ, and not T+2, as for shares, units and RDRs, was left unanswered on the exchange.
The decision of the exchange to transfer the main OFZ trading to the new mode was made on the recommendation of the relevant committee (exchange committees include, in particular, brokers and managers), the exchange said. However, not all market participants believe that the innovation will benefit them. “This mode is not available to managers - brokers do not provide them with partial pre-deposit services, that is, in the event of a purchase of paper, the entire amount is blocked immediately,” says Konstantin Artemov, manager of the Raiffeisen Capital bond portfolio. “Our company works mainly with managers, institutional investors who carry out their transactions on the terms of 100% security, regardless of the trading mode,” admits Alexei Kuznetsov, Chairman of the Board of Directors of BC Region.
Market participants working with institutional investors believe that the new OFZ trading regime could be of interest to retail investors. “The popularity of debt instruments is also growing among private investors, whose share in the OFZ trading volume reached 6%,” notes Anna Kuznetsova. However, brokers working with private investors reacted rather indifferently to the innovation. "For individuals, which are the basis of the Otkritie Broker client base, there is no fundamental difference between T0, T + 1 and T + 2 for OFZ trading,” says the CEO brokerage company"Discovery" Yuri Mintsev.
IMPORTANT! The changes affected only stocks, the mode of trading in futures has not changed.
The first most important innovation is that now shares can be traded like futures contracts, with a leverage of 1/5 or more, naturally with all the ensuing consequences: rapid enrichment or instant ruin. An important feature is that now you can open positions on credit, replenishing your account within two days.
Secondly, this change disabled many trading robots, which affected the trading volumes.
The third, subjective opinion, is that now it will be more accessible and comfortable for certain structures to manipulate the market.
Now for the changes in trading terminal Quik. Each broker has its own characteristics, but usually a number of changes are required.
- Please update Quik to version 6.7.1.3 and above as the new T+2 trading mode is only available for new versions from 6.7.1.3 and above.
- Update the tools in Quik, in the menu Communication - Lists, check the boxes for the new classes that you will work with. For example: MB FR: T + A2-Shares and shares (Fig. 1).
- Update the main tables, first of all the Current Design Table. Add tools from new classes to it (Fig. 1).
Also build charts, order books, etc. That's all the changes.
IMPORTANT! First make a copy of the Quik configuration file, save it under a unique name other than info.wnd, so that you can restore it later if necessary.
Examples of displaying limits for securities and money in the Quik trading terminal with the new T+2 trading mode.
Introduced the new kind limit - planned limit - Т+2.
T2 - determines the planned position or current. balances taking into account future income and deductions on already opened T+2 deals (Fig. 2).
T0 is an old indicator, it reflects the current balances of the day. funds and papers (Fig. 2).
Example 1. 10,000 shares of VTB and 10 shares of Gazprom AO were purchased from a client and there are no active bids, so the available money. funds = 10,000 rubles. (Fig. 2).
Example 2. A client in T+2 trading mode buys another 10,000 VTB shares at 0.05 rubles. in the amount of 500 rubles. and sells 10 shares of Gazprom for 120 rubles. in the amount of 1200 rubles. The client's limits will change as follows: the limit for VTB T2 securities = 20,000, the limit for Gazprom securities T2 = 0, while the available funds are 10,700 rubles. (10 0000 - 500 + 1200) - Fig. 3.
Example 3. The client placed orders: 20,000 VTB shares for sale and 10 Sberbank shares for purchase, then 20,000 VTB shares will be blocked. The cash limit will be reduced to RUB 1,198.90 due to the blocking of the amount of RUB 9,501.1. for the purchase of Sberbank (Fig. 4).
Example 4. A client, having 10,000 rubles, bought 400,000 VTB shares in the amount of 19,156 rubles. and left the position the next day. In this case, the broker enters into a REPO deal with the client for the missing amount of 9,158 rubles. (Fig. 5), a certain percentage will be charged for this service.
On the this moment the list of securities that can be traded in T+2 mode includes about 50 liquid shares and OFZs.
With the new trading mode, all clients (by default) are provided with 1/5 leverage.
IMPORTANT! A new indicator has been introduced - the level of security. If it drops to 15% or less, then the client receives a warning: margin call. In the event that the level of security falls below 10%, there is an automatic and forced reduction - positions are closed.
All of the above is reminiscent of trading futures contracts.
This innovation caught many developers of exchange robots by surprise, despite the fact that it was announced in advance. The saying “nothing is as unexpected as the beginning of winter” remains relevant.
Perhaps one of the first trading robots adapted for the new T+2 trading mode was the SuperADX robot. It is designed for connoisseurs technical analysis, has 17 tactics and is considered one of the most advanced trading robots.
So, the Central Bank raised interest rate by 0.25 punt to 7.5% - which means that the bonds fell, and the yield on them increased. We expected approximately such a development of events and wrote about it in our VK group and also recently published an educational article on bonds on the topic of such a concept as .
Now it's time for the promised bond review. Today there will be only the first part, where we will generally consider those OFZs that may be interesting now, and in the second part we will already give a specific recommendation and buy something in the portfolio ourselves.
OFZ on the Moscow Exchange
Unfortunately, now there is no access to the QUIK terminal - therefore, we will use data from the Moscow Exchange website (there is no duration indicator and this is bad, also therefore there will be a 2nd part of the review).
Why are we going to watch the OFZ? After all, there are still corporate bonds, the yield on which may be higher. Yes, this is true, but the risks there can be much higher. On the whole, we proceed from the fact that OFZ is the most reliable investment instrument in the Russian stock market(more reliable than a deposit in Sberbank). And this most reliable tool can give a very good profitability. Therefore, we take OFZ, and for more risky investments, we have stocks.
