On 20 September, the Ministry of Justice registered the long-awaited Federal Financial Markets Service (FFMS) directive establishing the list of foreign depositories, which can open nominee depo accounts with the Central Depository. However, it turns out that the news is only half as good as expected. The foreign depositories on the list will be permitted to hold bonds imminently, but for equities the implementation has been delayed until 1 July 2014.
Progress on activating the Central Depository, which is already behind schedule, is a positive development overall, as establishing the list of depositories is a key precondition for liberalising foreign access to the OFZ market. We then expect that to drive the local yield curve as much as 70-100bp tighter and, hence, it is an important development in itself. However, it is disappointing that the implementation for equities has been delayed by another year, as the previous indications from the regulator pointed to mid-2013 as the likely timing for this. It also lacks any tangible rationale (or such rationale has not been communicated to the market by the regulator, even as it signed the directive in question on 27 July) while maintaining the current fragmentation of the market and deferring the fungibility of locals and DRs for a number of important stocks.
Alexey Zabotkin, Sergey Galkin, Ilya Piterskiy
VTB Capital analyst
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