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Eurocrats Stop $80bn from Coming to Russia

30.01.2013 00:44 / forbes.ru

Mass arrival of foreign investors in the Russian market is delayed by red tape. Direct foreign investor access to Russian securities is expected to raise $40-$80bn in OFZs, which will allow the Russian Ministry of Finance to borrow cheaper. Today foreigners have to buy stock through Russian subsidiaries of global banks or exchanges. Trading through Euroclear and Clearstream will allow direct trading with other owners.

One of the settlement houses, Euroclear, opened a nominee account for clearing purposes in late December, however the account remains inactive. Direct foreign investor trading in OFZs, bypassing banks or exchanges, was to have commenced 15 January. This did not happen. Later, market participants heard a rumor that trading could start 30 January, with Euroclear activating the account just in time for the Minfin auction of two OFZ issues, RUB 20bn worth 10-year tenor and RUB 7,265bn worth 7-year tenor. The rumors sparked activity in OFZ trading last Friday, with 15-year tenor gaining 35 b.p. a day. Yet the arrival of foreigners is delayed.

A recent Federal Financial Markets Service press release states that the Russian side is ready for trading. "However, FFMS has received a query from Euroclear regarding certain clauses of laws and regulations", said the FFMS release. On 18 January the replies were duly sent by the Service – with the Euroclear query focusing on asset protection, information disclosure and final settlement. Later Euroclear requested info on National Settlement Depositary functions as a tax agent. NSD, in turn, sent a request to the Minfin and is currently awaiting reply. As soon as the Minfin clarifications arrive, they will be forwarded to Euroclear.

A Forbes source claims that OFZ trading through Euroclear may start in early to mid-February. Euroclear rep Martin Gregson expressed hope that trading will commence soon, but named no date. "At this stage we are still processing regulator commentary on final settlement and asset protection”, he told Forbes. “We have been given answers in Russian, and need to have the English translation done for the lawyers”. Asked whether lawyers are likely to find any reasons to block account activation, the Euroclear rep said “we can not give a 100% guarantee that we are happy with everything until we have had extra time to study the issue".

Clearstream, yet to open a nominee account at the Russian central depositary, told Forbes that work is in progress. “In recent weeks we have made progress with the account structure, the flow of instructions and confirmations, and we will continue to move forward”, said a Clearstream rep.

Direct access of international clearing houses Clearstream and Euroclear to the Russian debt market was announced in Summer 2012. The companies will access the shares market in mid-2014. Clearstream and Euroclear offer settlement infrastructure for OTC trades. Clearing systems’ access to the Russian market has become the central trading idea in the OFZ market due to projected inflow of foreign capital to the Russian debt market.

BKS analyst Leonid Ignatiev thinks that the expectations of settlement through Euroclear and Clearstream have sunk the OFZ yield from 180-200 basis points. The coming start of settlement has already been bounced back by the market. “Euroclear account opening will not affect OFZ prices the way that the expectation of this event and the coming of non-residents has”, says Ignatiev. “Most foreign investors are already part of OFZ trading, therefore a yield drop on par with 2012 is not expected”. The coming of Euroclear and Clearstream is most likely to cause profit taking and, as a result, price correction, state Raiffeisenbank researchers.

Petr Rudenko

Trading infrastructureProject Group №1