At present there are 4 state-issued financial instruments traded on the Russian securities market. We plan to survey each of them and pay close attention to the most liquid and interesting. First part is dedicated to the Short- term Zero coupon State Bonds, second - to the USD Denominated Bonds. The last two parts contain survey of the 30-year Bond issue and the Gold Certificates.

In the near future the Ministry of Finance and the Bank of Russia have plans to issue more debt instruments, mostly medium and long term. Private banks will also be allowed to issue state-guaranteed instruments for the financing of special investment projects.

Short-term Zero coupon State Bonds.

Short-term Zero coupon State Bonds are issued with the face value of RUR100'000 for the terms of 3 months and 6 months. All trading is done through authorised dealers on the Moscow Interbank Currency Exchange (MICEX). Bank of Russia is also a dealer on the market, authorised to trade on behalf of the state.

Primary placing for the 3-month issues takes place on the first and third Tuesday of each month. The auction of 6-month issue is scheduled on the second Tuesday.

The primary placing is done in the form of sealed-bid auction. When all competitive bids (with the price and volume of bid indicated) from the dealers are collected, bids are being accepted from the highest price down to the cut price. Cut price is determined by the Ministry of Finance basing on the volume of issue and on the bids submitted. Each auction participant has the right to submit non-competitive bids, accepted at the average price of competitive bids. The volume of non-competitive bids is restricted (as a rule less than 50% of total bids for each participant). Non-residents participation in the primary placing is limited by 10% of the total issue volume.

Bonds are completely dematerialised. All transactions are settled in the book- entry form through the depository of MICEX.

Secondary trading is done each business day with the exeption of auction days . Income from the trading and redemption is tax-free.

Short-term Bonds market is the most liquid market of the state-issued securities now. The market volume increased more than three times in the beginning of the June 94 as a result of the record volume of placements. The most significant changes appeared in this market after the success of those record issues.

This Bond market took the unique place on the Russian financial market landscape. Comparison of trading volumes for foreign currency and for Short- term Bonds shows that Bonds became much more attractive instrument for big players after the introduction of a special municipal tax on Exchange- based currency deals and after the significant increase in Bonds outstanding volume. Banks, which previously dealt mostly with foreign currencies, are now intensively working on this market. It is also successfully competeing with the interbank loan market.

The main advantages of Short-term Bonds are in the broad possibilities for the relatively complex arbitrage strategies they allow to the financial managers. The arbitrage is mostly done between different issues. Super-short term speculations available in this market have a big stabilising effect on the interbank loan market. Common usage of short-term loans in the Short-term Bond market effectively tied interbank loan rates to the Bond speculation efficiency and thus to the Bank of Russia policy in the Bond market. With the widening of the Bond market Bank of Russia gets the tool to influence loan market in more subtle ways.

Moscow Interbank Offering Rate and Moscow Interbank Bidding Rate better correlate with the Short-term Bond index then with the USD exchange rate. It shows that Bonds are now playing the key role in the Russian Money market. One more evidence to that can be found in a speech of Andrey Kaz'min, Deputy to the Minister of Finance. He said at the press-conference on May 19 that Ministry is ready to provide draft for the 1995 budget in September 1994 and that "implementing the civilised forms of budget deficit coverage" is essential, and the Short-term Bond issuing has been quoted among them.

There are plans to increase number of dealers, to launch regional trading floors, to allow for the on-line trading from remote locations. Introduction of Repurchase Agreements for Short-term Bonds is also planned. The restructuring of the debt with the introduction of a 1-year Bonds is planned for autumn. The volumes of issues are at maximum now, short-term issues will now give way to a medum ones.

The market of Short-term Bonds futures contracts is now rapidly growing on the Moscow Central Stock Exchange. Some dealers are already using the heging possibilities in their strategies.

The rates of return to maturity (annualised) are shown in the tables. The data for each trading day is shown. Gaps in the diagram appear at the auction days on which only new issue is quoted. Total volume outstanding and daily trading volumes are also presented.

