EDB Industry Report no. 10.
This study, conducted by the Eurasian Development Bank with support from the PARTAD, provides an assessment of the prospects and challenges of integration of the capital markets of Russia and Kazakhstan. Our analysis of the legal framework for mutual penetration of Russian and Kazakhstani capital in the form of stock market instruments shows that there are no insurmountable barriers to this process. Moreover, the basic legal preconditions for this mutual penetration are all in place. However, as the financial crisis persists and the capital markets of Russia and Kazakhstan fail to function as a single financial centre in the global financial market, these established preconditions are still of limited use. Notably, these two EurAsEC member countries have no explicit political or other barriers to integration of capital markets. This warrants synchronisation of their regulatory systems and infrastructure, which will allow them to quickly and efficiently organise, for instance, trading in Kazakhstani securities and depositary receipts on Russian stock exchanges; to secure reliable communication between the holder, the issuer and the registrar by electronic document management systems; and to enable the disclosure of information on these financial instruments at a single EurAsEC centre, irrespective of location, in both Russian and English. The survey of stock market participants reveals that potential issuers and professional players currently show little interest in the integration of the stock markets of Russia and Kazakhstan and prefer international markets. Thus, competition with other financial centres necessitates significant efforts to improve the attractiveness of regional financial solutions and instruments. To this end, the establishment of a common Eurasian financial centre with infrastructure elements located across EurAsEC countries and form a single exchange, clearing and settlement system should be the ultimate goal. Existing economic or technical advantages mean that most of these elements will be concentrated in Russia, however, the EurAsEC members (primarily Kazakhstan) will have a role to play in the capital and physical infrastructure of the main institutions of this supranational financial centre. As part of this effort, the EDB can position itself as a unique institution which can not only catalyse the investment process but also serve as an infrastructure bridge between the capital markets of Russia and Kazakhstan and, potentially, other EurAsEC countries. It is of particular importance because, according to our survey, the level of mutual Russian and Kazakhstani capital market penetration does not match the actual potential for bilateral cooperation.