ACRA affirms AAA(RU) to CCP NCC, outlook Stable

The credit rating of CCP NCC (hereinafter, NCC, or the Organization) is based on its strong and stable business profile, exceptional liquidity position and high capital adequacy, with the latter compensating for the risk profile. NCC is a systemically important central counterparty according to the methodology of the Bank of Russia.

As a subsidiary of Moscow Exchange Group, NCC performs the functions of a clearing organization and central counterparty on the Russian financial market.

Key rating assessment factors

The strong business profile is reflected in NCC’s exclusive role as a clearing organization and central counterparty, which ensures the majority of transactions in the key segments of the Russian financial market and guarantees the fulfillment of obligations under them. ACRA positively assesses the high corporate governance and risk management standards at the Organization, which enable it to perform activities with the minimum accepted risk relative to the scope of transactions.

High capital adequacy: the capital adequacy ratio of central counterparty (N1cc) amounted to 160.4% as of September 1, 2020. This allows risks associated with the functions of central counterparty to be covered, as well as the risks of potential impairment of NCC’s own balance sheet assets. The factor assessment is supported by the profitability indicator (which decreased to 25.3% as of the end of 2019) calculated by ACRA, coupled with a low operating expenses to operating income ratio (6.7% over the last three years).

The counterparty risk of NCC is mitigated by rigid admission criteria for participants and a strict margining policy (with prompt marked-to-market reevaluations). The structure of central counterparty protection levels combined with a set of measures to be taken in case of default of clearing participants, which are both provided by the Organization, have a positive impact on ACRA’s assessment of NCC’s risk profile. ACRA also takes a positive view of the fact that NCC has optimized its risk parameters and strengthened its risk procedures in 2020 in order to reduce the possibility of losses amid crisis phenomena in the economy.

The assessment of NCC’s risk profile is constrained by a significant amount of assets exposed to market risk (over 200% of common capital), as well as by materialization of operational risks in 2018 and 2019.

The liquidity position is assessed as strong given the specifics of NCC’s operations. The liquidity ratio of central counterparty (N4cc) is significantly below the established maximum.

Key assumptions

  • NCC retaining its role of a systemically important clearing organization and central counterparty in Russia;
  • No material financial obligations (debt);
  • Maintaining the excess liquidity position.

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A negative rating action may be prompted by:

  • Significant deterioration of NCC’s capital adequacy as a result of declining profitability or an aggressive dividend policy;
  • Deterioration of the liquidity position resulting from a reduction in the liquidity cushion or decline in the credit quality of highly liquid assets on the Organization’s balance sheet;
  • Major losses caused by the materialization of operational risks.

Rating components

SCA: аaa.

Adjustments: none.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Banks and Bank Groups Under the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.

The credit rating of CCP NCC was published by ACRA for the first time on November 1, 2016. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.

The credit rating was assigned based on the data provided by CCP NCC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS statements of CCP NCC and the financial statements of CCP NCC drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018.The credit rating is solicited and CCP NCC participated in its assignment.

No material discrepancies between the provided data and the data officially disclosed by CCP NCC in its financial statements have been discovered.

ACRA provided additional services to CCP NCC. No conflicts of interest were discovered in the course of credit rating assignment.

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