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FEATURE STORY

Building Businesses by Building Stability in Russia

October 24, 2011

Capital markets are a key part of any developed economy. And stability, fairness, and trust are the keys to capital markets' successful operation.

World Bank Group

Capital markets are a key part of any developed economy. And transparency and trust are key to the successful operation of capital markets.

Alexey Timofeev runs the Russian Broker-Dealer Association, a group of finance executives who promote transparency and the trust that comes with it."One of our main tasks is to ensure that investors feel comfortable with the market, that the regulations and the regulators are strong," Timofeev says.

One key part of the recent changes in Russia's capital market, Timofeev says, is the creation of an insider trading and market manipulation law – a new tool to combat those who would play outside the rules.


" The development of capital markets in Russia—you can't say the market was developing on its own, by itself. The basis for each and every market, including capital markets, is regulations. "

Marina Medvedeva

Vice President of Russia's MICEX stock exchange

Only ten years ago, there were 85 Russian 36.6 pharmacy stores. 36.6 represents a healthy human body temperature, but the heat surrounding the chain is rising. In 2003, the chain went public. Six years later, it raised the equivalent of $100 million USD in the capital market, to help it grow.

Lubov Dobrovolskaya, the company's investor manager, says the fresh influx of money helped the chain grow. "This money helped us buy a regional drugstore network. Now we have more than one thousand drugstores across Russia." Sales reached $400 million USD last year, and Dobrovolskaya says the company plans to add 200 new stores annually.

During its transition to a market economy, Russia established a regulator for capital markets in 1994, and wrote key regulatory laws. But as the government privatized companies, it was vital that firms could be bought, sold and invested in freely, firms like 36.6. Experts say the keys to drawing such investment are transparent laws and regulations. A long, slow process of building laws and regulations, which Russia is working on, is what leads to trust, according to market experts.

About $12 billion moves through Russia's MICEX stock exchange every day. Five years ago, through Initial Public Offerings (IPOs), new companies raised $24 billion, an historic high. This is rapid change for a system that was born in the chaos of 1992 as a currency market, and evolved into a stock market five years later, albeit one that is still heavily dependent on the on oil, gas, mining industries.

Marina Medvedeva is the Vice President of Russia's MICEX stock exchange. She says the market relies on regulations. "The development of capital markets in Russia—you can't say the market was developing on its own, by itself. The basis for each and every market, including capital markets, is regulations."

Now, as the Russian economy evolves, the stock market has responded with a new index for innovative ideas and an effort to get the country's middle class to invest.

The World Bank's Capital Market Development Project, begun in 1996, was about helping Russia to build the foundations of its economy after the collapse of the Soviet Union. The World Bank has helped the Russian government create the policies and laws that support its capital markets.

The global financial crisis of 2007 and 2008 was a real test of Russia's markets. But the country came through it relatively well. By 2009, the trading of shares on the Russian market was again close to equaling the whole of Russia's GDP.

Russia has the potential to grow into a hub for regional trade, and the government hopes it will someday become a global center for finance. But, experts from the World Bank caution, the country need to establish additional legal, regulatory and infrastructure improvements before it reaches those goals.

Russia has the potential to grow into a hub for regional trade, and the government hopes that it will become a global hub. But, experts from the World Bank caution, the country needs to enact a number of additional important legal, regulatory and infrastructure improvements before it reaches those goals.


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