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BofA Sees Moscow Gap Cut on Euroclear: Russia Overnight

The price gap between Russian depositary receipts and Moscow-listed shares will fade after local stocks become available to foreign investors next year through Euroclear Bank SA, according to Bank of America Corp.

The lower house of Russia’s Parliament approved on Oct. 25 tax amendments that pave the way for Euroclear to access the stock market. The move would erase the premium between the overseas depositary receipts of companies from OAO Novatek to OAO Mobile TeleSystems versus their Moscow shares as it lets foreign investors bypass local brokers, Bank of America said. The start of Russian debt operations by Euroclear boosted foreign holdings to 30 percent from 7 percent in July last year.

“It’s a big step in the right direction,” Vladimir Osakovskiy, the chief economist for Russia for Bank of America, said by phone from Moscow Oct. 25. “The price gap between global depositary receipts and locally listed stocks should disappear within months if not weeks after the local stocks become accessible via Euroclear.”

Russia limits depositary receipts, known as DRs, to 25 percent of a company’s shares and 50 percent of listed stock, spurring a scarcity of the offshore securities. DRs of Mobile TeleSystems, the nation’s biggest mobile provider, and natural-gas producer OAO Novatek, traded about 10 percent higher than their local stocks. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. posted the first weekly decline since September.

“Increasing liquidity for local shares is an important part of closing that gap,” Andrey Shemetov, the deputy chief executive officer at the Moscow Exchange, said in an e-mail to Bloomberg News Oct. 25.

The Bloomberg Russia-US gauge dropped 0.2 percent last week to 104.64. Yandex NV, Russia’s biggest Internet company, tumbled 6.4 percent to $38.19. The Market Vectors Russia ETF, the biggest U.S.-traded exchange-traded fund that holds Russian shares, slid 0.7 percent to $29.72 last week. The RTS Volatility Index, which measures expected swings in the index futures, dropped 1.2 percent to 20.16, while RTS stock-index futures increased 0.3 percent to 149,130 in U.S. hours Oct. 25.

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