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. Last Updated: 07/27/2016

Chicago Bets on Ruble's Future

The Chicago Mercantile Exchange this week resurrected betting on the future value of the ruble.

Five years after the activity was halted due to the instability of the currency, Deutsche Bank convinced America's largest futures exchange that the ruble was once again stable enough to wager on.

Deutsche Bank AG in London and Deutsche Bank Ltd. in Moscow will act as the market maker, maintaining firm bid and offer prices for all four quarterly contract expirations available for trading on Globex, CME's electronic trading platform.

"In recent months, our customers have expressed renewed interest in Russian ruble contracts, and we are very pleased that, for the first time, a market maker will be offering ruble prices on our Globex system," said Rick Sears, CME's managing director of currency products.

Yury Solovyov, head of Deutsche Bank's trading operations in Russia and the Commonwealth of Independent States, said the new instrument could prove to be a hit with Russian companies and banks, especially since they have been locked out of the forward contract market since failing to meet their obligations in the wake of the 1998 crisis.

Unlike a futures contract, which is an agreement to buy a commodity at a certain price and date in the future, a forward contract is the purchase or sale of a commodity or financial instrument at the current spot price, with delivery and payment to come at a specified future date.

Solovyov said the lack of a clear legal structure for forward contracts makes ruble futures the only instrument Russian banks and companies can use to hedge against currency and interest-rate risks.

"This instrument is more important for Russia now," he said. "It allows companies to plan their businesses and fund themselves more effectively."

Each contract has an underlying value of 2.5 million rubles ($78,000) and is settled in cash, the amount of which is stipulated in the contract. The contracts expire every three months — the first days of March, June, September and December — and can be traded any time.

"This is a very interesting instrument for both importers and exporters, as well as for the banks themselves," said Nikolai Zolotarev, currency dealer at MDM-Bank, one of Russia's largest private banks. "I am glad to know that CME has started trading ruble futures again, and I will recommend them to our clients."

Moscow's major currency exchange, MICEX, which is already offering ruble/dollar and ruble/euro futures, welcomed the move, which it said will increase volumes on both exchanges.

"We do not expect any decline in trading volumes, especially remembering that Deutsche Bank is actively working on the local market too," a MICEX spokesman said.

Some 13 billion rubles worth of derivative instruments like futures were traded on MICEX last year, nearly three times higher than in 2001, but still just a fraction of currency trades, which can hit $1 billion a day.

"In developed countries, trading in derivatives far exceeds the cash market, but in Russia the situation is very different," Solovyov said. "The main reason is that most Russian companies do not know how to use these instruments."