Developing the Russian Market

1. Developing the Russian Market Andrew Carter Regional Head – Domestic Custody Services Eastern & South Eastern Europe April 28th, 2009

2. The Russian market crisis and related challenges … • Significant falls in equity markets over last 12 months (RTSI -62%, MICEX – 55%) • Rouble depreciation, and resultant impact (approx $200bn) on CBR Foreign Exchange Reserves • Limited effect of stabilization measures such as : • suspension of Stock Exchanges • establishment of state bail out funds ($154bn) • Increased state intervention in “strategic assets” governance • Falling Commodity prices • Fall in expected GDP growth from 7.8% in 2008 to approx 3.3% - 1.8% in 2009 (EBRD / World Bank / IMF) • High Inflation (14%) / high Interest Rates (Refinancing Rate dropped to 12.5% on 24-Apr-2009) / increase in unemployment (from 8.5% to 12%) • Increasing credit concerns relating to the domestic banking sector and local brokerage houses Developing the Russian Market (Apr-2009) page 2

3. Current trading suspension rules for exchanges … FSFM updated trading suspension rules for exchanges (effective 1st March, 2009) based on movements of the main stock index as opposed to the technical benchmark : • trading should be suspended for 1 hour if the main index of shares increases or decrease by 15% or more as compared to its closing value of the previous day • trading should be suspended till the end of the trading day or until further instruction of FSFM if the main index of shares increases or decreases by 25% or more as compared to the closing value of the index on the previous trading day. Additional limits are in effect for securities from A and B lists : • If the opening price or the current weighted average price of a security increase or decrease by more than 10% as compared to its last closing price, trading of this security is to be stopped for at least 1 hour • If the opening price or the current weighted average price of a certain security changes by more than 20% as compared to its last closing price, trading of this security should be suspended till the end of the next trading day or until further instruction of FSFM. The one-hour suspension may be used only once a day. Developing the Russian Market (Apr-2009) page 3

4. Most recent regulatory infrastructure initiatives … • FSFM Strategy Concept released in Sept-2008 with subsequent approval of the Financial • Market Development Strategy by the Russian Prime Minister Vladimir Putin in January • 2009 has set out a preliminary road map for a range of legislative measures to be • undertaken over the next 24 months. The Strategy is intended to create a competitive and • independent financial centre in Russia by 2020. • Formulation of 18 bills amending existing Russian legislation as part of the Strategy – • these should be drafted and approved by the State Duma by 2011 and aim to address : • the development of Russian market infrastructure (covering Stock Exchanges, Securities Depositories, Clearing Houses, as well as the mandatory use of a Central Counterparty) • revision of securities legislation to improve on issuance of securities • revision of securities legislation to recognise Securities Lending • revision of taxation legislation • the development of a domestic institutional and retail investor client base • the development of a range of Investor Protection measures (including establishment of an Investors Protection compensation fund) Developing the Russian Market (Apr-2009) page 4

5. Most recent regulatory infrastructure initiatives … • Elements of the Financial Market Development Strategy are already being introduced • FSFM has issued licence (Feb-2009) to the National Clearing Centre (NCC) to conduct clearing activities in the Russian markets (basis of a Central Counterparty) to cover not only FX, but also stock, forward, commodity and government securities markets • Duma approves 3rd reading of Foreign Securities Trading Bill (April-2009) which will establish listing of foreign issuers whose securities are listed on a non-Russian Stock Exchange and are admitted to trade • Initial recommendations submitted to the FSFM to establish a compensation fund (to be managed by the Deposit Insurance Agency) for retail investors • Draft legislation intended to establish a single Central Securities Depository (CSD) has been halted. It is likely that resultant legislation will be highly likely to recognise the role of a Securities or Settlement Depository, and that as such there may exist one or more such (C)SDs servicing the Russian market. Both DCC and NDC are now established as Joint Stock Companies (JSCs) and are actively co-operating in improving communications across the DCC – NDC Bridge, establishing bridges with Custodian Banks, and extending the scope of RUB DvP / RvP settlement schemes. • Foreign Nominee recognition explicitly mentioned in the Financial Market Development Strategy Developing the Russian Market (Apr-2009) page 5

6. Resulting market infrastructure changes … • Increased client interest (especially from cross-border investors) in DvP / RvP settlement schemes • Increased client demands for more accurate / timely / standardized Corporate Actions reporting, and expert advice / interpretation • Integrated Brokerage • Location Management / Depot Realignment • Increasingly complex / Non Standard Corporate Actions (such as TGK2, TGK4, Norilsk Nikel) • Enhanced client demand for more comprehensive MIS reports • Changes in RUB payments flexibility (RTGS, increased usage of 5th session) • Introduction of EDI Developing the Russian Market (Apr-2009) page 6