Friday, April 01, 2005
Russian CSD
Russia set to embrace central securities depository, says expert
Alex Davidson
Russia is moving rapidly towards the adoption of a central securities depository, according to Bruce Lawrence, managing director of HBL Consultancy Services. The move will eliminate the risks that custodians run when dealing with several depository organisations, he noted.
The main existing depository service providers are the Depository Clearing Company, set up in 1993 — serving RTS, the Russian trading system, and National Depository Centre, set up in 1997 — serving MICEX, the currency exchange trading system. A third depository service, Vneshtorgbank, is for dollar denominated eurobonds, and there are some other small providers.
Their ownership has some overlap. NDC is 49.55 per cent owned by MICEX and 41.15 per cent by the Central Bank of Russia, with the balance owned by smaller shareholders. DCC has 19 parties holding a combined 52 per cent stake, as well as NDC holding 30 per cent, and RTS owning 4.3 per cent.
The challenge is always to work within the law, which is easier and faster than trying to change it.
— Bruce Lawrence,
HBL Consultancy Services
These services have a reputation for reliability, according to Lawrence. "Risks arise because these depository services are not highly capitalised, however, and they do not enter into legal agreements with global custodians. When parties involved in a securities transfer are not using the same depository service, there is a time delay, which creates further risk," he said.
The only satisfactory solution is to have a CSD because it offers delivery versus payment capabilities, according to Lawrence. "CREST in the UK shows how it may be done but there is no perfect model because Russia has its own circumstances," he said.
Sparing the expense
A main stumbling block has been the cost, but there has been progress, Lawrence said. The IBRD has issued a loan of $55.25m through the World Bank for developing the Russian capital markets, which explicitly includes addressing the case for a CSD, he noted.
The Federal Services on the Financial Markets, which is closely linked to the Russian Government, has introduced draft legislation on a Central Securities Depository, which working groups are examining. This is one of six pieces of legislation in the pipeline; the others are on securitisation, corporate mergers, derivatives and financial investments, exchange trade regulation; and insider dealing/market manipulation. Laws could be passed within a year, according to Lawrence.
In 1993, Russian financial services market legislation had too much flexibility giving rise to too many possible interpretations of meaning, according to Lawrence. "The market was created rapidly and without plan, and it was tailored to market participants," he said.
Russian laws have since become less flexible, according to Lawrence. "The challenge is always to work within the law, which is easier and faster than trying to change it," he said. As in the UK — where more than 20 registrars have been reduced to four or five — in Russia more than 1,000 registrars have been reduced to 77, and the market is likely to consolidate further, Lawrence noted.
Lawrence is a keynote speaker at the Russian Securities Infrastructure and Operations Forum on 8 and 9 June at Le Royal Meridien National, Moscow, with a separately bookable session on equity offering structures on 10 June. He is running a workshop on client relationship management at the same location on 7 June.
There are still some spaces left; details are available at www.iirconferences.com/russiansecurities. Contact IIR, the organiser, on +44-20-7915-5103, by fax on +44-20-7915-5101, or by e-mail at info@icbi.co.uk.
Delegates who register by 15 April, quoting the VIP code 'KP4012COMP', will save £100 on the conference fee.
Alex Davidson
Russia is moving rapidly towards the adoption of a central securities depository, according to Bruce Lawrence, managing director of HBL Consultancy Services. The move will eliminate the risks that custodians run when dealing with several depository organisations, he noted.
The main existing depository service providers are the Depository Clearing Company, set up in 1993 — serving RTS, the Russian trading system, and National Depository Centre, set up in 1997 — serving MICEX, the currency exchange trading system. A third depository service, Vneshtorgbank, is for dollar denominated eurobonds, and there are some other small providers.
Their ownership has some overlap. NDC is 49.55 per cent owned by MICEX and 41.15 per cent by the Central Bank of Russia, with the balance owned by smaller shareholders. DCC has 19 parties holding a combined 52 per cent stake, as well as NDC holding 30 per cent, and RTS owning 4.3 per cent.
The challenge is always to work within the law, which is easier and faster than trying to change it.
— Bruce Lawrence,
HBL Consultancy Services
These services have a reputation for reliability, according to Lawrence. "Risks arise because these depository services are not highly capitalised, however, and they do not enter into legal agreements with global custodians. When parties involved in a securities transfer are not using the same depository service, there is a time delay, which creates further risk," he said.
The only satisfactory solution is to have a CSD because it offers delivery versus payment capabilities, according to Lawrence. "CREST in the UK shows how it may be done but there is no perfect model because Russia has its own circumstances," he said.
Sparing the expense
A main stumbling block has been the cost, but there has been progress, Lawrence said. The IBRD has issued a loan of $55.25m through the World Bank for developing the Russian capital markets, which explicitly includes addressing the case for a CSD, he noted.
The Federal Services on the Financial Markets, which is closely linked to the Russian Government, has introduced draft legislation on a Central Securities Depository, which working groups are examining. This is one of six pieces of legislation in the pipeline; the others are on securitisation, corporate mergers, derivatives and financial investments, exchange trade regulation; and insider dealing/market manipulation. Laws could be passed within a year, according to Lawrence.
In 1993, Russian financial services market legislation had too much flexibility giving rise to too many possible interpretations of meaning, according to Lawrence. "The market was created rapidly and without plan, and it was tailored to market participants," he said.
Russian laws have since become less flexible, according to Lawrence. "The challenge is always to work within the law, which is easier and faster than trying to change it," he said. As in the UK — where more than 20 registrars have been reduced to four or five — in Russia more than 1,000 registrars have been reduced to 77, and the market is likely to consolidate further, Lawrence noted.
Lawrence is a keynote speaker at the Russian Securities Infrastructure and Operations Forum on 8 and 9 June at Le Royal Meridien National, Moscow, with a separately bookable session on equity offering structures on 10 June. He is running a workshop on client relationship management at the same location on 7 June.
There are still some spaces left; details are available at www.iirconferences.com/russiansecurities. Contact IIR, the organiser, on +44-20-7915-5103, by fax on +44-20-7915-5101, or by e-mail at info@icbi.co.uk.
Delegates who register by 15 April, quoting the VIP code 'KP4012COMP', will save £100 on the conference fee.
