3. Types of derivatives

Interest rate derivatives

The most commonly used interest rate derivative contracts by non-financial firms are swaps, with somewhat limited use of caps, floors, and collars. Interest rate swaps are contracts to exchange between floating-rate payments and fixed-rate payments. For example, if a firm wanted to hedge against the risk of an unexpected change in cash flow to be paid, it could enter into a contract to receive a series of floating-rate payments in return for making a series of fixed-rate payments, based on some estimated amount of the debt instrument. There is evidence that swaps of floating-rate payments for fixed-rate payments are more frequently used (Bodnar et al. 1998), indicating that firms may be more concerned with unexpected cash flow changes than with changes in the values of assets or liabilities, possibly a reflection of firms' debt structures.

Foreign currency derivatives

Foreign currency derivatives commonly involve forwards, futures, options, and swaps. Currency forwards are contracts that call for future delivery of a foreign currency at some predetermined exchange rate. Futures are similar to forwards, except for the fact that futures are traded on organized exchanges. Firms also use foreign currency swaps, which are contracts to exchange a series of interest payments in one currency for a series of payments in some other currency. These swap contracts may also involve a swap of interest rates, exchanging between floating-rate payments and fixed-rate payments. Firms use foreign currency derivatives as frequently as interest rate derivatives.

Commodity Price Derivatives

These derivatives are mostly futures, forwards, and swaps. Forwards and futures work in the same way to those involving interest rates or foreign currencies. Commodity swaps involve an exchange between floating-price and fixed-price payments where the floating price is based on some price as determined in a futures market and the fixed price is based on the spot price of a commodity, such as gold. These commodity derivatives, unlike those involving interest rates or foreign currencies, are limited mostly to firms that produce or use commodities, such as gold or oil.

2. The Russian market of derivatives

One of the markets, the totality of which forms a market economy is the financial market, which distributes the funds among the participants of economic relations. Integral part of the financial market is the market for financial derivatives.

Derivative financial instruments (or as they are known derivatives) represent, agreement of the parties buying and selling the basis asset at an agreed price after a certain time.

As the basis asset may be:

• Securities.

• Currency.

• Valuable metals.

• Goods.

• Interest rates.

• Inflation rate.

• Official statistics etc.⁵

Purpose of buying a derivative financial instrument is not usually receive the basis asset, and the decision of one of the following tasks: hedging financial risks, diversification of the investment portfolio with the given parameters of risk and income , receive a speculative profit on price changes of the financial instrument, the creation of new financial products.

In keeping with its recent integration of the Russian market in the global financial system domestic derivatives market is mainly represented by the two instruments, futures and options and, according to their different variations on the basis assets. ⁶

A futures contract is an obligation, implying delivery or taking delivery of the basis asset at the end date (or earlier) expiration of the futures contract.

An option contract represents the right to buy or sell a certain amount of the basis asset at a specified price on a specified future date, unlike futures imposes no obligation. Maximum loss in case of the buyer’s failure from his right limited option price – premium.

Most of the Russian citizens who have savings, consider the only reliable way to invest – placement of funds in bank deposits, and disregard of financial instruments that are still unpopular object independent investment due to lack of necessary financial knowledge among the majority of citizens. Derivatives if used pro-vide more opportunities for high income.

Despite this, in recent years the Russian derivatives market is booming, making a detailed study of current promising market opportunities for a variety of economic actors.

In Russia leading marketplace for derivatives is the futures and options market-FORTS. Currently traded on FORTS derivatives whose basis assets are: RTS Index, sectoral indices, shares and bonds of Russian issuers, federal bonds, foreign exchange, and commodities – oil, diesel oil, gold, silver, sugar.⁷

Derivatives Market FORTS, belongs to the group of the Moscow Stock Ex-change, in 2011 became one of the most dynamic in the world, according to an-other study conducted by derivatives exchanges Futures Industry Association, based on data from 81 marketplace (Table 1).⁸

