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Market Watchdog on Patrol as Pension Fund Flood Nears

By Victoria Lavrentieva

Moscow News, April 28 2003


Federal Securities Commission head Igor Kostikov

The nation's stock market watchdog is racing against time to improve the corporate behavior of publicly traded companies before a flood of federal Pension Fund money hits the markets.

"The market has to achieve maximum transparency [as soon as possible]," Federal Securities Commission head Igor Kostikov told a conference co-organized by the FSC, the New York Stock Exchange and MICEX, Russia's biggest bourse.

"Though we have already achieved a lot, today the issue of corporate behavior has become even more important because we are approaching the moment when Pension Fund money will be invested in the stock market," Kostikov said.

Under the government's new pension system, some $3 billion to $5 billion in pension money is expected to enter the stock and bond markets annually from Jan. 1.

Tuesday's conference coincided with the one-year anniversary of the introduction of the FSC's corporate governance code, the nation's first, which, although voluntary, has been widely hailed for inducing better behavior in market participants.

Despite some successes, Kostikov said the lack of adherence to the code is still a problem -- and a recent study by the International Finance Corp., the private lending arm of the World Bank, sheds some light on just how much of a problem it is.

Less than half, or 47 percent, of the 307 public companies in four regions polled by the IFC had even ever heard of the code. Overall about a third of the companies polled said they had implemented the code.

Bruce Misamore, chief financial officer of Yukos, which was the first company to adopt its own corporate governance code in 2000, said the successful implementation of accepted international business practices is only possible if the initiative is supported at the corporate level: "Corporate governance dialog can't occur without the support of the business."

While some companies, such as Unified Energy Systems, Sibneft, Lenenergo and Magnitogorsk have adopted their own codes, they are still in the minority.

In an effort to improve market practices and the quality of company listings, MICEX is developing its own code with the help of the New York Stock Exchange.

MICEX president Alexander Zakharov said the largest listed companies on MICEX have been invited to participate in drafting the code, which would include new listing requirements.

"We will use the FSC's code as a guideline, but we also understand that as soon as we approve our own code we will be responsible for imposing sanctions on companies that do not meet the standards," Zakharov said.

Richard Bernard, general council and executive vice president of the New York Stock Exchange, which is struggling with corporate governance issues of its own (see related story on page 9), said stock exchanges the world over have a very strong interest in making sure issuers provide honest information.

"Stock exchanges act in the interests of both shareholders and corporations, so if a company does not provide honest information, we have the right to delist them," Bernard said.

Kostikov welcomed the MICEX initiative, saying market organizers needed to play a more active role in the process.

In line with the efforts to make the market more transparent, the FSC is also requiring the RTS, Russia's No. 2 and only dollar-denominated bourse, to clearly distinguish between on-market and off-market transactions.

The RTS, which risks losing its license if it does not meet the requirement, could not be reached for comment.

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