There are no publicly recognised market indices in Russia. Various newspapers and information providers publish their own information. In the absence of publicly available information it is hard to estimate reliability of various methods as well as reliability of price information.. However there are some widely recognised equity indices, supported mostly by the high reputation of information agencies calculating them.

a) The summer of 1994 was the most outstanding period in the history of Russian securities market so far. There were 2 processes going simultaneously.

The first was an enormous growth of the privatised enterprises equity. After the end of voucher privatisation program some enterprises showed from 4 to 10-fold growth in 3 months. Together with the inflation stabilisation it is seen as a sign of the economy stabilisation and even as a sign of some development.

The second process was a development of a huge number of various investment scam schemes, pyramid schemes, etc. by a number of public companies and financial trusts. A huge amount of money attracted by those companies (it is estimated that 10 biggest got some billions of dollars) brought the financial market to the attention of state authorities. Scandals around those scams call for actions from the government and parliament.

b) Attempts to close many gaps in the corporate law and securities trading regulations were made. The president's decrees and various instructions of ministries proved ineffective. All government agencies mentioned above together with the President Securities and Exchange Commission and Central Bank tried to create a new regulation. But political debates and an absence of the unified regulatory scheme prevented any effective measures.

It is awaited that new corporate law and new law on the securities market will be placed before the parliament in the fall of 1994. Those laws will govern creation of companies, shareholder's rights, securities trading and settlement and other issues still not covered by the current legislation.

c) The major changes present in the drafts of the new laws available now are the following:

• new role for the President SEC, including registration and licensing duties;
• introduction of a self-regulated organisation of securities market participants and delegation of a certain regulatory powers to them;
• new requirements on the disclosure of information by both the issuers and market participants. Stress on the disclosure as a major tool in the self-regulation of a financial market;
• exact specification of the securities issue and registration procedure;
• creation of a legal base for the depository functioning, book-entry settlement, electronic processing of a financial data;
• shareholder's rights protection, including legal framework of a nominee ownership and representation of interests;
• specification of a shareholder's meeting procedure, proxy voting.

We have to mention that the drafts we surveyed are not necessarily the same which will be passed to parliament. Heavy changes can be made in the parliaments hearings also. It is impossible to predict now what will be the position of a major political parties to the development of a financial market and especially to the securities market.

a. State issued securities.

State securities are issued in various forms. Follows the general overview of state instruments and registration practices.

Short term debt.

Short term debt is completely dematerialised issue of registered securities. The settlement is performed via accounts in the depository of Moscow Interbank Currency Exchange. Only authorised traders (mostly banks) are allowed to trade this instrument on the Exchange directly. Other investors are obliged to keep their securities with the authorised traders and settle transactions through them.

Dollar-denominated debt.

Dollar-denominated debt is an issue of bearer securities. Settlement is performed by the physical delivery. Banks and specialised depositories offer services of an immobilisation for this instruments.

Gold certificates.

Gold certificates are registered securities issued in the certificated form. The register is kept at the Ministry of Finance. The settlement is performed by the reporting to the Ministry of Finance. Old certificates are cancelled by the Ministry and new issued in the name of a new owner.

b. Bank shares.

Almost all Russian banks issue shares in the certificated form. Banks themselves keep the registers of their shareholders and perform cancellation and issue of certificates. Several banks are creating the networks of transfer agents to allow the quick registration of transactions. But for almost all banks the safest way to make delivery is to report transaction to the bank itself or to its branch office.

c. Privatised enterprises.

The majority of privatised enterprises are issuing uncertificated shares. The names of shareholders are entered in the registers kept with the enterprise or with the registrar. Most of the registrars are located in the same town as the enterprise itself. Registrar often call themselves "depositories" and perform settlement via shareholders accounts for the securities they are registering. The changes are only made upon the presentation of all the documents for the transaction. Sometimes registrar asks for an additional information, establishes prohibitive service prices and in other ways tries to deny registration. This situation draws close attention of various government agencies and is slowly changing to the better.

d. Private enterprises.

Private enterprises (mostly venture-capital types) were first companies in Russia to turn to the securities market for the financing. For this reason they along with the banks have now the most elaborate and effective settlement systems. First depositories and networks of transfer agents were created by them.

Almost all such companies are using the bearer depository certificates issue now.

e. Bearer depository certificates.

