| LONDON, March 17
LONDON, March 17 The premium to trade Russian
roubles offshore has increased in foreign exchange derivative
markets, traders and brokers said on Monday, as market
participants worry that onshore rouble contracts might not be
The United States and European Union slapped sanctions on
Russian and Ukrainian officials after Crimea voted on Sunday to
secede from Ukraine and join Russia. Among them are two top
advisers to Russian President Vladimir Putin.
Nine-month and 1-year dollar/rouble offshore non-deliverable
forward (NDF) contracts were trading at a premium - indicating
lower implied yield - to onshore deliverable forward contracts
last week, before Crimea's referendum. After the
Crimean vote, traders say, the premium has extended to
short-term contracts expiring after one or three months.
An NDF is a contract to buy or sell a currency that
generally is traded outside the country issuing that currency.
The contracts are settled in some other currency, usually
dollars. They protect people from the risk they will not be able
to get delivery of the currency when the contract is due.
Markets are assessing whether sanctions will hit Russian
banks and disturb the orderly functioning of markets, creating a
risk that roubles will not be delivered against onshore
"There has been a premium in NDFs in comparison with the
forwards, because the market has been so volatile," said one
broker in London. "I guess there is a worry about delivery."
While the rouble is currently trading at 36.24 to the dollar
, NDFs price the Russian currency at 36.6 per dollar in
one month's time, at 37.98 in six months and 38.82 in nine
The contracts are now trading anywhere from 3 to 9 kopecks
more expensively than the onshore forwards, depending on the
size of the contract, traders said.
"The market is trying to price in the convertibility risk,"
said one trader in Moscow. "There is a premium even across
Some traders say this phenomenon has not been seen since
Russia's short war with Georgia in 2008. Others say they have
never come across it in 10 years or more of currency derivatives
If the situation continues, trading firms said they would
need to adjust their pricing and risk-management structures to
take it into account.
But one London-based broker said his firm was continuing to
quote the same prices for forwards and NDFs.
"We have had a few calls from clients about this, but there
has been no change - we have not seen any increase in NDF
(Additional reporting by Neal Kimberley in London and Jason
Bush in Moscow; Editing by Larry King)