Foreign Securities on the Docket
// Law drafted allowing them onto the Russian market
A law was introduced into the State Duma yesterday allowing foreign stock onto the Russian market. It was written in record time and the normative instruments required for the speedy enactment of the law are also at the ready. After the passage of the law on the National Prosperity Fund (to be created from the stabilization fund), it will be possible to minimize the risks connected with placing Russian assets in foreign securities.
Head of the Federal Financial Markets Service Vladimir Milovidov first brought up the question of allowing foreign stock on Russian markets in August. The conception of the law and the draft of the law (amendments to the law “On the Securities Market”) were written in less than four months, and conciliated among the Finance Ministry, Central Bank and Ministry of Economic Development and Trade. Last Monday, the conception of the law was approved at the session of the government commission on legislative activities. Yesterday, the law itself was introduced into the Duma by chairman of the banking Committee Vladislav Reznik. In the introduction to it, Reznik noted that allowing foreign stock on the Russian market is “an important factor in the formation of a regional financial center in Russia.”
Under the draft law, a foreign security will be placed and circulated on the Russian market under three conditions: that it obtains the appropriate international identification codes, that its qualifications correspond to Russian legislation and that the foreign issuer be founded in a Financial Action Task Force on Money Laundering member state. The final requirement does not require documentation.
The documents confirming the first two conditions have been approved by the Justice Ministry. Yesterday, the Federal Financial Markets Service announced that the “Conditions of Qualification of Foreign Financial Instruments as Securities” have been registered. That document established what international identification code corresponds to Russian securities (stocks, bonds, mutual funds and depositary notes). “That document already lets Russian managers to understand what foreign securities have Russian analogs and so which they may obtain for their portfolios,” said Milovidov.
The managers themselves have contradictory reactions to the initiative. Managing director of Renaissance Investment Management Alexander Kochubei said that “Foreign securities will be interesting to both retail and institutional investors.” Kochubei said that the arrival of foreign companies' stock on the market will add another 10 percent to the volume of the market in the next two or three years. Oleg Mazurov, general director of AllianceROSNO Assets Management, thinks that the attempt to bring foreign securities onto the Russian market is somewhat artificial in nature. He thinks it is necessary to liberalize currency legislation so that Russian managers can invest abroad.
The head of one Russian management company said that there is no business idea in the action, rather it is a political act. Allowing foreign securities onto the market may be necessary to reduce the risks associated with investing National Prosperity Fund money in them after it is formed from the stabilization fund next year, says Goldman Sachs managing director Rory Macfarquhar. Until recently, there has been a rather complex system in place for investing the 3.5-trillion ruble stabilization fund, which was also a way to minimize risk. The Finance Ministry is practically dissolving the stabilization fund in the gold and currency reserves. Under international law, the Central Bank cannot seize foreign assets. After the law is passed, it will become possible for the Finance Ministry to place National Prosperity Fund money in foreign assets, but they will be considered to be in Russian depositary notes.
Russian depositors will open nominal share accounts with Western registrars or custodians. According to Deutsche Bank head of trust management and securities operations Sergey Berezhny, “Seizure of a nominal share account is prohibited in the majority of countries.” Thus, only a Russian court could seize them, and that means that it will be possible to minimize the risks that Russian assets abroad are periodically exposed to – the numerous attempts of the Noga Co. to seize Russian aircraft and ship and collections of paintings come to mind.
Maxim Shishkin, Irina Granik, Maria Razumova, Dmitry Ladygin
All the Article in Russian as of Dec. 13, 2007
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