Bearer depository certificates were introduced quite recently by some of new venture-capital private issuers. They offer an easy way to overcome the restriction on the registered form for all equity instruments in Russia. This certificates are designed for the investment in the absence of the market infrastructure. They are used now only for the shares issues.

According to the term of their issue bearer certificates are issued by certain entity (depository, group of founders, etc.) as an evidence that certain amount of shares is deposited with it. The certificate can be transferred physically. Any person possessing the certificate has the right to demand entry of his name in the company register.

Issuer can restrict the rights of the holder of such a certificate in certain ways. For some issues certificate owner is deprived of his right to participate in the shareholders meeting. All certificates have a dividend coupons attached though, and certificate owner can receive his dividends with the authorised paying agents.

Issuers use different means to discourage actual registration of shares represented by the bearer certificates. For some issues such a registration is open only in one place. Almost all private issuers offer lotteries for the owners of the certificates.

Bearer depository certificates represent single most liquid form of securities issue now in Russia.

a. Nominee ownership.

Nominee ownership was introduced in the Russian legislation by the Presidential Decree "On the measures to ensure shareholder rights". More requirements and obligations for the nominees are placed in the "Regulations on the shareholders register" and "Regulations on the depositories" issued by the Presidential Commission on the Securities and Stock Exchanges. According to the aforementioned documents, nominee owner is any person which is not an owner of the securities but is a possessor of the securities by the agreement with another person.

Nominee owner can possess securities by an agreement with a beneficial owner or by an agreement with another nominee owner.

Registrar of the company is obliged to register shares in the name of a nominee owner at the written request of the beneficial owner.

This concept is new to the legislation and sometimes it takes a big effort to convince a particular registrar to perform such a registration. But nominee ownership allows for the creation of an effective securities registration and settlement systems in Russia.

Nominee owner is entrusted to work only in the interests of the person with whom he has an agreement. Nominee owner is obliged to perform operations with the securities only at the direct orders of this person. Nominee owner is obliged to transfer all payments due to the actual possessor. Nominee owner can vote for the shares he has by a nominee agreement only if this agreement directly gives him this power.

Nominee owner is obliged at least once a year to disclose all information about actual owners to an issuer.

b. Depositories.

Depositories in Russia are governed only by the "Regulations on the depositories" issued by the Presidential Commission on the Securities and Stock Exchanges.

Commission has the right to license depositories. This licensing is not effected yet.

Depository offers services of the safekeeping of securities and/or book- keeping for the maintenance of the property rights for securities. For dematerialised (uncertificated) issues depository is obliged to register securities in its name as a nominee. For certificated "paper" issues depository can perform such registration if an investor demands it.

Investment institutions, stock exchanges, banks and specialised depositories have the right to offer depository services. Small number of specialised depositories is created to serve a specific needs of certain markets or participants. Banks are offering no advanced custody services yet and no settlement services at all.

Investment consultants and investment funds can not act as a depositories.

Depositories can not perform in their own name operations with the securities of their clients. They can not vote for the shares of the deponents. However special power can be granted by the clients to do voting. Depository is obliged to have operational rules and procedures and to present this documents to its clients on demand. Depository itself establishes prices for its clients.

Depositories are a developing market institution. Now they offer advanced settlement services mostly to the professional clients, like investment funds o broker/dealer firms. They demand different payments for their services. For a broker/dealer firm it can be a flat fee for each transaction in the range 1 000 - 10 000 roubles. For an investment fund it can be an annual fee of 0.01% - 0.05% of average net asset value.

The most difficult and costly procedures are an initial registration of shares from the name of a beneficiary to the name of a depository as a nominee (depositing of shares) and complementary procedure of withdrawal. Those procedures include negotiations with the issuer or registrar to make shares eligible for the safekeeping and settlement through the depository. Here investor often is obliged to pay all direct costs of a depository (including travel expenses and fee established by the registrar of shares).

c. Development of the securities market infrastructure.

