Developing the Russian Market

1
Developing the Russian Market

• Andrew Carter
• Regional Head Domestic Custody Services Eastern
  South Eastern Europe
• April 28th, 2009

2
The Russian market crisis and related challenges

• Significant falls in equity markets over last 12
  months (RTSI -62, MICEX 55)
• Rouble depreciation, and resultant impact (approx
  200bn) on CBR Foreign Exchange Reserves
• Limited effect of stabilization measures such as
  
• suspension of Stock Exchanges
• establishment of state bail out funds (154bn)
• Increased state intervention in strategic
  assets governance
• Falling Commodity prices
• Fall in expected GDP growth from 7.8 in 2008 to
  approx 3.3 - 1.8 in 2009 (EBRD / World Bank /
  IMF)
• High Inflation (14) / high Interest Rates
  (Refinancing Rate dropped to 12.5 on
  24-Apr-2009) / increase in unemployment (from
  8.5 to 12)
• Increasing credit concerns relating to the
  domestic banking sector and local brokerage
  houses

3
Current trading suspension rules for exchanges

• FSFM updated trading suspension rules for
  exchanges (effective 1st March, 2009) based on
  movements of the main stock index as opposed to
  the technical benchmark
• trading should be suspended for 1 hour if the
  main index of shares increases or decrease by 15
  or more as compared to its closing value of the
  previous day
• trading should be suspended till the end of the
  trading day or until further instruction of FSFM
  if the main index of shares increases or
  decreases by 25 or more as compared to the
  closing value of the index on the previous
  trading day.
• Additional limits are in effect for securities
  from A and B lists
• If the opening price or the current weighted
  average price of a security increase or decrease
  by more than 10 as compared to its last closing
  price, trading of this security is to be stopped
  for at least 1 hour
• If the opening price or the current weighted
  average price of a certain security changes by
  more than 20 as compared to its last closing
  price, trading of this security should be
  suspended till the end of the next trading day or
  until further instruction of FSFM. The one-hour
  suspension may be used only once a day.

4
Most recent regulatory infrastructure initiatives

• FSFM Strategy Concept released in Sept-2008 with
  subsequent approval of the Financial
• Market Development Strategy by the Russian Prime
  Minister Vladimir Putin in January
• 2009 has set out a preliminary road map for a
  range of legislative measures to be
• undertaken over the next 24 months. The Strategy
  is intended to create a competitive and
• independent financial centre in Russia by 2020.
• Formulation of 18 bills amending existing Russian
  legislation as part of the Strategy
• these should be drafted and approved by the State
  Duma by 2011 and aim to address
• the development of Russian market infrastructure
  (covering Stock Exchanges, Securities
  Depositories, Clearing Houses, as well as the
  mandatory use of a Central Counterparty)
• revision of securities legislation to improve on
  issuance of securities
• revision of securities legislation to recognise
  Securities Lending
• revision of taxation legislation
• the development of a domestic institutional and
  retail investor client base
• the development of a range of Investor Protection
  measures (including establishment of an Investors
  Protection compensation fund)

5
Most recent regulatory infrastructure initiatives

• Elements of the Financial Market Development
  Strategy are already being introduced
• FSFM has issued licence (Feb-2009) to the
  National Clearing Centre (NCC) to conduct
  clearing activities in the Russian markets (basis
  of a Central Counterparty) to cover not only FX,
  but also stock, forward, commodity and government
  securities markets
• Duma approves 3rd reading of Foreign Securities
  Trading Bill (April-2009) which will establish
  listing of foreign issuers whose securities are
  listed on a non-Russian Stock Exchange and are
  admitted to trade
• Initial recommendations submitted to the FSFM to
  establish a compensation fund (to be managed by
  the Deposit Insurance Agency) for retail
  investors
• Draft legislation intended to establish a single
  Central Securities Depository (CSD) has been
  halted. It is likely that resultant legislation
  will be highly likely to recognise the role of a
  Securities or Settlement Depository, and that as
  such there may exist one or more such (C)SDs
  servicing the Russian market. Both DCC and NDC
  are now established as Joint Stock Companies
  (JSCs) and are actively co-operating in improving
  communications across the DCC NDC Bridge,
  establishing bridges with Custodian Banks, and
  extending the scope of RUB DvP / RvP settlement
  schemes.
• Foreign Nominee recognition explicitly mentioned
  in the Financial Market Development Strategy

6
Resulting market infrastructure changes

• Increased client interest (especially from
  cross-border investors) in DvP / RvP settlement
  schemes
• Increased client demands for more accurate /
  timely / standardized Corporate Actions
  reporting, and expert advice / interpretation
• Integrated Brokerage
• Location Management / Depot Realignment
• Increasingly complex / Non Standard Corporate
  Actions (such as TGK2, TGK4, Norilsk Nikel)
• Enhanced client demand for more comprehensive MIS
  reports
• Changes in RUB payments flexibility (RTGS,
  increased usage of 5th session)
• Introduction of EDI