On the website of the Moscow Exchange, I found 39 OFZs. Please note that I have sorted the list by maturity date, from nearest to farthest. That is, as we already wrote in our article about - at the top of the list there will be bonds with a smaller duration (= risk), and at the bottom with a larger one.
OFZ list
I won't cover everything here - you can do it yourself. I'll quickly go over the list and highlight those bonds that might be of interest, but first we need to talk about the search criteria and, most importantly, our selection strategy.
OFZ Bond Selection Strategies
In fact, there are only 2 strategies, in one we increase the Central Bank rate (bonds fall, the yield grows), and in the second it decreases (bonds rise, the yield falls).
Strategy 1 "The Central Bank rate will increase in the future"
In this case, we expect that the Central Bank rate will increase in the future, which means that bonds will fall (so that their yield increases). Then it's better for us:
- Buy bonds with low duration (near) as they will fall less (less loss from change market price)
- Buy bonds at a price cheaper than par (since in the event of a fall, we will have the opportunity to simply wait for redemption at par)
- Buy OFZs with only a small part of the funds (in the future, bonds will become even more profitable and you need to leave funds in order to buy more later)
Strategy 2 "The Central Bank rate will fall in the future"
In this case, we expect that in the future the Central Bank rate will fall, which means that bonds will grow (and their yield will fall). Then it's better for us:
- Buy bonds with a high duration (long), as they will grow more (more profit from a change in the market price), and we will receive a coupon longer
- Buy bonds at a price as low as possible face value (you can either sell more expensive, or calmly wait for redemption)
- Buy OFZs with all available money (yields will fall in the future) to lock in excellent interest income
As you can see, it turns out that it is Strategy 2 that plays into our hands - but the main question is to find the time when it will begin to be implemented. Now it is very difficult to say something unambiguously. We have just seen, on the contrary, an increase in the Central Bank rate, which gives us reason to think about Strategy 1, in which we must behave most carefully.
For the time being, I would suggest looking more towards Strategy 1 (that is, being careful) and at the same time note that buying bonds at a price below par (2 points) is beneficial for us in both cases.
Bonds under Strategy 1
- Yield: 7.76%
- Repayment date: 12/11/2019
- Last price: 99,05
- Yield: 8.08%
- Repayment date: 05/27/2020
- Last price: 97,63
- Yield: 8.13%
- Repayment date: 04/14/2021
- Last price: 99,14
- Yield: 8.15%
- Repayment date: 08/18/2021
- Last price: 98,75
- Yield: 8.27%
- Repayment date: 24.11.2021
- Last price: 96,88
- Yield: 8.32%
- Repayment date: 12/15/2021
- Last price: 96,75
As you can see, the yield grows with the duration (=risk) or the maturity date.
Selling government debt to investors can serve a variety of purposes. At the expense of attracted funds, the budget deficit is covered, state investment programs and projects are financed.
In Russia, public debt management is carried out by the Government, which sets limits on public debt for the next financial year, approves the general conditions for the issue and circulation of government debt securities, and makes other key decisions on this issue. But directly the issue and servicing of issues of government bonds is carried out on its own behalf by the Ministry of Finance, involving the Bank of Russia as a general agent.
The volumes of planned borrowings are regularly published on the official website of the Ministry of Finance and are available for review to everyone. Directly initial placement OFZ occurs through auctions, which are scheduled to be held on a weekly basis every Wednesday.
The agency also publishes the exact schedule for the next quarter. on the site, however, in some cases, when market conditions do not allow to raise funds at the required rate, the auction may be canceled, as reported in the relevant press release.
The form of holding in the form of an auction allows you to assess the real market conditions and understand at what profitability investors are ready to lend to the state. A high level of demand allows the state to count on the next placement for more low interest on loans, while low demand, on the contrary, indicates the need to give investors a higher yield or wait for a more suitable market situation.
Who participates in auctions of the Ministry of Finance
Buyers of debt securities in the primary market are mainly large institutional and private investors, who, due to the size of their capital, cannot buy securities in the secondary market without loss in profitability. Also, investors can expect that due to low demand at the auction, they will be able to get more profitable terms than in the secondary market.
Theoretically, anyone can take part in the auction. However, in practice, brokers and banks that provide clients with access to the auctions of the Ministry of Finance may impose certain restrictions on minimum size capital or provide such a service only separate category clients.
For an ordinary private investor, whose investment volume does not exceed 20-30 million rubles, the liquidity in most OFZ issues is quite enough to purchase securities on the secondary market. If you operate with more significant amounts or expect a higher yield, you can contact your broker to participate in the auction.
How is the auction
An auction is held through a special trading system based on the infrastructure of the Moscow Exchange. A press release is also published on the stock exchange's website the day before the auction, which indicates the issues of securities offered at the auction, the time for submitting applications and other features. As a rule, the Ministry of Finance offers two or three OFZ issues at auctions with different terms repayment.
Bidders can submit two types of bids: competitive and non-competitive. Competitive bids are executed exclusively at the price specified in the bid and may not be fully or partially satisfied by the issuer. Non-competitive bids are satisfied at the weighted average price of the auction if there is an offer.
Why analysts follow the auctions of the Ministry of Finance
Based on the results of the auction, the exchange publishes the results. Based on the weighted average yield formed at the auction, market participants evaluate the fair yield on securities and the general sentiment on the market.
A significant excess of demand over the placement volume or a discount in the yield of the auction compared to the price on the secondary market - these factors indicate high demand and a possible decrease in yield on securities in the future. It also matters, for securities with which maturity the demand turned out to be higher.
On the contrary, if the issue was not fully placed, placed with a yield premium, or the auction was canceled altogether, then this is a clear signal to the market that the demand for securities is low, and the fair yield on the market may be higher than that offered by the state.
Galaktionov Igor
BCS Broker
