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Russian listing rules look too onerous

A compulsory minimum free float for banks listing in Russia is illogical, hard to police and might not be in investors’ best interests.

Russia’s central bank is to encourage the country’s financial institutions to contemplate IPOs. It has unveiled proposals aimed first at boosting their capitalization and then persuading them to list their stock – presumably on a domestic exchange. That, certainly, is what the Russian financial regulator, the Federal Financial Markets Service, is advocating for all companies that are contemplating a listing.

Among the measures outlined is a proposal that the central bank should allow small stakes of less than 1% to be traded freely – without its permission. In addition, for trading of stakes between 1% and 10%, the central bank will only need to be notified, rather than asked for permission, as is presently the case.

A third proposal is that all banks with a capitalization of more than R2.5 billion ($90 million), will be obliged to maintain a free float of at least 10% on Russian exchanges.

There are several problems with this plan. First, although investors might be willing to buy some of what could be called blue-chip names from the banking sector, such as Vneshtorgbank and Gazprombank, it is hard to see that any investors have such short memories that they have forgotten the historically parlous state of the banking sector in Russia more generally.

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