Buying into market of corporate bonds denominated in Russian rubles

1. Buying into market of corporate bonds denominated in Russian rubles Step-by-step guide Alexey A. Loginov Senior Consultant, Financial Engineering Department, "EUROFINANSY" Investment Banking loginov@eufn.ru

2. What’s Russian corporate bond market? as of 01/08/05 total data for 1996-2005 Number of issuers, 281 Number of issues, 454 * MICEX - Moscow Interbank Currency Exchange

3. Main steps • Entrance to market • Trading techniques • Repatriation of funds

4. Step I. Entrance to market

5. 1.1. Initial transfer of funds • Account in foreign currency • Special bank “O”-account Russian bank Account Foreign bank in favour of non-resident Bank of Russia Reserve account obligatory reserves - 2% in favour of non-resident Special broker“O”-account EUFN

6. 1.2. Terms of entrance • Non-resident opens accounts with Russian bank: • Special account of type “O” in rubles (on condition 2% of each credited sum must be reserved in the Bank of Russia for a year with further refunding) • Account in foreign currency • Non-resident concludes contracts with Russian brokerage firm (EUFN): • For brokerage services (as EUFN is a member firm of the MICEX) • For settlements and custody services

7. 1.3. How to open accounts? Non-resident presents following documents: • Application + Contract of account • Memorandum and Articles of Association • Documents confirming Company’s legal status • Russian certificate of taxpayer (can be obtained with assistance of broker according to client’s choice) • Card with sample signatures and impression of seal • Powers of attorney (for opening, operating accounts, etc.)

8. Step II. Trading techniques

9. 2.1. Trading floor MICEX Moscow Interbank Currency Exchange – www.micex.com Principles of trading: • Continuous anonymous auction • Automatic matching of orders • Pre-depositing • Multilateral clearing • Settlement institution – MICEX Clearing House • Central depository – National Depository Center (MICEX subsidiary) • Delivery vs. payment

10. 2.2. Structuring Your deal Client transfers funds to his account with brokerage firm (EUFN) Client orders brokerage firm (EUFN) to buy / sell bonds at placement or in secondary market using Internet-trading facilities or by phone Brokerage firm (EUFN) routes client’s order through MICEX workstations in automated trading floor Order is executed automatically automated confirmation, clearing, settlements daily report of broker

11. 2.3. Model of market Information infrastructure Regulation infrastructure Financial advisers, press, special databases (Reuters), Auditors (incl. Big Four), Rating agencies(national scales of Moody’s, Standard & Poor’s and Fitch) Federal Financial Markets Service Self-regulatory organizations (NFA, NAUFOR, PARTAD) Legal requirements, corporate ethics MICEX trading system Issuer Underwriter / EUFIN /other MICEX-member Primary market Broker / EUFIN /other MICEX-member Primary investor Buyer Broker / EUFIN /other MICEX-member Secondary market Broker / EUFIN /other MICEX-member Seller Deals registration, information disclosure Securities clearing and settlements. Custody services Central depository – National Depository Center (NDC) Cash clearing and settlements MICEX Clearing House

12. Step III. Repatriation of funds

13. 3.1. Repatriation of funds Sales proceeds Interest received Principals received Special broker “O”-account EUFN • Special “O”-account • Account in foreign currency Russian bank Bank of Russia return of reserves conversion Account Foreignbank