Basically, there are no unified standards or government guidelines for the development of national clearing and settlement infrastructure recognised by each responsible government body. Nevertheless creation of the all-Russia infrastructure for the settlement of securities transactions goes on. Private and governmental initiatives are developing. Now several depositories and banks offer their services as a settlement and clearing agents both for the exchange and for the OTC markets.

Absence of a legislation on the custodian and nominee creates severe obstacles in the development of an infrastructure. Dividend distribution through the depositories is a big problem now. As a majority of a privatised issuers are not paying any dividends, there are almost no practice in this field. When the payments are made, issuer prefers transfer money directly to the accounts specified by a depository.

There is little hope that a unified centralised system of securities trading and settlement will develop throughout Russia in the nearest years. Certain segments of the market will be developed sooner, but all-encompassing system will not appear because of the political and competitiveness reasons. Financial groups and regions are creating their own market systems. Establishment of links between this systems is on the way.

Regionalisation of the market creates difficulties in the creation of the single market. Big issuers (privatised and new companies) prefer to have a direct control over their shares and are not very eager to give this control to any exchanges. This situation is changing for the privatised enterprises as they are making new issues to raise money.

The main governmental initiatives are now implemented by the State Committee for the Management of State Property (GKI). GKI is working together with foreign and international supporting agencies (USAID, World Bank, IFC, etc.) on the technical support programs for the securities market. This project is based upon the ideology of Clearing and settlement organisations and independent register holders . These project goes under patronage of GKI and international donors and is performed with a lot of help from foreign financial advisors. However, the main problems of this project are:

• (1) often suspicious attitude of market participants to independent registrars which in fact do allow themselves inside trading;
• (2) unwillingness of the issuers to give up their registers to new-born register holders;
• (3) no steps were made yet to make this system compatible with the Central Bank regulation for depository services in commercial banks. The network of clearing and settlement organisation is developed now for 4 regions of Russia (Moscow, St. Petersburg, Far East and Ural). These pilot organisations are designed to serve local brokers and arrange settlement for them. The development is very slow and it is very hard task to make shares eligible for this depositories.

Now Deloitte & Touche are supervising creation of a settlement organisation in Moscow, KPMG - in St. Petersburg. KPMG is working on the creation of computerised OTC market in Moscow and in Far East.

Several foreign financial institution are now considering possibilities to offer custodian services in Russia. According to our information Credit Swiss, City Bank and Chase Manhattan are looking to the extension of their global custody to Russia. But an absence of any legislation in the field doesn't allow them to start operations.

The next project in general can be characterised as a self-organising movement of Russian register holders and depositories. These are different organisations with all of them having very mediocre results in terms of unifying the standards and bringing intensive interbroker and interregional transactions to their infrastructure.

Basic problems for these projects are the lack of resources needed to develop this unified structure, the lack of confidence in this systems by market participants as the source for standards and the same unwillingness of the issuers to give up their registers to the members of those movements. The main private initiatives are centred around financial institutions already offering custodian, clearing and settlement services to their clients. Banks and specialised depositories, especially those servicing big investment funds, are creating networks of agents and correspondents to allow for their clients effective settlement procedures in as wide range of securities as possible.

The chief institutions trying to create national-wide networks are:

• RINACO Depository (Moscow);
• Siberian Trade Bank (Novosibirsk);
• Vladivostok International Stock Exchange (Vladivostok);
• Stock Emission Syndicate (St. Petersburg);
• Depository Clearing Corporation (Moscow).

Some of them already work in co-operation with the GKI-supported projects. Depository Clearing Corporation project is designed in accordance with the international standards and with the help of foreign consultants. But only a small volume of actual deposits is performed up to now. Only 10 securities issues are eligible. RINACO Depository has a 2 years market experience and more then 100 different issues are eligible for its keeping. RINACO Depository is a proprietary system developed to serve primarily big Russian institutional investors.

This two entities are now competing in Moscow for the services in the developing Moscow OTC market.

Almost all market in the Far East of Russia is concentrated on the Vladivostok International Stock Exchange and transactions are cleared through its depository.

There are no significant specialised settlement and clearing organisation in other regions of Russia. The deals are settled directly through the registers kept by issuers or their affiliated registrars.

