Alexander Zakharov
General director, Moscow Interbank Foreign Currency Exchange

    Recently the integration of national financial markets has become one of the most important directions of developing interrelations within the Commonwealth of Independent States. Establishing a common capital market will allow to increase capitalization of national stock markets, to attract additional investments in economies of CIS member countries and adjust mechanisms of capital movements.
The financial integration will provide CIS member countries with an opportunity to gradually open up their domestic markets and integrate them into the world economic system. The coordinated financial policy will also help get more favorable terms of accession to the WTO and to raise competitiveness of national economies in the world market.
In late June in Bishkek leaders of central banks and exchanges of the states participating in the EurAsian Economic Union discussed questions of integrating financial markets. The Business council of the EurAsian Economic Union has been recently formed of business representatives.
A committee on economic integration of the CIS has been established with the Chamber of Commerce and Industry of the Russian Federation. It will deal with questions of developing payments and settlements relations as well as banking collateral of entrepreneurship. A concept of a common financial space in the CIS is being worked out together with the International association of exchanges of CIS member countries (IAE CIS), which includes 19 exchanges of 10 countries. Its project should cover questions of legal backing of economic integration, setting up of integrated currency and stock exchanges as well as developing of payments and settlements relations.
It seems that at the initial stage of creating an integrated financial market the most rational approach is to implement pilot projects within the frameworks of bilateral agreements between Russia and CIS member countries and between Russia and Kazakhstan in the first place. Both countries have effective financial laws and state structures to regulate their financial systems as well as developed market infrastructures. For example, the total annual turnover of the national securities markets in Russia and Kazakhstan amounts to $50B. Besides, the necessity of integration processes is stipulated by the dynamic growth of their economies and by the fact that Russia is a leading trade and financial partner of Kazakhstan. In 2001 Kazakhstan’s GDP increased 13.2%. Russia’s share of Kazakhstan’s exports to other CIS member countries in the first half of 2001 equaled to 70 % and it reached 89% of its imports.
By the initiative of IAE CIS proposals substantiating the project to establish an integrated capital market of two countries were submitted to the Russian government and Central Bank as well as to Kazakhstan’s Central Bank. First, this project provides for creating conditions to arrange mutual circulation of securities of Russian and Kazakh emitters in the organized markets of both countries. Second, it seeks to secure access of professional traders to the national securities markets. Third, the project calls for setting depository services of foreign securities by the national depositories.
The preliminary analysis of laws regulating the financial markets in both countries indicates the necessity of making a number of changes in the project, above all, in the provision concerning common rules of admitting securities to the national markets. One of the possibilities to solve this problem might be to compile a list of securities of the best emitters in Russia and Kazakhstan (the so-called blue chips) admitted to mutual circulation at the stock exchanges.
The Russian list of blue chips is approved by the Federal Securities Commission (FSC). At present, it includes securities of the joint stock companies UES, Gazprom, LUKoil, Surgutneftegaz, Mosenergo, Rostelecom, YUKOS, Tatneft, Sberbank. Today securities of these emitters are listed at Russia’s leading exchanges. In the first half of this year their total turnover exceeded 500 billion rubles at the Moscow Interbank Foreign Currency Exchange (MICEX) only. Kazakhstan’s Central Bank can approve a similar list of local emitters as well. This list might include securities of such emitters as Kazakhmys JSC, TuranAlem Bank JSC, Kazakhtelecom JSC, Kazakhoil national oil company and others.
It should be taken into account that establishing an integrated capital market of Russia and Kazakhstan will contribute to the creation of a market conversion mechanism of the national currencies and in the future to an integrated currency market. Market participants will need estimates of securities cost in the national currencies and stable rate indicators as well as an opportunity to conduct conversion operations and repatriate profits with minimal expenses.
A liquid currency market supported by operations in the capital market should interest participants of foreign economic operations, who will use with more vigor the national currencies of two countries in their mutual settlements. The basis of this market is already being formed. By results of 2001 the goods turnover between Russia and Kazakhstan amounted to $4.7 billion jumping up by 80% as compared with 1999.
Currently, the integration processes are dynamically developing at the level of trading organizers as well. For example, MICEX and the Kazakh stock exchange (KSE) signed a memorandum of cooperation pledging to assist each other in getting information necessary for establishing an integrated exchange space in the CIS.
As matters stand now, the project of an integrated capital market has already secured support from Kazakhstan’s regulatory agencies. In particular, they have proposed to issue Kazakh depository receipts (KDR) for shares of Russia’s leading companies (for a total amount of about $45 million to $60 million). To implement projects like this it is necessary to unify laws and work out common rules of operations in the capital markets of both countries.