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Derivatives

ELN Houses Get Ready To Pitch After Russian Regulation Changes

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JPMorgan and Citigroup are among several U.S. and European houses looking at ways of selling equity-linked notes to Russian investors.

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JPMorgan andCitigroup are among several U.S. and European houses looking at ways of selling equity-linked notes to Russian investors. The move comes as the Russian regulator, the Federal Financial Markets Service, is preparing a securities bill to help expand and regulate the derivatives market. Citigroup's Russian bank has a license to issue market-linked deposit products in Russia and several houses are negotiating with Citi and other local banks to issue equity-linked products from their platforms. Pavel Prosyankin, director of equity structured products at Renaissance Capital, a local investment bank in Moscow, said, "The demand [for these products] is huge."

Alexey Artamonov, an official in the international and public relations group at the FFMS in Moscow, said the bill, which covers securities in general, will likely be passed at the beginning of the year. "It's too soon to talk about details," he noted, although he confirmed foreign banks would be able to enter the Russian derivatives market through partnerships with local banks. Prosyankin forecast the first structured products could be launched in six months.

Russian investors have been able to buy structured products if they invest offshore, but so far access to onshore structured products has mainly been limited to deposit-wrapped structures or listed bonds. Magdalena Saine, v.p. in equity and hybrid products at JPMorgan in London, said the U.S. house is looking at ways of structuring equity-linked instruments for Russian investors onshore. "JPMorgan may team up with a local bank to distribute these products," added Saine, noting it has no distribution channel in Russia. Some structured products for Russian onshore investors have already been sold, but only to ultra high-net-worth individuals, according Prosyankin.

The International Monetary Fund projects consumer prices will rise by 10.3% this year in Russia. Although some Russian banks offer investors high interest rates, officials say foreign banks with good credit ratings are in demand, despite the fact that returns on U.S. dollar deposits are under 1%.

The FFMS was formed in April, following a major reshuffle of Russian financial markets regulators. The watchdog is headed by Oleg Vyugin, former chairman of the Bank of Russia and chief economist of Troika Dialog Investment Company. Vyugin was not available for comment by press time. The desire of the FFMS to expand Russian derivatives markets has already made a difference to dealers. Last month, theRTS Stock Exchange was granted a license to organize trading in securities, which it says will promote the development of new exchange-traded derivative instruments.

 

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