In a much-anticipated move, Russias National Settlement Depository (NSD) has applied for central depository status from the Federal Financial Markets Service (FFMS).
If approved, the NSD will become Russias first official CSD, and could clear the way for a tidier and more investor-friendly market. Lacking a long-standing capitalist tradition, Russias financial markets have typically had a poor and chaotic infrastructure. Until recently, for instance, there were two separate stock exchanges, Moscow Interbank Currency Exchange (MICEX) and Russian Trading System (RTS), as well as two separate securities depositories: the NSD and the Depository Clearing Company. The lack of official status meant U.S. funds could not utilize these depositories under the Securities and Exchange Commission Rule 17f-7, instead having to go through a number of local registrars.
Since 2000, however, President Vladimir Putin has been driving for financial reform, hoping to turn Moscow into an international finance center along the lines of New York or Hong Kong, bridging the gap between the East and the West. After a series of reforms, the market is seeing a streamlining of its infrastructure and regulation. MICEX and RTS were combined in December 2011 to form the Moscow Exchange, and a law that came into effect on July 1 this year created the legal basis for a single CSD, a role the NSD is expected to fill.
It has since been preparing for the task. After a supervisory board meeting yesterday, the NSD made a series of announcements in addition to the CSD application. It set tariffs for services to bond issuers in respect of issuer account agreement, approved a code of professional ethics and appointed a ten-member customer committee for settlement, depository services and tariffs chaired by Deutsche bank depository chief Maria Ivanova. It also approved of an FFMS-required 29-member customer committee that will oversee the depositorys document interchange and depository operations, and upgraded its computer systems at a cost of more than 100 million rubles.
The new systems include an automated system of electronic cash settlements, based on Processware Integration Environment, which promises greater speed and minimized operational risk. It was developed jointly with CMA Small Systems AB, a Swedish developer that has worked with institutions in 44 countries, according to its Web site. It also changed database management systems from Informix to Oracle. NSD previously implemented Alameda, a depository platform, and Oracle Enterprise Manager Grid Control 11g, a monitoring and management system. A backup system that has been implemented and stress tested was approved by international observers, who saw NSD’s capability to conduct uninterrupted settlements in on-exchange markets and interactions with the Bank of Russia either from the head office or from the backup office in a case of emergency, NSD says.
With the July 25 application, the NSD shows that it has assembled most pieces of the depository puzzle. Under the 2011 Russian federal law number 414-FZ, On the Central Depository, the law that governs CSDs in Russia, the FFMS has four months to reply and approve the NSD. They are very likely to succeed; the law requires that applicants have operated a securities depository operation for at least three years and the only competitor would be the DCC, which the NSD now owns a 99.998% stake in.
Ole Skaar