In June, the AGC addressed a letter to Minister of Finance of the Russian Federation Alexey Kudrin and Head of MIFC Taskforce Alexander Voloshin. The letter, signed by Dan Schneider, Counsel to the Association, says that NSD settlement and safekeeping principles for government bonds also applied to corporate bonds and shares. The letter pointed at the role of Central Depositary in final settlement will offer foreign investors assurance that systemic risks and non-performance are controlled adequately. Thus, foreigners will receive a de facto state guarantee on all their security transactions. The AGC, listing members such as the Bank of New York Mellon, Citibank, Deutsche Bank, HSBC Securities Services, J.P. Morgan, Northern Trust and Standard Chartered Bank, is supported in its opinion by the Deputy Chairman of the Bank of Russia Sergey Shvetsov.

In reply to the AGC recommendations, PARTAD addressed Alexey Kudrin and Head of the US Security and Exchange Commission (SEC) Mary Shapiro, since the AGC standpoint is recognized by the SEC in relation to Rule 17f-7. PARTAD stated that the AGC is not completely familiar with the Russian Securities Act, which was developed in a joint effort with American experts.

“To our regret the esteemed Association has been drawn into the Russian Central Depositary debate by interested parties to back an opinion that has nothing in common with the process of recording the title to securities in the USA”, says the PARTAD letter. The PARTAD experts consider the AGC principle of securities trade settlement through the CD a violation of rights and statutory interests of investors, leading to more risks for owners of securities.

“We realize that AGC wants better business terms for its clients, however we would like to point out that they are not the only investors active in the Russian stock market, while the CD Act has to provide a better climate for all participants”, PARTAD says.

Yuri Taranovsky, General Director of Reestr Registrar says the foreign custodians ideas may lead to the Russian state accepting responsibility for all Central Depositary transactions. OTC trading will be impossible in the regions, as building a nationwide CD network is a really tall order, says Yuri Taranovsky. In his opinion, the announced cut in fees may never happen, as a monopoly is normally likely to make use of its dominant position.

The current draft of the amended Securities Market Act, published on the Ministry of Finance website, does not reflect the AGC standpoint and carries a provision for CD reconciliation with the registrar.

Anton Verzhbitsky

Project Group №1, Alexei Kudrin, Sergei Shvetsov, Alexander Voloshin