Russias Federation Council, the upper house of the Russian parliament, today approved a CSD bill that will allow for the introduction of a CSD and the foreign nominee concept in the Russian market.
The law, On Central Securities Depository, and the respective amendments to the securities market legislation have yet to be signed by President Dmitry Medvedev.
Although the final text of the laws has not officially been published yet, it is not expected to have material deviations from the previous version.
The laws have been discussed for more than ten years and have been highly anticipated by services providers in Russia and in Eastern Europe. Speaking to Global Custodian in London today, Natasha Sidorova, head of Securities Services at ING Commercial Banking Russia, said: We are all very excited about this development that the Federal Council has today approved the two rules, being the rule for a CSD and the rule for a nominee.
She added: The third thing is we do not have a centralized source for corporate actions information, so this is something that needs to be dealt with as well.
Under the law, the CSD can open nominee accounts only with registrars or settlement depositories and it is expected to process daily reconciliations with registrars. Furthermore the CSD will not be allowed to perform any clearing activities.
The draft law sets a minimum capital requirement of Roubles 2 billion for the CSD. The capital of Depository Clearing Company (DCC) is Roubles 1.186 billion so the regulation requires the DCC to raise capital.
According to Thomas Murray, the introduction of the foreign nominee concept in the Russian market should reduce operational risk exposures due to the simplification of reconciliation from beneficial owner level to omnibus level accounts, as well as cutting safekeeping costs for foreign investors. The requirement of an annual operational audit will also positively impact operational risk, said the company. However, the latest version of the draft law on the CSD does not tackle the main issue raised by the market, i.e. the lack of definition of CSD, as a central system for handling of securities under SEC Rule 17(f)7, said Thomas Murray.
Following the legal merger of Russian exchanges Micex and RTS on December 19 this year, on January 1 2012 the signing of the CSD law is expected to take place. This will be followed a merger of the National Settlement Depository (NSD) and the DCC in July next year. The new rules will mean that registrars will no longer retain the settlement functions, for which they have the monopoly, as these functions as well as title to the securities, will rest with the CSD. This development is expected to cut registrar revenues in this area from 40% to 10% of their total revenue, said Karen Papoyan, director of Risk Management & International Relations at the DCC.
(JDC)