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FFMS to Discuss Euroclear and Clearstream Accounts with Market, says Pankin

12.04.2012 14:54 / Interfax

FFMS is willing to hear Russian stock market participants’ ideas on Central Depositary, which, they fear, in its present form could potentially strip them of a major part of their business.

The Central Depositary Act has been in force since 1 January 2012. Today, the Ministry of Finance and FFMS are developing regulations for this institution. The Act, in part, allows the Central Depositary to open foreign nominee depo accounts for international safekeeping and clearing systems. The largest of these are Euroclear and Clearstream. Market participants have voiced their fears that with Euroclear and Clearstream opening their nominee accounts at the Central Depositary, all Russian trades will move abroad.

The regulator is aware of this problem and is ready to discuss it with the market.

“Opening nominee accounts for international central depositaries Euroclear and Clearstream in the Russian Central Depositary has sparked controversy among market players. I think we should discuss the procedure and timeframes for Russian Central Depositary nominee account opening for these companies”, Head of FFMS Dmitry Pankin told Interfax.

“We expect market participants to follow with their proposals to start the debate”, he said.

According to the Central Depositary Act, the list of foreign companies eligible for nominee account opening at the Central Depositary, is to be approved by FFMS. A source at a major custodian told Interfax that the market expected the list to appear considerably later than the CD itself – this would have given the National Settlement Depositary (the sole contender for the central depositary role) a chance to introduce services and fees of the same level as Euroclear and Clearstream. However, the draft of Approved Foreign Nominee Accounts Directive has already been published by FFMS. The effective date has not been deferred according to the terms of the project.

Interfax was told earlier by financial market sources that Euroclear had already mat investors and pitched their Russian securities settlement services.

One source said that NSD currently fails to compete with Euroclear and Clearstream in terms of quality and affordable fees. "”If we fix nothing right now and limit access to Russian securities for Euroclear and Clearstream, all liquidity will leave the country in a year”, said a foreign custodian source.

Euroclear representative Stephanie Heng confirmed to Interfax that the client pitches have taken place.

“Russian and international capital market participants have long awaited the start of Euroclear Bank operations with Russian securities. We have recently conducted a series of client meetings to pitch our services and see how interested they are. Our clients are not beneficiaries and securities market participants, but first and foremost custodians and brokers/dealers”, she said.

Two custodian sources told Interfax that following the Euroclear meetings, investors have turned to custodians. “People ask why they should work though us and settle trades in Russia, when they can settle in July through Euroclear, which is cheaper”, said source.

On April 4, the Depositary Committee of the National Stock Market Participants Association (NAUFOR) discussed nominee account opening for foreign clients, including foreign clearing houses and central depositaries in the Russian Central Depositary.

“We see concern from the market regarding nominee accounts for foreign Central Depositaries. We will discuss it further and prepare a draft statement”, Head of NAUFOR Alexey Timofeev told Interfax earlier.

Custodians propose two solutions: postponing the effective date of the Approved Foreign Nominee Accounts Directive or increase NSD fees to raise the cost of Euroclear and Clearstream transactions with Russian securities. The lattes foresees the possibility of mandatory reporting by Euroclear and Clearstream to NSD on Russian asset trades.

Trading infrastructureProject Group №1Dmitry PankinAlexey Timofeev