About Central Securities Depository

Transcription

1 About Central Securities Depository One of basic directions of legislative activity of the financial market regulator in the second half of 2006 and first four months of 2007 was a persistent pushing of the bill About Central securities deposirtory 1, prepared by its experts. The bill unreasonably grants monopolistic authorities to the Central Securities Depository (further CSD), in the first place in relation to omnibus accounts opening in registers of securities owners. Per se the former management of the FFMS of Russia (O. Viugin and V. Streltcov) were in captivity of obsolete before internet conception concerning the place of CSD in securities market. Unwilling to admit that settlement centralization on western markets in due time had been caused by the necessity to store physical securities (it became impossible to transfer them after each transaction), FFMS conflicted with Ministry for Economic Development and Trade and Ministry of Finance of the Russian Federation, which tried to assert more balanced and modern approach to CSD role in the securities market, as of the settlement center of its organized (exchange) segment. The consequence of this conflict appeared the pronouncement of the bill to the first reading on May in the State Duma of Russian Federation threw Credit Institutions and Financial Markets Committee bypass interdepartment agreements. But it turned out to be a Pyrrhic victory, with results of which a new management of FFMS with V.D. Milovidov at the head have to deal with. Guided by the tasks faced before SRO in the Financial market development strategy for , approved by the government of Russian Federation 793-r from , PARTAD decided that it is necessary to fulfill public discussion organizer function, because if being 1 The draft of the Federal law About central securities depository. Published on site 2 Prescription of the Government of Russian Federation from About the financial market development Strategy approval // Russian Federation s Legislation collection June 9.

2 accepted in current appearance it could significantly influence the future of Russian financial market. During the autumn of 2006 because of sending the bill About Central securities depository for adjustment, PARTAD made an interview concerning the opinion of the financial market infrastructure participants about the bill and possible ways of its improvement. Responded participants answered on the following fundamental questions: If the law about Central Securities Depository is needed and why? What positive aspects and defects have presented bill? In what way will the adoption of mentioned bill about Central Securities Depository influence the accounting system and securities infrastructure reliability? In what way should the bill discussion be organized and whose opinion should be conclusive? Interview results which appeared to be disappointing for bill developers were published on PARTAD site. 3 Discussion of the bill About Central Securities Depository was made regularly on arrangements organized by PARTAD in connection with Ministry of Economical development, FFMS and Bank of Russia. Among basic remarks to the bill the following were stated: possibility of appearance of more than one central securities depository in relation to securities of one issuer; inconsistence and insufficiency of performing a nominee holder function only by central securities depositories; creation of more favorable work conditions rather for foreign depositories in Russia then for Russian; 3 Splendours and miseries of the bill About central securities depository // Securities market (326). P Published on the site

3 insufficient accounting of specific character and activity goals of specialized depositories in the collective investment market; excessive attention given in the text of the bill to secondary aspects of Central Securities Depository internal work organization and its licensing procedure to the prejudice of its key organizational principles. According to discussion results the table of remarks and suggestions of experts and representatives of organizations-partad members concerning the bill About Central Securities Depository 4 was prepared and published on the Internet site by PARTAD. After summarizing remarks to the bill About Central Securities Depository and according to results of discussion with other SRO (National league of managers - NLM and NAPF), PARTAD has prepared constructive suggestions of its improvement and send them into the state regulatory bodies (Ministry for Economic Development and Trade, Ministry of Finance, FFMS of Russia). In particular, the joint letter from mentioned SRO was sent to FFMS with suggestions about the consideration of this bill at the meeting of FFMS Collective investment expert board. In spite of public promises of O. Viugin it was not done. 5 Currently, the future of this bill seems to be obscure and depends on the achievement of a certain compromise between participants of legislative process, including FFMS, Bank of Russia, PARTAD, first-rate settlement depositories and other interested parties. Because of this the meeting of the FFMS-DCC-NDC, which took place on August , became a step in right direction. 6 It is stated in its resultant materials that the necessity of strengthening and capitalization of Russian infrastructural institutes either of stock exchanges and settlement- 4 Published on the site 5 The appeal of NLM, NAPF and PARTAD to the FFMS with the suggestion to discuss the bill Abut Central Securities depository is published on site 6 Press-release of FFMS of Russian Federation from About development prospects of Russian securities market infrastructure. Published on site

4 depository institutes, was marked unanimously by all meeting participants. They also came to a common understanding of the fact that the important role fulfilled by settlement depositories of NDC and DCC in Russian securities market, must enhance the responsibility for the future of Russian securities market either of these organizations management and of their shareholders. Not technological, financial or organizational aspects of depositories and exchange activities but only a high degree of this responsibility and may secure the reality of Russian securities market consolidation in future, Meeting participants came to a well-defined conclusion concerning the necessity and relevance of capital increasing of DCC as one of significant conditions for improving competitiveness of Russian securities infrastructure. It was admitted that increasing transparency of all existing organizations activity should become another important condition for achieving this goal. The NDC management and shareholders position was particularly marked at this. After involving into discussion about the DCC capital increasing they came to understanding of the necessity of qualitative transparency increasing of NDC activity itself. It is desirably to think that at hereon this stage of strained contradiction connected with discussion of the bill About Central Securities Depository between market participants may be regarded as finished. The State Duma of Russian Federation of the IV convocation before the expiration of its authorities had adopted a bill empowering depositaries and stock exchanges to change their business form. Changes are made in the articles 7-11 of the law About the securities market and allow depositories and stock exchanges which were established in a form of noncommercial partnership to be transformed into joint-stock companies. As it is generally known the actual goal of this bill is the elimination of barriers for turning NDC which is formally a non-commercial partnership into a joint-

5 stock company, thus creating preconditions for exclusion of Bank of Russia out of its capital in accordance to recommendations of the National bank board. This in turn allows to hope for the consolidation of NDC and DCC in a medium-turn prospects in one or another form.