Moscow bourse moves to lure foreign investors

Russia’s main securities exchange is planning rule changes and system upgrades it hopes will boost investment flows to the country’s stock market.
Moscow bourse moves to lure foreign investors

The Moscow stock exchange and asset managers hope new measures on trading infrastructure and listing reforms will boost foreign investment into Russian equities.

Micex-RTS plans to remove the requirement for foreign investors to pre-fund their brokerage accounts ahead of trading by the end of the year. This differs markedly from international practice, whereby cash and securities are settled two or three days after trade day (T+2 or T+3), and has been a big obstacle for international investors, says Tanya Landwehr, chief financial officer and head of commercial development at TKB BNP Paribas Investment Partners.

“As a manager of funds, I see quite strong interest from international investors wanting access to Russia-listed equities. On a relative basis to other countries, Russia has very strong macro and fiscal performance, so investors are buying long-term growth and expanding domestic consumption,” says Landwehr, speaking on a panel at the AsianInvestor and FinanceAsia Russia & CIS Investment Summit last week.

Moreover, the exchange will also set up a central securities depository (CSD) around the end of September to replace the group of registrars and separate depositories that was run by the Micex and RTS exchanges. Laws will soon come into effect that will make the holding of assets in the new CSD mandatory.

“It’s international common practice to have a single depository where you can hold stocks in nominee accounts, and one that ensures finality of settlement,” says Maria Kharlashkina, head of capital market research and business development at Micex-RTS, and also speaking on the panel.

The lack of a mandatory central depository has prevented some US investors from trading on the Russian bourse. US-registered funds must keep their foreign assets in an “eligible securities depository” that must, among other requirements, maintain records that identify the assets of each participant. The existing depositories are not considered eligible under US Securities and Exchange Commission rules.

Once alignment in the securities settlement cycle happens – namely a central securities depository and T+3 trading – big international brokers and large Russian state banks with balance sheets are likely to benefit by channelling flows from offshore investors into the bourse, says Landwehr.

The exchange will also introduce listing reforms that will create a new listing segment, ‘novy rynok’ (‘new market’), specifically targeting international investors, says Kharlashkina. This segment will require higher corporate-governance standards of issuers than for those listed elsewhere on the exchange. Disclosure will be in English, with quarterly financial reporting based on IFRS accounting standards.

The aim is to give international investors greater comfort due to more transparency and stricter requirements that aim to offset the deficiencies of the Russian law, says Kharlashkina.

Micex-RTS, formed by the merger of rouble-denominated Micex and US dollar-denominated RTS in December, will also upgrade its trading systems. It is planning a co-location facility and faster matching engines to enable faster execution. 

Also contributing to the panel were Gennady Frolov, vice president at CROS Public Relations & Public Affairs Company, and Michael Chan, assistant vice president at Hong Kong Exchanges and Clearing.

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