NYX Nyse Euronext

Russia is showing signs of real commitment to revitalizing its financial markets, and should concentrate on strengthening property rights as the first step, NYSE Euronext (NYX) Chief Executive Duncan Niederauer said Saturday.

In an interview on the sidelines of the St. Petersburg International Forum, Niederauer said that the process of developing the domestic capital market in a modern economy was inextricably connected to defending property rights.

"People have to be comfortable that if you set up a company here and play by the rules, then it remains your company," Niederauer said. At the same time, he added, Russia needs to embrace policies that "will encourage a migration from an economy centered around the public sector to one that facilitates the private sector."

Niederauer argued that, in a modern economy, many of the companies that turn to the stock market for growth are going to be focused on technology, and stressed that the security of intellectual property rights was therefore especially important.

Niederauer, recently appointed co-head of an international advisory board to President Dmitry Medvedev, said he was pleasantly surprised by how receptive officials were to such ideas, but warned that "The issue remains: Are they really serious? Or is the bureaucracy going to continue to stymie progress?"

Russia's domestic capital market has stagnated in recent years. The pre-crisis boom had been so dramatic that stock market volume rose from nearly nothing at the start of the decade to be Europe's fourth-largest by 2008, but the collapse of Lehman Brothers and subsequent withdrawal of international liquidity exposed its weak foundations.

Fractious, high-profile takeover battles and excessive red tape have largely deterred new companies from listing since then. Austrian banker Herberg Stepic, a veteran of eastern European emerging markets, lamented Friday that, 20 years after the fall of the Soviet Union, the Russian capital market still only has short-term resources to offer, instead of the long-term capital the country's entrepreneurs need.

The government recently appointed Deputy Finance Minister Dmitry Pankin to replace the ineffective Vladimir Milovidov, in a sign that it wishes to revitalize reform. Pankin has already signaled a willingness to scrap restrictions on listing shares abroad, and create a framework that relies on incentives, rather than compulsion, to promote domestic listings.

With regard to NYSE Euronext's own opportunities in Russia, Niederauer said much will depend on what happens after the proposed merger of the country's two largest exchanges, the Moscow International Currency Exchange, owned by the central bank, and the Russian Trading System, which is owned by its members.

Niederauer expressed hope that a merged exchange would be able to take advantage of NYSE's technology in real-time risk management of the clearing house, along with other post-trade elements such as depository and settlement infrastructure.

"The post-trade process, particularly post-crisis, is the most important" part of an exchange's business, Niederauer said.

-By Geoffrey T. Smith, Dow Jones Newswires; (+44) 758 427 1612; geoffrey.smith@dowjones.com

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