The last project is developed by the experts employed by the Central Bank Securities Department. Generally that is an idea to develop the national clearing and settlement system on the basis of T-bills trading on Moscow and five regional currency exchanges and then use this infrastructure to develop the unique depository standards for trading with bank stocks. However this approach looks to be far from the implementation stage. Networks of linked depositories are created in the same way as a networks of correspondent banks are created. Through the direct correspondent accounts transactions between market participants can be settled regardless of the geography of trading.

Different systems are coming to the agreement on their standards now. Unification of the settlement system is awaited in the end of 1994 - beginning of 1995.

The best solution for the Russian securities market lies in the creation of a national-wide network of depositories linked via the correspondent accounts without any apparent centre. This network will work according to common standards and offer services to the securities market professionals. Creation of such a network is already going and its formation can be completed in the beginning of 1995.

As it was mentioned earlier, various sectors of the Russian securities market are governed by various governmental authorities. If a new Law on securities and securities market will be effected, situation in this field can change. Ministry of Finance and Central Bank are supervising the activities in their fields of jurisdiction. State Committee for the Management of State Property supervises primary market for the shares of privatised enterprises and has a power to influence those companies in which controlling stake is still state- owned.

Presidential Commission on the Securities and Stock Exchanges includes members from all the governmental agencies involved in the regulation of a securities market. Those are:

• Ministry of Finance;
• State Committee for the Management of State Property;
• Central Bank;
• State Antimonopoly Committee;
• State Legal Department.

Commission is created by the President Decree and there are no laws mentioning the Commission. Therefore commission still has no direct authority over securities market participants. Only governance of the registrars and depositories was entrusted to it by the Presidential Decree. New Law (if effected) can give to the Commission other powers. Probably Commission will be empowered to govern all matters of trading and settlement, while issue of shares will be left in the hands of Ministry of Finance and Central Bank. Those problems are now matters of a political struggle. Securities and exchange laws can appear only in the late fall of 1994.

All the problems and complains arising in the securities business can be brought before an appropriate supervising and licensing agency. As this agencies have the right to withdraw licenses and use other measures against unfair business practices, it can be efficient way to resolve problems. General arbitrage and court procedures are also available. Now in Russia exists very thin legislation governing property rights and especially relationships in the securities market. Courts are inexperienced in this matters and certain problems just cannot be resolved under current legislation.

Exchange and certain broker/dealer associations have their own internal arbitrage courts designed to resolve problems arising between members of exchange or association.

Foreign entities operating in Russia have the right to appeal to the Arbitrage Court of the Russian Trade and Commerce Chamber, if this appeal was agreed upon in the violated agreement.

Self-regulatory organisation are formed now in Russia. They have no power over the market participants yet. But those organisations are already participating in the legislation development and try to influence their members and impose the high professional standards.

Two associations are based in Moscow - Professional Association of Registrars, Transfer-Agents and Depositories (PARTAD) and Professional Association of Securities Market Participants (PASMP). The first unites organisations involved in the infrastructure development, the second is founded by 15 major Moscow broker/dealers. Some organisations are members of both associations.

The association already proved to be an effective tool in the conflict resolution in some cases. More details on the PASMP are contained in the survey of the market.

a. General overview.

Market capitalisation.

It is very hard to estimate market capitalisation for the Russian securities market. Some figure given below are based upon the statistics for the most liquid Russian stocks traded on OTC secondary market.

CAPITALIZATION OF THE "ORGANIZED" RUSSIAN STOCK MARKET

Date                            In Roubles, bn          In USD, mln



07/01/1992                              20                      150
01/01/1993                              50                      120
07/01/1993                              300                     280
01/01/1994                              1000                    800
07/01/1994                              11000                   5500

Sharp increase of total stock market capitalisation in 1994 is due to privatization of huge Russian state companies like Unified Energy System of Russia, Rostelecom, Yuganskneftegaz, Komineft as well as to extremely successful placements of stock made by Russian venture capital companies like MMM, OLBI-Diplomat, Car Alliance and others. OTC trading vs. exchange trading.

The major volume of securities trading in Russia is performed over the counter. Exchanges still play mostly no role in such important market as a market of the shares of privatised enterprises.