According to the FIA, the volume of trading in futures and options on FORTS in 2011 exceeded 1 billion contracts, which is 73.5% more than in 2010. For this indica-tor, the Russian court closes the "troika" of the leaders after the United Stock Ex-change of India (+181%) and the ASX Group (+111,8%). Total volume of the world's derivatives trading rose last year by 11.4% reaching 25 billion contracts. Highest turnover falls on the site Asia-Pacific region, where the volume of trading in deriva-tives contracts amounted to 9.8 billion, followed by North America – 8.2 billion, the third Europe – 5 billion Thus FORTS share in global derivatives turnover exceeding 4% and 20 % in Europe. "Top Ten" of the largest derivatives exchanges in the world, where the third consecutive year FORTS, gives 83% of the global turnover in finan-cial derivatives. Most liquid Russian stock market – the RTS Index futures became the fastest growing among all index futures contracts in the world. Trading volume over the past year they increased by 68.2%, reaching 377.8 million contracts. Foreign exchange contracts "dollar-ruble" and "euro-ruble" were among the most liquid monetary segment , finishing fifth and 10th places respectively, while futures for Brent crude and gold entered the "twenty" in its most liquid segments.

Volumes of derivatives trading in the markets of developed countries far exceed the volume of trade in real assets, and from year to year, this trend is in-creasing. What is the appeal of derivatives before the base?

Traditionally, operations on the futures market are more favorable compared with operations in the market of the underlying asset. This is not only affected by "shoulder", but with the absence of transaction costs arising from the conduct of operations on the underlying asset ( fee for use of credit and payment depository and settlement services). Moreover, exchange fees on transactions in futures and options on FORTS significantly lower than those in the securities market. Higher-yielding but riskier while.

In 2012, the largest share in the structure of trading occupied:

• Futures contracts on stock assets - 55.6% ( allocated shares of JSC "Gaz-prom", JSC "Sberbank Russia", JSC "Lukoil", RTS Index);

• Currency futures (mainly on the dollar to the ruble) - about 35%;

• Options – 7%.

Top 30 Derivatives Exchange (Ranked by number of contracts traded and/cleared) (Table 1)

№	Exchange	2010	2011	% Change
1	Korea Exchange	3,748,861,401	3,927,956,666	4.8%
2	CME Group (includes CBOT and Nymex)	3,080,497,016	3,386,986,678	9.9%
3	Eurex (includes ISE)	2,642,092,726	2,821,502,018	6.8%
4	NYSE Euronext (includes U. S. and EU markets)	2,154,742,282	2,283,472,810	6.0%
	National Stock Exchange of India	1,615,790,692	2,200,366,650	36.2%
5	BM&FBovespa	1,413,753,671	1,500,444,003	6.1%
6	Nasdaq OMX (includes U. S. and Nordic markets	1,099,437,223	1,295,641,151	17.8%
7	CBOE Group (includes CFE and C2	1,123,505,008	1,216,922,087	8.3%
8	Multi Commodity Exchange of India	1,081,813,643	1,196,322,051	10.6%
9	Russia Trading Systems Stock Exchange	623,992,363	1,082,559,225	73.5%
10	Zhengzhou Commodity Exchange	495,904,984	406,390,664	–18.1%
11	United Stock Exchange of India	125,360,892	352,318,350	181.0%
12	Shanghai Futures Exchange	621,898,215	308,239,140	–50.4%
13	Dalian Commodity Exchange	403,167,751	289,047,000	–28.3%
14	ASX Group (includes ASX and ASX 24)	106,385,077	225,353,623	111.8%

But the share of interest and commodity contracts is not even half a percent. Insignificant volume of transactions on the latest tools due to lack of the required number of instruments and liquidity.

In January 2013 on the Moscow Stock Exchange futures market prices of liquid futures execution in March 2013 varied in different directions. Most significantly increased the futures price for the shares of "Sberbank of Russia" (15.9%). Contract on RTS index rose by 5.5%, contracts on precious metals – 5.1% (silver) and 0.6% (Gold). Futures price on the euro against the U.S. dollar increased by 2.6%, the futures on the U.S. dollar against the ruble – decreased by 1.6%. Futures on shares of JSC "Gazprom" and JSC "LUKOIL" fell by 2.0% and 0.4%, respectively.

