Trading in foreign stocks
The start of trading in foreign stocks – August 24, 2020.
Background for trading in foreign stocks on MOEX:
- The Russian regulatory framework allows Russian investors to purchase instruments on the global financial markets; however, investors are exposed to risks resulting from operations beyond the Russian law.
- According to the survey conducted by Naufor, foreign securities accounted for 14% of the total investments made by individuals in 2019 (86% was for Russian securities).
- Generation Y invest in world-known brands. Private investors and trading members welcome the admission of foreign stocks to trading.
- Options for geographic and sectoral diversification will allow attracting a new class of investors and retain demand for Russian securities.
- Current and upcoming regulatory initiatives regarding securities available to non-qualified investors will permit acquiring foreign securities admitted to trading on the Russian exchange.
- Which instruments are admitted to trading?
In August 2020, Moscow Exchange launched trading in the 50 most liquid foreign shares from the S&P500 Index as follows:
- 20 shares initially in August,
- The rest 30 shares by the end of 2020.
Important note. Foreign shares admitted to trading on MOEX’s initiative have compound tickers:
The primary listing venue ticker + "-RM",
where "RM" is for "Russian Market".
Suffix "ME" ("Moscow Exchange") is currently used in tickers of securities admitted to trading (but not listed) only on the Repo Market.
Symbol "-" before "RM" ("-RM") has been chosen to meet vendors’ technical restrictions. Therefore, symbols "." (".RM") or "_" ("_RM") cannot be used.
- Trading hours and trading calendar specifics
- CCP NCC risk parameters, margin requirements, margin trading
- 100 percent collateral is not required;
- Short selling is allowed;
- Excluded from individual clearing collateral;
- Excluded from the CCP NCC guarantee funds.
CCP NCC calculates the risk rates (including indicative risk rates) for foreign stocks. Margin trading is allowed.
Risk parameters of foreign stocks will be published on the CCP NCC website:
Important note. The CCP NCC risk rates are in RUB. CCP NCC provides indicative risk rates (S0L, S0H, S0) in foreign currency as a specific service at the participant’s request.
Important note. In the after-hours trading, the price limits for foreign shares may be extended.
- Trading modes, order types
- Clearing and settlement
Main trading session
Trades are cleared and settled in a similar way to trades in Russian stocks:
Clearing and settlement
Settlement at 17:00
- Clearing session: 17:00 MSK (setting restrictive limits on securities - 16:00 MSK; setting restrictive limits on cash 16:45 MSK);
- Time of delivery: by 17:00 MSK;
- Time of the security deposit to the buyer’s account: by 18:00 MSK.
Settlement at 19:00
- Clearing session: 19:00 MSK;
- Time of delivery: 19:00 MSK;
- Time of the security deposit to the buyer’s account: 20:00 MSK.
After-hours (evening) session
Clearing and settlement are not performed after the end of the after-hours session.
- Lot size, tick
Trades settled in RUB
Foreign shares / DR representing Russian shares (for example, Yandex, QIWI, etc.)
Trades settled in RUB
LOT SIZE The unified lot of one security is applied to all securities
One lot = one security
The lot size review is not expected.
The lot size is determined individually for every security according to the methodology.
The lot size is reviewed semiannually.
TICK The unified tick of one rouble is applied to all securities
Tick = one rouble
The tick review is not expected.
The tick is set according to the methodology.
The tick is reviewed at the end of each quarter.
The fee is charged:
- On the trade date (Т0)
- In RUB according to the tariff schedule chosen by the participant
- Are any changes to the reports expected following the launch of trading in foreign stocks?
Formats of trading (SEM) and clearing (EQM) reports will not be changed.
- OTC reporting
Shall we report OTC trades in foreign shares?
Foreign shares are added to the Level 3 List (securities not included into the quotation list).
OTC trades in foreign stocks from the Level 3 List (securities not included into the quotation list) are not reported. According to the Trade Data Regulation1, OTC trades executed on behalf of the broker and at its expenses or on behalf of the broker and at the client’s expenses are subject to reporting only if:
- The security is in the Level 1 or Level 2 List;
- The trade is settled with the ownership transfer with respect to the security.
