Banks press Russian authorities for market reforms

Financial News

Jason Corcoran in Moscow
27 July 2009

International custodians headed by Dutch bank ING are forming a lobby group to pressurise the Russian financial regulator and the Government to improve the market’s infrastructure.

The mission of the International Custodians League is to address regulatory and infrastructural market issues in the interests of local and international investors and their global custodians and sub-custodians.

In a policy paper, ING described the Russian securities market as “fragmented, decentralised, non-standardised and inefficient”.

It added: “There are many legal deficiencies and white spots in the securities, tax and corporate legislation that prevent many local and international investors from entering the Russian securities market or make their investments quite costly and cumbersome.”

Natalia Sidorova, head of securities service of ING Wholesale Banking in Moscow, said the main international custodians in Russia had been approached about joining the group.

Sidorova said: “We want to have an informal working group with other Russian custodians who are well aware of best international practices and foreign clients’ concerns with regard to the deficiencies of the Russian securities market infrastructure towards its development. In particular, such development would entail creation of a centralised system of handling of securities.”

A main goal of the group is to push for the creation of a central depository, an issue that has dogged the Russian market for almost a decade.

The Government has put forward several plans to create a central depository, but the politics of choosing one depository to form the base of the single company have been a stumbling block.

The National Depository Centre, Micex’s settlement depository and the Depository Clearing Company, the depository of the rival RTS exchange, continue to compete to be the central clearing company.

The league also wants the authorities to look at the issue of legal recognition of foreign nominee concept, setting up internationally recognised standards in the interaction between custodians and registrars, recognition of non-true legal entities, of partial and split voting and tax pre-clearance.

Custodians blame politics and bureaucracy for the slow pace of reform in the Russian securities market. To bring about change, they believe custodians and investors with similar interests must be heard as one voice.

However, Russia’s custody industry is fragmented and it remains to be seen if it can unite.

A spokeswoman for UniCredit, one of the leading sub-custodians in the Russian market through its ownership of International Moscow Bank, dampened enthusiasm for the initiative.

She said: “UniCredit managers are represented in the boards of various bodies that control the stock market. Though currently we do not yet have a clear picture what this new initiative will be aiming at, it remains to be seen if there is room for a privately organised custody lobby of such a format.”