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. Last Updated: 07/27/2016

RTS Futures Project Readied for Launch

Dolgostroi, the Russian catchword for Soviet construction projects that dragged on for decades and were never completed, are city eyesores that should either be torn down or completed to turn a profit, municipal and federal officials agreed Tuesday.

"We don’t have any contradictions [on this matter], but a mutual wish to profit from these projects," said Moscow Mayor Yury Luzhkov at his weekly City Hall roundtable.

Luzhkov called on the federal goverment and his own to approve a program presented by his property and land department and the federal Property Ministry.

The meeting and the proposed program mark "the first step to creating a single system to liquidate dolgostroi," Luzhkov said.

At issue are 170 federally owned buildings in Moscow that started being built decades ago, some as early as the 1970s, but were never finished.

Deputy Mayor Oleg Tolkachev said that 30 of the 170 listed dolgostroi projects are close to completion and could be finished within a year.

Both city and federal governments now intend to make a full inventory of the buildings and resolve the fate of each of them by the end of the year.

Financing for the buildings deemed worthy of completion could come from either the federal services that currently occupy them, Tolkachev said, or from the city in exchange for a cut of future profits. Another option is holding a tender to attract private investors, he said.

"The unfinished buildings are frozen capital, distort the architectural look of the city and are dangerous for Muscovites," Tolkachev said.

Aside from the architectural and safety concerns, however, Stock market speculators will have a chance to bet against each other next month when the RTS-Interfax agency and the Moscow Stock Exchange open the Russian Trading System index futures exchange.

RTS-Interfax and MSE on Tuesday unveiled their plans to offer futures trading, where market players can bet on the future price of the RTS index, which is composed of 100 companies.

"It will take three weeks to draft the rules after the board meeting at the end of this week, so a month from now we will … kick off trading," said Sergei Gorbachenko, head of the new project at the Moscow Stock Exchange.

The new instruments will be three-month contracts priced in rubles, with one point in the value of the index corresponding to one ruble, so the initial value of the contract will amount to roughly 170 rubles, Gorbachenko said.

MSE will pay royalties to RTS-Interfax, which runs the joint RTS-Interfax index. The sum of the transaction was not disclosed.

"It is a positive sign that competing trading floors joined efforts," said MSE president Maxsim Karpenko.

The choice of MSE as the location of the new trading floor, however, bodes ill for the short-term future of the new instrument, some traders say.

MSE has a troubled history, and is known mainly for the anomalous fact that it enjoys a virtual monopoly on buying and selling shares of gas monopoly Gazprom. Other stocks and bonds are traded in much larger volumes on the Russian Trading System, Moscow Interbank Currency Exchange and, more than anywhere, offshore.

Although futures trading in the United States, for example, is 20 years old and draws more than a trillion dollars a year, traders said prospects for the new instrument in Russia are grim — both due to the conditions of the marketplace and the choice of the operator.

"Competition for a tiny drop of liquidity among various trading floors has no future," said Andrei Usachyov, a trader with Prospekt brokerage.

"It’s not a bad idea, but MSE is just too small for that purpose," said Vladimir Detinich, head of research with the Olma brokerage. "But in any case, it will make history even if it is launched at MSE."

MSE opened in 1998 with heavy support from former Federal Securities Commission chief Dmitry Vasilyev, but it has never been able to escape the shadow of its prot?g?, RTS.

RTS itself does not have permission to trade futures, so it handed the right to use its brand name to MSE.

"[RTS futures trading] is a child, but it is an adopted child," said one RTS official, who asked not to be named. "If MSE runs into a problem, it will be theirs, not ours."

The history of derivative instruments in the local marketplace is a story of fraud and poor corporate governance.

In 1998, local courts refused to honor claims on forward ruble/dollar contracts, citing their unregulated status in the legal framework.

Separately, Moscow Interbank Currency Exchange left unattended holders of the ruble/dollar forward contracts, citing force majeure circumstances — sovereign default — that prevented it from honoring its obligations.