Russian Issuers Run Away to London

According to Bloomberg, in November, the turnovers for 6 most marketable securities of Russian companies at Moscow International Stock Exchange (MICEX) went down up to 40.1%, London Stock Exchange, LSE up to 59.9% and were respectively equal to $12.8 bln and $19,2 bln. In October, the state of affairs looked slightly better: the Russian site had 43.5% as compared to London's one with its 56.5%.


Apart from London Stock Exchange the Russian companies like other foreign stock exchanges, such as NYSE (New-York), SEHK (Hong Kong), Deutsche Börse, NASDAQ, the listing procedure, and IPO being much more difficult for the Russian companies in the western market than at MICEX. But all the same, Russian companies still prefer to offer their shares  in the foreign stock exchanges and not in Moscow.

The reason is quite obvious – the Russian financial market is not developed. The companies preparing for IPO face a lot of legal and infrastructural obstacles. Also the underdevelopment of the corporate law and there being no well-formed set of laws about the security market are the essential risk factor which should not be underestimated. In particular, the issuers are afraid of mergers by the purchasers of their shares.

It would be highly unlikely for Megafon to attract $1.7 bln within the frames of IPO if it had placed its shares in Moscow. Today it is impossible to attract such funds due to underdevelopment of the Russian financial market. Speaking of LSE, this stock exchange is characterized by the high management level, reliable principles and efficient rules.   

Next spring a Central Securities Depository is due to start its work. In theory its creation is supposed to make accountability of property rights more transparent and the market more efficient. It is also supposed to ease the access of foreign investors to Russian securities and to result in growth of their marketability and to reduce market players' expenses for the post-trade services due to implementing of the Central Depository's uniform platform. If that does not happen, the prospects for Moscow as the international financial center will still be rather obscure.

M.V.Kozlov – researcher,  Center for Macroeconomics and Finance