Russian derivatives legislation effort stalls

The judicial reforms are a critical component in re-establishing an onshore, non-deliverable derivatives market in the country following its economic crisis in 1998. At that time, Russian banks reneged on up to $6.5 billion in currency hedges offered to foreign investors in short-dated government bonds called GKOs.

But progress to change article 1062 of Russia’s Civil Code, which underpinned the decision by the country’s Supreme Arbitration Court to rule that non-deliverable forward contracts are illegal, has proven slow. Presidential elections on March 14 have also contributed to delays. But derivatives legislation experts such as Sergei Avramov, a Moscow-based associate at US law firm Coudert Brothers, hoped the September hearings would kick-start a process that has already dragged on for more than two years.

However, this seems to have failed. “Things are pretty much as they were,” says Simon Vine, deputy head of investment banking at Alfa Bank. “I see no real progress.” And Deutsche Bank analysts agree. “We remain worried about the structural reform and political outlook,” the bank said in a Russian market research report on September 29. “Judicial reform... is on hold.”