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USAID SUPPORTS CAPITAL MARKETS
by Michael Guerin

Registration and custody of securities are two major shortcomings
of  Russia's capital markets, adding time, risk, and expense to
investing there.  To address these shortcomings, the U.S. Agency
for International Development (USAID) is helping to establish
"clearing and settlement organizations" (CSOs) in five major
Russian commercial centers: Moscow, St. Petersburg, Vladivostok,
Yekatarinburg, and Novosibirsk.  Deloitte & Touche, acting as a
USAID contractor, is providing technical assistance to the
Moscow, Yekatarinburg, and Novosibirsk CSOs.  A second
contractor, the Barents Group of  KPMG Peat Marwick, is providing
the same support in St. Petersburg and Vladivostok. 

Originally created to provide nominee shareholder services, the
CSOs now offer clearing and settlement services, securities
re-registration, registrar confirmation, and extract safekeeping
to their members.  Utilizing economies of scale, they are able to
significantly reduce the cost of these functions.  The CSOs will
add further services as their markets grow, in particular
dividend collection and the exercise of shareholder rights.  They
will probably form the nucleus of a national clearing and
settlement system once they are linked electronically. 

Securities accepted by the CSOs are domestic equity and debt
instruments. Only securities that meet the requirements of
Russian securities law and are offered in the Russian marketplace
are eligible for CSO services.  The CSOs promote high standards
of integrity and do not participate directly in the market to
avoid conflict of interest.   Their procedures are modeled on
Group of 30 standards, although it will take time for all five
CSOs to meet these criteria.

The Moscow Depository Clearing Company (DCC), for example,
divides securities into two classes:  "full  service securities,"
which are eligible for clearance, settlement, custody,
re-registration, and registrar confirmation; and "limited service
securities," which are eligible for re-registration and registrar
confirmation services only.  Customers are divided into three
types: "full service participants," which are DCC member banks
and brokerage or securities firms that meet Russian licensing,
operational, and financial requirements; "limited participants,"
which trade via DCC participants but wish to maintain separate
DCC accounts; and "nonparticipant users," which must meet DCC
financial integrity standards.  

CSOs are member-owned, with membership available to any bank and
brokerage or securities firm that meets the CSOs'  licensing,
operational, and financial requirements.  Currently, the Moscow
DCC has 13 members, the St. Petersburg Settlement and Depository
Center has 36, and the Vladivostok CSO has 76. Different services
are offered for the different types of customers, and any CSO may
act as a participant in any other CSO.  

The Vladivostok CSO is worth special note because of its rapid
growth.   Based on an early CSO created in part by the
Vladivostok Property Fund, the Vladivostok CSO is the first to
require securities to be on deposit in order to be cleared.  As a
result, approximately 350 securities issues are now on deposit
with this CSO.  To obtain contact information for Russian
Clearing and Settlement Organizations, call Flashfax at (202)
482-3145 and order document # 6600.
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