1 See Clause 2 of Trade Data Regulation No 06-67/пз-н dated 22 June 2006 approved by the Federal Financial Markets Service
In which cases a participant who reports OTC trades regarding securities from all three lists must report OTC trades in foreign securities (after they are admitted to after-hours trading) within 15 minutes after the trade was executed?
According to FFMS’s Trade Data Regulation No 06-67/пз-н dated 22 June 2006 approved by the Federal Financial Markets Service, an OTC trade must be reported:
- Within 15 minutes after the trade was executed,
If the trade was executed from one hour before the start of trading on the trading current day until 19:00 on the current trading day;
- Not later than one hour before the start of trading,
If the trade was executed from 19:00 on the previous trading day until one hour before the start of trading.
The evening trading session will begin at 19:00:01. Therefore, there is no obligation to report an OTC trade within 15 minutes after it was executed. The trade must be reported not later than one hour before the start of trading on the next day.
- Futures and indexes on foreign shares
Introduction of derivatives
MOEX plans to offer derivative contracts on foreign shares. The launch will be announced on pages News and Instruments of section Derivatives Market of the MOEX website.
Adding foreign stocks to the MOEX indices
The Exchange does not plan to include foreign stocks in its currently existing indexes as well as to introduce new indexes based on foreign stocks.
- Dividends, record dates
What is the last day for a foreign security to trade cum dividend?
Rights to votes and dividends under trades in foreign securities are not transferred between the parties.
If a stock is purchased on the T+2 Order Book, the last day for purchasing is two days before the record date. In this case, the security will be deposited to the buyer’s account on the record date and the account will be recorded for the dividend.What is the last day before the record date when an investor can sell a security and be entitled to the dividend?
This is the ex-dividend date (i.e. one trading day before the record date), if a stock is sold on T+2 Order Book. In this case, the security will be on the seller’s account on the record date and the account will be recorded as the account for the dividend.
Can an investor buy a foreign security two trading before the record date, then sell it on the next day and be entitled to the dividend?
Yes. The security will be on the investor’s account which will be recorded as the account for the dividend.
NSD has Qualified Intermediary status with the U.S. Internal Revenue Service, and is authorised to confirm certain W-8 taxpayer identification forms for beneficial owners and intermediaries, also electronically by using the authenticated account in the Russian Unified System of Identification and Authentication (ESIA) (applicable to individuals). For more details, please visit the NSD website.
- Can one purchase foreign stocks using the Individual Investment Account? Does the long-term ownership benefit apply?
Can an investor buy foreign stocks using its Individual Investment Account?
Investors can buy foreign stocks using assets recorded on the Individual Investment Accounts ("IIS) only on the regulated marketplace operated by a Russian company (according to paragraph 2, clause 9 of Article 10.2-1 of Federal Law No. 39-FZ "On the Securities Market" dated 22 April 1996.
Foreign stocks have been admitted to trading on the regulated market operated by the Russian company. Therefore, they can be recorded to the IISs.Can the long-term ownership benefit apply to foreign stocks?
The long-term ownership benefit applies to the following securities:
- Securities traded on the regulated market, plus open-end mutual funds;
- Securities purchased after 1 January 2014; and
- Continuously owned for at least three complete years.
Furthermore, a security is recognized to be traded if the following conditions are met at once:
- It has been admitted to trading at least by one market operator;
- Its prices are available in mass media (including electronic ones), or they may be obtained from the market operator or other authorised entity to any party concerned during three years after the transaction date;
- The weighted average price of the security has been calculated at least once during three consecutive months preceding the date when the trade was executed by the taxpayer (except cases where the market quotation is calculated for an IPO).
If the above-mentioned conditions are met, the long-term ownership benefit applies to foreign securities.
- Adding turnover in foreign stocks to the turnover of the leading brokers on MOEX
Turnover in foreign stocks will be added to the rankings of trading firms by stock turnover on MOEX. The Exchange also plans to introduce one more ranking of trading firms by their foreign stock turnover.
- Risks associated with purchasing foreign securities
Investing in foreign securities may cause additional risks.
Investors may lose all or part of their funds. They should carefully read a foreign issuer’s prospectus and annual reports.
Before making an investment decision, potential investors should analyze all risks related to such investments, including the risk factors described in the Moscow Exchange Notice of Risks which has been produced to meet the requirement set out in clause 21.5, article 511 of Federal Law No 39-FZ "On the Securities Market" dated 22 April 1996.