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VTB: Central Securities Depository launched

November 13, 2012
Last Tuesday, the Federal Financial Markets Service (FFMS, Russia’s financial markets watchdog) announced that it had granted Central Securities Depository (CSD) status of National Settlement Depositary (NSD). This was a longawaited announcement and, coupled with other recent reforms, would make the Russian financial market significantly more open and accessible to international investors.

Why does CSD matter? According to the CSD law, since July non-residents have been allowed to open nominee accounts with the CSD. Consequently, FFMS gave the green light to Euroclear and Clearstream to open nominee accounts. However, Euroclear/Clearstream are not permitted to settle deals with equities until mid-2014.

What is the effect? We think the most significant and visible impact would be in the sovereign bond (OFZ) market. We expect the share of non-resident holdings in OFZs to increase from 5–6% at present to at least 15%. Consequently, we think it would drive yields (especially on the longer end) 50-75bp lower. The latter is likely to improve the valuations of Russian companies, decreasing funding costs for corporates.

Lifting of DR limits now technically accessible. The FFMS has previously conditioned the current 25% DR limits being eliminated on the CSD going operational. We do not now see any technical obstacles for lifting DR limits.

Alexey Zabotkin, Sergey Galkin, Ilya Piterskiy, Maxim Korovin, Anton Nikitin
VTB Capital analysts