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. Last Updated: 07/27/2016

FSC Grabs IOU Bull By Horns

The billion dollar veksel market took a step closer toward transparency Tuesday when the Federal Securities Commission, Russia's market regulator, announced it had approved a mechanism under which the debt market would operate.

The Russian Trading System and Moscow Interbank Exchange are prepared to handle the regulated trade of veksels, or promissory notes, and if a mire of legislative issues can be sorted out, the market could be launched later this year, Dmitry Budakov, deputy head of the FSC, told a news conference.

"Last Thursday we approved a standard that will allow the market to work ... and bring control to the [current] market," Budakov said.

With the step toward regulated trade, the FSC is trying to grab a raging bull by the horns. In its opaque form, the veksel market beats the stock market in terms of volume 10-to-1, market players and analysts say. The nominal value of daily turnover is estimated at $400 million to $1 billion. The market itself is valued at some 600 billion rubles ($21 billion). But with about half of that debt overdue, investors buy at their own risk.

The FSC, working with the Association of Members of the Veksel Market, or AUVER, hopes to change that after two years of hammering out a mechanism.

The complicated mechanism, posted in full at AUVER's web site,, envisions a market similar to that of any fixed-income paper and transactions would be carried out similar to the trade of the ill-fated GKOs, the state treasury bills that Russia defaulted on in 1998, officials said Tuesday.

Officials said foreign investors would find the market attractive because under the plan each company offering veksels would be assigned a rating and the promissory notes would be given a guarantee.

Analysts said any transfer to a regulated system would probably be difficult, but they welcomed Tuesday's announcement.

"Such a market would bring transparency and help companies make good on their payments," said Kirill Maltsev, head of research at Rye Man & Gor Securities.

"Veksels [now] are not registered and their issuance is not regulated," said Sergei Putnik, a fixed-income analyst at Troika Dialog. "If they try to put some more rigid restrictions on issuance, that could possibly make the market more transparent."