Focus on Russia – Authorities move to open corporate debt market to foreign capital

Russia’s Federal Financial Markets Service (FFMS) has filed a request with the Ministry of Justice to allow foreign central depositaries such as Euroclear and Clearstream access to the country’s corporate debt market.

A representative of the market watchdog confirmed the move last week. It follows a draft regulation published in late June, which would initially give the global clearing house access to sovereign debt through the Russian Central Depositary until July 1, 2014.

Market participants have been expecting the addition of corporate debt to the proposal by the end of the year. The proposal was backed by the Central Bank of Russia. Russian news source Interfax quotes sources saying the idea was supported by a majority vote.

Direct access by Euroclear and Clearstream through nominee accounts at Russia’s central depositary has been actively debated for months. It could give foreign investors cheaper and easier access to the country’s $50bn debt pool, reducing the cost of trades.

According to some estimates, going through a Russian depository instead of a global clearing house, which foreign investors have to do presently, can add up to three or four basis points to each transaction.

The Kremlin and local fund management industry expect the new legislation to attract much needed foreign capital to the market. But some market participants worry that the existing lack of liquidity on the Russian bond market could stand in the way of investment flows, while the weak market infrastructure could lead to a liquidity drain from the country.

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