Clearstream to Give Direct Access to Local Russian Stocks

Two weeks after Euroclear Bank SA said it was delaying plans to offer foreign investors direct access to the Russian equity market, Clearstream Banking SA announced it will begin the service next week.

The Bloomberg Russia-US Equity Index of the most-traded Russian stocks listed in the U.S. fell 0.3 percent to 93.34 yesterday, trimming its gain this month to 6.5 percent. The Russian Depositary Index of companies listed in London slipped 0.5 percent. Futures on the dollar-denominated RTS Index added 0.5 percent to 132,610 in U.S. hours.

Clearstream’s announcement is part of Moscow bourse officials’ efforts to lure more foreign investors to trade Russian stocks locally rather than in London and New York. The Moscow Exchange merged its two competing depositories in 2012 and in September extended the time allowed to settle transactions to two days.

“It becomes easier for foreign investors to trade locally listed stocks,” Ilya Piterskiy, an equity strategist at VTB Capital in Moscow, said by phone. “We expect spreads between depositary receipts and locally listed shares to narrow.”

The average 30-day value of trades in the 10 biggest Russian companies tracked by Bloomberg in London is about 40 percent greater than in Moscow, from as much as 74 percent in May 2013. The companies include OAO Gazprom, OAO Lukoil and eight other companies with at least five years of trading history in both markets. The nation’s stocks trade at 5.4 times estimated earnings, the cheapest valuation among 21 emerging markets tracked by Bloomberg.

Reform Bill

The Market Vectors Russia ETF, the biggest U.S. exchange-traded fund that holds Russian shares, fell 0.8 percent to $26.61. The RTS Volatility Index, which measures expected swings in futures, dropped 1.1 percent to 28.29 today. The Micex retreated 0.2 percent to 1,470.58 by 10:36 a.m. today.

Clearstream will start delivery-versus-payment settlement of eligible equities via direct link to Russia’s National Settlement Depository, Oliver Frischemeier, a Clearstream spokesman, wrote in an e-mail from Luxembourg. The company is a unit of Deutsche Boerse AG, operator of the Frankfurt Stock Exchange.

Euroclear delayed the start of its own service because a bill that would have streamlined corporate actions in a format similar to those used by U.S. and European investors wasn’t introduced during the spring session of Russia’s lower house, Stephan Pouyat, global head of international markets at the world’s largest securities settlement system, said on June 10. The Russian regulator had set July 1 as the first day international depositories can open equities accounts.

‘Perfect Arbitrage’

An “interim solution” that would allow Euroclear to start services next month would be for lawmakers to pass an electronic voting bill during the spring session before approving larger corporate-action reforms in the fall session, Pouyat said by phone yesterday.

The Moscow Exchange is optimistic that international depositories will open direct equities accounts.

“Both Euroclear and Clearstream will operate in Russia,” Andrey Braginskiy, spokesman at the Russian bourse, wrote in an e-mail from Moscow. “The only question is the timing of when they will be turning on specific services.”

The exchange would like to reduce the volume of Russian equities trading abroad to between 20 percent and 25 percent of the total by 2015, from about 40 percent in 2013, Alexander Afanasiev, chief executive officer at the Moscow bourse, said in a June 2013 interview.

“With full non-resident access there is no economic difference between depositary receipts and local issues,” Vladimir Osakovskiy, chief economist for Russia at Bank of America Corp. in Moscow, wrote in an e-mail yesterday. “Therefore, any spreads across the two will offer perfect arbitrage opportunity to play.”

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