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Corporate law and governance, financial transaction taxes

Project Group №1

Financial infrastructure and financial market regulation


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Russian Central Depositary Could Lose Foreign Investor Appeal

11.10.2012 15:20 / vedomosti.ru

By November, the Central Depositary will allow foreign investors access to the domestic financial market, making the registration of title to securities more transparent, President Putin promised last week.

The Central Depositary will have a monopoly right to open nominee accounts, therefore proxies, including foreigners, will be able to hold securities for other entities. This opens the door to Russia for Euroclear and Clearstream — the two leading settlement systems used by most global investors. At least this was the concept of Russian central depositary.

It transpires, however, that Euroclear is not yet ready to work in Russia, according to a letter to Head of FFMS Dmitry Pankin.

Euroclear will be technically ready to open accounts when the Central Depositary goes into business. Still, the settlement house will have to show its regulator that the links with the Russian Central Depositary are CPSS-IOSCO compliant. At the moment, Euroclear lawyers are having a hard time figuring out Russian law. Three major concerns are: the unclear status of securities owner, confirmation of securities title transfer following settlement and disclosure requirements. These issues must be clarified before Euroclear can guarantee investors their title to securities. There is also the risk of penalties and other sanctions for non-compliance with regulations, says Euroclear source. In some countries, according to him, Euroclear clients have already suffered losses due to unclear laws.

Euroclear has no claims, it just needs to clear matters, says Stephan Pouyat, Director ar Euroclear Global Reach Product Management. FFMS declined to comment, and Clearstream could not be reached.

Euroclear and Clearstream are initially allowed access to sovereign bonds, and later to corporate debt. Additional sovereign debt demand will decline federal bonds yeild by approximately 1 basis point, said Head of Debt at Minfin Konstantin Vyshkovsky. Non-residents share in the mid-term for sovereign debt will rise to 10% from 5,4% today and 3% at the start of this year, quotes Bloomberg.

Margarita Papchenkova

Trading infrastructureProject Group №1Dmitry Pankin