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. Last Updated: 07/27/2016

Agency Mulls Measures to Boost Local Trading

VedomostiOleg Vyugin
Russia may lower the amount of stock domestic companies can convert to foreign-traded depositary notes for sale on foreign markets and introduce new rules for IPOs that would force firms to list simultaneously on foreign and Russian exchanges, the head of the financial markets watchdog said Thursday.

The new measures are aimed at boosting trading volumes on the domestic stock market and preventing discrimination against Russian investors, said Oleg Vyugin, head of the Federal Service for Financial Markets.

"We want to provide an opportunity for Russian investors to freely buy stock at IPOs," Vyugin said, citing incomparable costs of buying stock on foreign exchanges.

The new measures considered by the watchdog foresee further limiting the amount of shares converted to foreign-traded depositary notes from 40 percent to 30 percent, and forcing companies that plan IPOs to list no more than 70 percent of their offering abroad with the rest to be offered on a domestic exchange.

Russian investors have had little access to Russian companies' IPOs and have been buying mostly stock on secondary markets abroad at higher costs, said Dmitry Kushayev, head of investment banking at brokerage Troika Dialog.

Russian companies prefer IPOs abroad because their stock automatically fetches higher prices, as Western investors are prepared to pay a premium for the higher standards of corporate governance that companies have to meet to list on Western exchanges, said Alexei Zakharov, an analyst at Trust investment bank.

Mutual funds, insurance companies, pension funds and banks represent a new class of investors who cannot invest in foreign-issued securities and need new opportunities on the domestic stock market, Kushayev said.

Vyugin, however, shrugged off concerns that the new measures could hurt Gazprom's upcoming stock liberalization.

Given the planned new restrictions on depository notes, foreign investors could feel a lack of American Depositary Receipts, Vedomosti reported on Thursday, quoting a unnamed company manager.

There is no harm in selling Gazprom stock in Russia because of the gas monopolist's reputation in the world, Vyugin said.

"If the only place in the world where Gazprom stock was sold was in the Antarctic, investors from all over the world would come to buy it from the penguins," he said.

President Vladimir Putin is expected to sign off on the removal of curbs on foreign investment in Gazprom on Dec. 28.

Once the changes have been signed into law, the gas monopoly will aim to obtain the market watchdog's approval to raise the proportion of its shares available as ADRs to 40 percent -- the maximum currently allowed by Russian law, Peter Bakayev, head of Gazprom's capital markets division, said during a conference call with investors Thursday.

Old stock in ADRs and so-called "gray schemes" -- offshore investment vehicles designed to circumvent restrictions on foreign ownership -- currently account for less than 30 percent of Gazprom's stock and will be successfully converted into ADRs without any restrictions after liberalization, Vyugin said.