With great excitement we watching recent developments in the regulation of the Russian capital markets aimed at making Russia more attractive a destination for foreign investors.
On February 07, 2013, the international clearing system Euroclear Bank started direct settlement of Russian ruble-denominated government debt (OFZ). This long-expected move opens OFZ market to foreign investors. It has become possible after creation of the central securities depository – the National Settlement Depository (NSD) - and the creation of a direct link between the NSD and Euroclear Bank. Initially, Euroclear will be operating in OTC mode. Full-scale operations, including exchange-traded transactions, are expected to commence in March 2013 upon the establishment of a bridge with the Moscow Interbank and Currency Exchange (MICEX), Russia’s leading trading platform. The Euroclear Bank/NSD link will also enable clients of each depository to settle cross-border transactions easily.
As a Barclays analysts pointed out in a recent note, foreign presence in the Russian government debt market currently stands at 14% - which is relatively low compared to 25-30% in other emerging markets. In 2013-2015, Barclays expects inflow of foreign investments in OFZ triggered by Euroclearability to increase up to $25-40 billion from just $9 billion in 2012.
According to the comments made by Chairman of Euroclear Bank Frederic Hannequart upon the launch of OFZ settlement, Russia’s corporate and municipal debt might become eligible for settlement within a month.
On February 13, 2013, Clearstream, another leading international securities depository, announced plans to open direct settlement link to the Russian market following the opening of a main account at the NSD in February 2013.
The next logical step would be enabling international securities depositories to settle trades with the Russian equities. A number of encouraging comments in this regard were made by senior Russian officials last week.
According to the Deputy Head of the Federal Service for Financial Markets (FSFM) Yelena Kuritsyna, the Ministry of Finance and the FSFM are discussing aligning the date when equities become eligible for Euroclearability with the date when the limit for international circulation of Russian shares is cancelled. Current regulations limit depositary receipts conversions to 25% of a Russian company’s shares and 50% of their listed stock. In 2011, President Dmitry Medvedev signed a decree to lift curbs on Russian company’s shares abroad. According to the Deputy Head of the FSFM, both changes in the regulation are slated for July 01, 2014. However, Minister of Finance Anton Siluanov said last week that “in his personal opinion” access to Russian local equities for Euroclear/Clearstream will be open even earlier - from January 01, 2014
Overall, recent developments showcase a great deal of progress towards the alignment of the regulation of financial markets in Russia with international standards. With the modernization of capital markets’ infrastructure being high on government’s agenda, Russia’s equity and debt markets are likely to benefit from an inflow of foreign investments. In turn, this can also stimulate much-need domestic investment through both liberalization of current regulations and the increased attractiveness of Russian capital markets.