One of the major problems on the Russian derivatives market is weak legislative regulation. To date, the basic regulations governing the activities of the Russian market are: the Civil Code, the Tax Code of the Russian Federation, the Federal Law "On the Securities Market", Federal Law "On Commodity Exchanges and Exchange Trade", Federal Law "On Investment Funds".

Conclusion

The main problems of the Russian derivatives market are:

• a small number of large hedgers insuring medium and long term risks through forward transactions. In connection with this transaction predominate speculative nature;

• in contrast to the global trend on the Russian derivatives market is not developed the OTC segment. And shifting the center of activity on OTC operations outside the country. Trade on the OTC market is decentralized and provides participants with greater freedom in the individualization of contractual conditions;

• increased risk transactions, currently, the majority of participants of the securities market should adopt laws on clearing and clearing activities, as well as close-out netting, which involves cessation of all obligations for transactions in the circumstances that impede the fulfillment of transactions one of the parties. For example, for non-performance of obligations by one party to the contract, downgrade, or revocation of a license issued by a court decision on the recognition of a party bankrupt. The absence of such laws hinder participation in the Russian derivatives market by nonresidents;

• narrow spectrum and low liquidity of traded instruments, namely the pre-dominance of transactions deliverable derivatives and equity, interest rate derivatives segment undeveloped and commodity derivatives, a small proportion of transactions in options (90% of the stock market turnover in the futures market futures hold);

• no significant activity of self-regulatory organizations in this direction.

In this regard, further development of the derivatives market in Russia is connected with:

1. improvement of the legal framework and taxation term transactions;

2. increasing the number of trading tools;

3. an increase in the interest of bidders is not only speculative transactions , but also in hedging transactions with a primary activity;

4. risk management training managers of companies of the real sector of the economy. As for the development of individual companies use derivatives pro-vides great opportunities that are concluded as follows:

• Hedging;

• Reduction of transaction and agency costs;

• Reducing the volatility of cash flows and the probability of default;

• Increasing the options for investment.

Thus we can conclude that the improvement of derivatives necessary for the qualitative development of the domestic stock market and is an important component of economic growth in Russia.

Literature

1. Koehler, Christian. "The Relationship between the Complexity of Financial Derivatives and Systemic Risk

2. Hull, John C. (2006). Options, Futures and Other Derivatives, Sixth Edition. Prentice Hall

3. Lemke and Lins, Soft Dollars and Other Trading Activities, (Thomson West, 2013-2014 ed.)

4. Справочно-правовая система «КонсультантПлюс».

5. Агрба Д.В., Пастухова Н.Б. Роль производных финансовых инструментов в решении задач финансовой политики крупных организаций России // Аудит и финансовый анализ. М., 2009. № 4

6. Московская биржа. URL: http://rts.micex.ru/

1 Koehler, Christian. "The Relationship between the Complexity of Financial Derivatives and Systemic Risk". Working Paper: 10–11.

2 Hull, John C. (2006). Options, Futures and Other Derivatives, Sixth Edition. Prentice Hall. p. 1.

3 Koehler, Christian. "The Relationship between the Complexity of Financial Derivatives and Systemic Risk". Working Paper: 10.

4 Lemke and Lins, Soft Dollars and Other Trading Activities, §§2:47 - 2:54 (Thomson West, 2013-2014 ed.).

5 Приказ Федеральной службы по финансовым рынкам (ФСФР России) от 4 марта 2010 г. № 10-13/пз-н «Об утверждении Положения о видах производных финансовых инструментов» // Доступ из справочно-правовой системы «КонсультантПлюс».

6 Агрба Д.В., Пастухова Н.Б. Роль производных финансовых инструментов в решении задач финансовой политики крупных организаций России // Аудит и финансовый анализ. М., 2009. № 4.

7 Агрба Д.В., Пастухова Н.Б. Роль производных финансовых инструментов в решении задач финансовой политики крупных организаций России // Аудит и финансовый анализ. М., 2009. № 4.

8 Рынок FORTS вошел в «тройку» самых динамично развивающихся в 2011 году //

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