Due to the absence of reliable statistics for volumes of secondary trading with stocks it is hard to provide correct estimations on the ratios of trading held at exchanges versus OTC trading activities. There are the following reasons for these simple ratios not to be calculated:

• exchanges reporting is not reliable due to very loose process of registration of deals on one exchanges and due to a lot of "advertising" deals at other exchanges;
• many exchanges in 1992-1994 included in their official statistics volume of trading with vouchers and money market instruments as well as volumes of primary placements of stocks made within privatization auctions partly channelled through regional stock exchanges; This is why official figures reported to the authorities are often misleading for understanding of volumes of secondary trading with stocks.

b. OTC market.

OTC trading is held through non-organised markets which do not allow to measure volumes of trading correctly. The trading is mostly done on the basis of direct broker-to broker calls without so far any computerised system to link brokers together.

Several information agencies and newspapers publicise bids and asks of various market makers. Brokerage firms often call each other just to know current prices for most liquid issues. Voucher investment funds from all over the country are distributing their asset reports (mostly consisting of small- known regional enterprises) hoping to attract buyers.

However, some estimates made on the basis of publicly available information and information from market-makers allow to estimate the trading volume on OTC market in June, 1994 as USD 500 mln while the volumes of trading with stocks at exchanges was about USD 4 mln. OTC market is based upon the mixed order- driven and quotation- driven set of principles. Thus, for the stocks issued by banks there exists almost always market-maker's system for pricing and trading of this stocks. Some of the most liquid stocks issued by privatised and venture capital companies are also traded on quotation-driven basis

However, the bulk of stocks are traded on order-driven principle - they are not liquid enough and brokers are not willing to take risks announcing their fixed quotations.

OTC market is totally unregulated financial market. There are some occasional appeals for self-regulation -- the most recent examples are establishment of Professional Association of Securities Market Participants.

Among the founders of the PASMP are:

• Grant
• RINACO Plus
• Olma
• Troika-Dialogue
• Russian Brokerage House
• Brunswick
• CS First Boston Moscow
• Zerich
• Nika
• Trinfico
• Finable
• Nicoil
• Analyze

This Association receives technical assistance of USAID. KPMG Peat Marwick is helping to provide co-ordination of brokers efforts to organise secondary trading with stocks via computerised dealing system. The start of the trading is expected in the end of September 1994. The publication of prices will be done through all major information agencies and newspapers. Members of PASMP developed rules of fair practice and dealing with the clients in hope to achieve more liquid and transparent market. Some listing requirements are prepared because no one wants to trade with the "fake" companies shares. The major difficulties in the creation of a computerised OTC market are the following:

• lack of interest from the issuers side. Issuers are not interested in the secondary market yet. Almost no privatised companies used the market a place to raise money from. For this reason they are not interested in the information disclosure and establishment of good relationships with the market professionals;
• the huge margin between regional markets and Moscow market allows to brokers make a 50% gain in a matter of days now. Consolidation of packages which are sold to foreign investors constitutes a major part of profit for leading brokers. This is why they are not interested in the transparent market yet;
• the lack of the centralised settlement facilities anywhere in Russia.

However until now there are no clearing and settlement standards for OTC brokers, and almost 90% of trading is held out of the self-regulated brokers' associations. The settlement is done directly through the shareholder's registers and often requires flights across Russia to register a transfer at the issuer location in Siberia of Far East. This is partly the reason why Moscow market is a market for big blocks of shares now. Major market makers listed above almost never perform sales in amounts less then 500 000 USD. The average size of a buy is lower and it is possible to sell directly to the market maker as small a lot as 10 000 USD. Moscow market is now a market for big orders and liquidity is rising with the size of the package involved.

Some big firms not actually registered as a professional securities market participants are working on the market with speculative as well as with long- term goals. However he sign of the maturing of the OTC market (besides constantly rising volumes of trading and emergence of derivatives market) is that everybody knows recognised brokers and market-makers and that a lot of deals are striken on the basis of telephone agreements.

c. Exchange market.

Legal environment.

The basic document to regulate Russian stock exchanges activities is The regulations for the Issue and Circulation of Securities and for Stock Exchanges in the RSFSR" of 1992, which determines legal requirements to stock exchanges foundation, principles of organisation, taxation and licensing.

