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Late last year, significant changes to Russia's
securitisation market legislation came into force with the
introduction of structured bonds – a new type of security.
While regulatory issues are yet to be ironed out, these bonds seem
likely to meet growing investor demand.
On 16 October 2018, a series of amendments to Russia's
Federal Law No. 39-FZ took effect. The law was supplemented by a
new article regulating the issue and circulation of structured
bonds. This financial instrument can be issued by banks, brokerage
and dealer firms, and special purpose vehicles (SPVs).
A structured bond is a debt obligation containing an embedded
derivative component that adjusts the security's risk/return
profile. The return performance of a structured bond will track the
underlying debt obligation and the derivative embedded within
it.
These bonds offer investors higher returns. However, exposure to
risk is commensurately higher, given that payments under these
bonds are linked to fluctuations in the price of goods, securities,
currency, interest and inflation rates, etc. Only accredited
investors can acquire structured bonds but the Central Bank of the
Russian Federation – the Bank of Russia – is exploring
the possibility of opening them up to a wider base of retail
investors. It is worth noting that retail investors would have a
deadline of 10 working days from purchase to terminate the contract
unilaterally and receive a full refund of their capital.
Previously, in a tightly-regulated Russian market still subject
to sanctions, it was impossible to issue debt securities that did
not guarantee returns at full face value. However, following these
ambitious changes, we've seen the introduction of new financial
instruments similar to the structured notes issued in a range of
jurisdictions, including the EU and UK.
The Bank of Russia is primarily responsible for the execution
and supervision of legislation in the securities market and issuing
additional market regulation. It has had a rather busy 12 months,
overseeing what may well amount to a transformation of the
country's securities market.
To engage with the Bank – and the wider banking community
– high-level events have been organised by Cbonds, a financial
data specialist and news agency operating across the region.
I spoke to several stakeholders from Russia's banks at a
recent Cbonds seminar, where I gave a presentation on these new
structured bonds. They are already shaking up the securities
market, which has, traditionally, been dominated by residential
mortgage-backed transactions (RMBS). There was a real sense of
excitement about these instruments which provide issuers and
investors with new opportunities in Russia.
However, the legislation is still quite fresh and the
country's regulators are still getting to grips with it. This
has led to considerable delays in reviewing the plethora of papers
filed by the issuers of structured bonds.
Several Russian financial institutions have entered unchartered
territory, issuing these innovative structured bonds and securing
'first-mover' advantage. Demand is expected to rise sharply
soon.
Partnering with TMF Group
We are one of the leading providers of administrative and
accounting services for securitisation deals and experienced at
establishing and managing the SPVs that will help clients issue
structured bonds and diversify their activities in Russia.
Talk to us today about how TMF Group can support your
operations in the Russian securitisation space.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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