Euroclear offers trans-border transaction services in over 90 countries. In February 2013, the depositary gained direct access to the Russian OFZ market, followed by Clearstream. As a result, non-residents share in state debt trading soared from 7% in July 2012 to 28% in July 2013 (25% in December), according to Central Bank data.

Over the next two to three years, the share of foreign investment in Russian corporate bonds market is expected to triple – from under 3% today to 10%, gaining roughly USD 10-15bn, said Russian Finance Minister Anton Siluanov, quoting expert estimates. The cost of Rouble funding will also decline in the more developed Eurobonds markets, added Siluanov. According to him, a year of foreign participation in the OFZ market demonstrated positive results: “We are extremely pleased to report that the world’s leading investment houses, including sovereign funds, have now started to invest directly in Russian local state bonds”.

Market participants gave positive feedback on opening the corporate bonds market to non-residents. Direct access for foreigners will boost the corporate bonds market, enthuses CEO of National Stock Market Participants Association Alexey Timofeev. The corporate securities segment will be more liquid with more players, however the market will also become more flexible and volatile, reflecting the global markets, says Head of Investments at Kapital Asset Management Alexey Belkin: “Liquidity is good in any case, a non-liquid market is a dangerous market”.

A year ago, when Euroclear gained direct OFZ market access, trading volume soared and yield on the instruments plummeted, states private investor Oleg Achkasov, and as soon as OFZs are a benchmark, the cost of refinancing and lending in the market for the corporate sector also went down.

Central Bank representatives voiced concern regarding the growing share of non-residents in OFZ and the implied risks. The CB may react if the total share of non-residents in OFZ exceeds 40%, said Vladimir Chistyukhin, then Financial Stability Department Director (now First Deputy Chairman of the Central Bank Financial Markets Service).

Experts are more concerned with foreign access to the shares market, slated for mid-2014. Bonds can be Lombard instruments, accepted as collateral by Central Banks, says a source: “There are anchor investors in the bonds market, such as Russian banks who will hold these instruments and receive yield if nothing extraordinary happens”. There are no anchor investors in the shares market, therefore if the number of foreign investors should increase, there is a potential threat of them dumping stock acting on country risks, says the source.

Tatyana Botchkareva

Trading infrastructure, Project Group №1