The government body responsible to regulate Russian stock exchanges is Russian Ministry of Finance (MOF). This agency has right to license stock exchanges as well as to withdraw licenses. Stock exchanges are obligated to provide monthly reports to MOF.

Today as much as 110 exchanges received licenses to host stock market trading activities and at least 10 exchanges had been already forces to suspend trading activities because of some faults admitted.

Major drawbacks.

Up to the date regulation of stock exchanges has very general form and hadn't been worked out in detail. There is no legal requirements in Russia to organisation of listing expertise at stock exchanges, no unified standards for clearing and settlement procedures as well as for stock exchanges public reporting. Moreover, official information generated by stock exchanges is usually considered by market participants as not reliable because financial brokers often practice "empty transactions" at stock exchanges aimed to influence price situation on the market without actual trading with stocks. This practice appeared on the market because of very poor regulation for trading process at stock exchanges where exchanges' officials are rather more interested to show big volumes instead of care about trading process organisation.

As there are no requirements on this issue, stock exchanges almost always have no unified clearance and settlement procedures. When the deal is executed, brokers usually have to negotiate directly on the terms of money and securities transfer. This practice can only encourage "empty transactions" mentioned above.

Organisation of trading.

For the most of Russian stock exchanges the quotation-driven principle is utilised to organise trading with securities. Market-makers almost always offer their quotations in the OTC market, and exchanges usually tend to appoint known brokers as specialists on each stock listed at the exchange. It is worth mentioning that in Moscow and in St. Petersburg, where still exists more then one exchange, it is not unusual for the brokerage firm to become member on several of them.

However, if about 70% of companies are traded on the exchanges at quotation-driven principle, the rest 30% of companies are traded on the basis of order-driven (auction) model and the volume of trading on order-driven model is far beyond 80% of all trading held at the exchanges. Order-driven model is applied to organise trading with stocks of emerged Russian venture-capital companies (their bearer's CDS) as well as for the trading with some key stocks at Vladivostok International Stock Exchange (the only "real" exchange market in Russia). Development.

Exchanges became a necessary part of trading infrastructure only on those markets there some external force restricted trading in the OTC form. In this manner Central Bank restricted trading of Short-Term Bonds to MICEX authorised dealers, or local authorities and directors of privatised enterprises supported exchange trading in Vladivostok.

Very interesting way of development was chosen at the Stock Department of Russian Commodities and Raw Materials Exchange (Moscow). The RCRME opened its doors to the general public, and allowed brokers to turn their booths into the small "stock shops". Auctions are held on the floor and all persons in the hall are allowed to participate in them. This is done ofcourse only for the bearer instruments and cash settlement is done from hand to hand. While this approach is not working with the shares of majority of privatised enterprises, it helps exchange to survive and to acquire some name.

a. Information sources.

There are almost no sources of publicly available information to estimate liquidity in the Russian securities market. There are three basic sources of the data for the estimations:

Exchange reporting.

All trades executed at the exchanges are reported to the Ministry of Finance. This information is published quoterly. The main problem here is that almost no market takes place on the exchanges. For the privatised oil and gaz enterprises no transactions are reported on any of the Russian exchanges. Exchange transactions are sometimes a "faked" ones. Vladivostok International Stock Exchange is one exception. Almost all Far East stock market is carried through this exchange. Unfortunately only two or three Far East enterprises are traded nation-wide so far. Broker reporting.

Brokers report their OTC transaction to the major news-agencies and newspapers on a voluntarily basis. Reporting of market-makers is often affected by their policies. There are no way to check this transactions and prices reported.

Shareholders register information. Registration of share in the name of new owner requires reporting of purchase price according to the current legislation. Issuer is not obliged to disclose this information, and it is almost never done. Even if an information from the issuer is available, there are no ways to check it. Market participants often try to make the registered price smaller for the taxation purposes.

Creation of professional dealers associations with their organised OTC market systems will help in the disclosure of trading information. We hope that in the end of 1994 real volume will be reported for all shares traded nation-wide.

b. General remarks.