Making Russia More Attractive To Investors

07 January 2015
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National Settlement Depository deputy chairwoman Maria Krasnova tells Joanna Wright how she is helping to bring the Russian depository up to international standards

Sanctions notwithstanding, Russia is trying to position Moscow as a major financial center. And the country's biggest settlements depositary is poised to modernize obsolete corporate actions infrastructure, reduce risk and make Russia more attractive to both foreign and domestic investors.

Deputy chairwoman of the National Settlement Depository (NSD) Maria Krasnova says the settlement of securities in Russia has been automated and efficient for years. Corporate actions processing, however, is still largely manual and paper-based. The data comes generally from registers rather than the issuers themselves.

With its reform program, the NSD hopes to implement new technologies and international standards through an electronic document interchange. The project includes a platform for e-voting, on which shareholders can participate virtually in annual meetings from anywhere in the world.

Corporate actions data will come from the issuers, who will feed it to the depositary via ISO 20022 and ISO 15022 standardized messages. The NSD hopes to provide a golden copy for market participants.

"All the documents regarding corporate actions will be processed only electronically via the intermediated chain and in standardized electronic format based on ISO standards. All the processes will meet the requirements of the modern corporate actions processing and voting standards," says Krasnova.

"Market participants in Russia currently invest a lot in obtaining information and the verification and creation of the golden copy within each particular company," she adds. "We want the NSD to become the officially recognized center of corporate actions information."

Peer Review

Krasnova and her team visited India and Turkey late last year to learn from their counterparts there, who "are known for their modern corporate actions processing practices. For example, Indian CSDs implemented electronic voting several years ago. One CSD has more than 13 million direct accounts. Another has more than nine million."

The Turkish Central Shares Depositary co-ordinates an award-winning e-voting platform, e-GEM.

"So given the scale of operations and the success of their e-voting services, we were very interested in hearing about their experiences and technology," says Krasnova.

The NSD's platform is supported by a solution from enterprise data management provider GoldenSource.

Krasnova says legislators, issuers, investors and regulators have been very supportive of the reforms. Challenges remain, however. Domestic custodians aren't as familiar as international custodians are with such practices. Market participants are unevenly equipped in terms of technology.

Most challenging of all for the NSD is having to maintain both ISO 15022 and 20022. 15022 doesn't allow users to input Cyrillic letters and is therefore not applicable in the Russian market.

"We can only consider 20022 as a base for our system and for the Russian market as a whole," says Krasnova. "So to ensure equal access to our services from both international and domestic market participants, we will have to maintain both standards until the international infrastructure moves to 20022 as well. It's not ideal, but we really don't have an alternative at the moment."

But the benefits to Russia far outstrip the challenges, according to Krasnova: "We believe that this reform will allow our market participants to reduce costs and bring market practices in line with international standards," she says. "It will therefore make the entire environment more attractive to both domestic and international investors. It will also impact positively on corporate governance practices in Russia, which is not considered to allow all groups of investors equal access to corporate governance. We want to change this. We believe that what we are doing is very much in line with current international trends."

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