As asset managers and brokers look for new opportunities in emerging markets, Russian investment bank Renaissance Capital signed up with SunGard Global Network to offer connectivity to Russia and other emerging and frontier markets.
Renaissance Capital will be able to offer brokerage services for the Russian markets to more than 2,000 asset managers and 530 brokers linked to SunGard’s international trading network, while SGN will leverage Renaissance’s name and expertise in emerging markets, the company said in today’s release.
But the partnership also comes on the heels of a Russian exchange merger and changes in market structure and settlement processes that could help resolve compliance issues that prevent U.S. buy side firms from investing directly in Russian equities.
“At the moment it’s difficult for quite a few people to trade Russian because there is not recognized Central Share Depository (CSD),” according to Sam Atkins, head of the Electronic Trading Group product development and exchange connectivity at Renaissance Capital, who is based in London. Due to compliance rules in the U.S., Russia needs to establish a CSD which governs the custody of assets with registered investment firms and with custodians outside the U.S. This is in the process of being established according to Atkins.
Through SGN, Renaissance Capital, will be able to route trade order flow directly to Russia’s MICEX-RTS (Real Time System) Exchange Group and the London Stock Exchange’s International Order Book, where Russian stocks comprise 92 percent of trade volume. The exchanges merged last December and now trading of equities, FX and futures is all in one place on MICEX-RTS.
According to Philippe Carre’, global head of connectivity for SunGard’s capital markets business, Russian access is very limited for the U.S. client base, and there is a general perception that Russia is complex, and difficult place to reach. “The reason we have added Russia to our order routing network is that people do see Russian joining to create an experience which is very similar to western standards. The exchanges have emerged, and it’s a work in progress.
While Russian companies can be traded as global depository receipts (GDRs) in dollars as listed on the LSE, “The ambition of the Russian exchange right now is to try and bring back that trading into Russia directly,” says Carre. About $2.3 billion is traded on a daily basis. “It’s a huge market,” says Atkins.
Among the advantages, trading in Russian markets is fully electronic with central order books, there is FIX order routing and application programming interfaces. “There is no fragmentation, no MTFs and you don’t need a smart order router,” explains Atkins. Among the changes occurring with the CSD, in Russia, there will be T+3 settlement as well, he adds. “We can offer clients T+3 DVD (delivery vs. payment) type of settlement in dollars, says Atkins. That will open up Russian to U.S. funds, because then they can maintain their assets outside the U.S. under SEC regulations.
The Russian exchanges are making a huge effort through education and events to explain how much they want to change the Russian markets. These efforts are very much supported by brokers such as Renaissance Capital, he says.
A number of buy side firms are trying to get access to Russia, and now they can establish a relationship with Renaissance Capital, notes Carre’. In addition, Renaissance Capital will be looking at a number of other emerging markets, the ex-Soviet Republic nations, known as the Commonwealth of Independent States (CIS) and other countries in Eastern Europe and sub-Sahara Africa.