It’s been a hectic year of change and reform in Russia as its National Settlement Depositary (NSD) has worked to eliminate the glitches (settlement delays, shareholder rights, counterparty risk and variable governance) that used to dog the Russian trading market.
Since its formal launch in February 2013, Russia’s NSD has rapidly cemented its role as a key pillar of the country’s capital markets reform programme. Any number of advances have been achieved over the year, including legal recognition of the CSD itself, improvements in the settlement process (now T+2), and links with international securities post trade services providers Euroclear and Clearstream and at the same time, providing their clients with improved market access to Russian government bonds, which has resulted in a virtual tripling of volume.
Euroclear and Clearstream’s connectivity with the NSD allow foreign investors to either settle their trades in Russian government bonds directly on the books of either depository or to rely on local custodian banks to settle their trades on the books of the NSD. Pending changes to Russian regulations, Russian equities are expected to be added to the mix in July 2014.
The T+2 settlement cycle, created for over two hundred of Russia’s most liquid equities as well as for Russian government bonds, eliminates the need for foreign investors to pre-fund the entire cash value of their transaction before settlement as was the case with the previous T+0 timetable. The move was not entirely welcomed by the Russian broking community, which also made a turn on the need for investors to pre-pay for the day’s trades. Even so pre-funding of a percentage of the value of the account is still the case for some Russian securities even under the T+2 schedule.
The Russians have even worked to encourage American institutional investment in the country through achieving recognition among US regulators through compliance with Rule17f7 of the US Investment Companies Act (1940). The NSD also has ambitions to become a regional liquidity hub and has established bilateral links with CSDs in the former Soviet republics, among them Kazakhstan, Ukraine and Belarus, providing investors in the CIS states easier access to each other’s markets.
Improved corporate governance is now the latest watchword among NSD staff and through 2014 the post trade services provider will be rolling out a series of initiatives that will standardise information, particularly around corporate actions.