In February 2013, a process was finalised that would allow foreign investors buying Russian domestic rouble bonds to process them through Belgian clearinghouse Euroclear.
In February 2013, a process was finalised that would allow foreign investors buying Russian domestic rouble bonds to process them through Belgian clearinghouse Euroclear.
The process was aimed to both simplify the purchase of Russian bonds and make it safer—seeing as the title to the security receives asset protection under Belgian law—and bring a torrent of cash into Russian rouble government bonds (OFZs).
This was just a small change in a spree of transformations that have taken place in the Russian market recently.
Clearstream Banking said in May 2013 that it was implementing a new delivery versus payment settlement service, via a trading omnibus account newly opened with the National Settlement Depository (NSD).
The new service is available for both OFZ (Russian government bonds) and municipal bonds (regional government debt securities considered as tax-exempt)—enhancements that Clearstream hopes will provide customers with improved interoperability with the Russian market.
In the same month, REGIS-TR, the European trade repository that is owned by Clearstream, Iberclear, and NSD, all signed a memorandum of understanding to intensify their cooperation on the mutual exchange of information.
The parties agreed to establish the foundation for regular communication to increase a common understanding of regional and business development related to repository services.
Speaking at the time the MoU was agreed, Eddie Astanin, chairman of the executive board at NSD, said the agreement shows that the companies intend to learn the best repository practices from each other, and that they wish to focus on simplified reporting of cross-border OTC trading in derivatives that are concluded between EU and Russian companies.
“[It] is a first step aiming to establish an interconnection with the leading European trade repository in 2013–2014.”
From February, NSD has kept a register of agreements concluded on the basis of the general agreement (integrated contract), and has functioned as a repository in respect of repo agreements and currency swap agreements.
More generally, the country’s major exchanges, MICEX and RTS, have been constantly expanding since their creation to include a full range of financial instruments, ranging from cash equities to commodity futures, and finally merged to form the Moscow Exchange in 2012, a move that paved the way for subsequent integration of the post-trade infrastructure.
A central securities depository (CSD) was created, as was the planned integration of the Federal Financial Markets Service into the central bank. “This latter move concentrates regulatory and supervisory functions relating to financial institutions into a single mega-regulator,” said Societe Generale Securities Services in a newsletter.
In a panel on Russia at the NeMa 2013 conference, there was much discussion on how to clear up Russia’s complicated account structure.
Bruce Lawrence, managing director of HBL Consultancy Services, which provides advice to those in the securities servicing industries of emerging capital markets, moderated the discussion centering on recent changes to the country’s infrastructure.
He admitted that there had been a few years of stagnation in the country’s infrastructure, so recent changes had been refreshing, but he countered this thought with the opinion that not all of the changes are as palatable as one might wish.
Although Russia now has a law on CSDs, a foreign nominee account, a central counterparty, and has been introduced to the repo market, there are inherent problems in the foundations that local players are keen to plaster over.
Maria Ivanova, vice president and director for development and client relations at NSD, said that while 2013 has been dynamic, certain obstacles remain.
“The account structure is an obstacle, especially for foreign investors to get the level of transparency and simplicity which will truly attract more investors to look at our market.”
Aside from the CSD law, Ivanova alluded to the fact that some of the new legislation—particularly the clearing law—that has been passed were written in a hurry, and perhaps have room for misinterpretation. However, she added, there is a general reluctance to change laws again, due to the extra headache that it could bring for local participants that will have to change their own structures.
Philippe Laurensy, regional head and director of relationship management at Euroclear, agreed that new rules have left a lot of scope for confusion.
“The new clearing rules were announced on 20 December [2012], with an implementation for 10 January. Russian offices are generally closed from 1 to 10 January.”
“That such a significant change is announced just two to three weeks before it should be implemented—and during a holiday period? It just doesn’t work.”
But, he added, at the end of last year, foreign holdings were at 2 percent. Now, they are at 20 percent, which represents a huge success and proves that interest to buy exposure from Russia is clearly there.
Putting the cards on the table
Mark Bosquet, the head of network management in domestic markets at Clearstream, said that disclosure requirements are also a problem in the country.
“We have clear guidelines for disclosure, but what is so important for markets like Russia—where corporate governance is an issue—it is vital to stay aligned with procedures. The challenge is going to be for corporate banks.”
Ivanova commented that disclosure, which used to only concern Russian investors, is now a foreign problem as well.
“For foreign investors entering in the proper way when they access the market through a fund, the global custodian will go to a sub-custodian, etc … but if one of these parties is in America, the time difference would just make it impossible. We are trying to think about how to simplify these rules—but for equities it is still unclear.”
