Actuality February 10, 2008

   Stock exchange players still conclude transactions with Russian securities outside the country. Besides, trade by means of offshore grows on the Russian stock exchanges.

   Offshore adventures of Russian stocks began in the period of privatization. One of the variants is that at the beginning some private individuals or organizations bought up stocks distributed among employees of enterprises . And then it was found out, that large holdings of stocks were concentrated at several Cyprian companies with any names, however, operating "in unison", i.e. on behalf of one and the same beneficiary. Sluggish management conceded it the control over the enterprise. However, general managers quite often appeared the final owners of bought holdings.

   The benefit of the Cyprian period.

From time to time beneficiaries need to sale holdings of stocks, their expansion or purchase of additional assets. And stock intermediaries began to offer them responding services. Soon new players (international speculators and well-to-do Russians, whose capital was already concentrated in the same "preferential" countries) come to the emerging market. In the mid 90th appeared the Russian Trading System (RTS) through which it was convenient for brokers to find sellers and buyers of holdings of stocks and to arrange deals. Details were discussed in Russia by phone, but transfer of ownership and calculations, what is called "a deal", were carried out abroad.

Ironically enough, but without own subsidiary in Cyprus, where the majority of transactions took place, it was impossible to do broker business in the Russian market.

   The most remarkable features of offshore holding of securities is a possibility not to pay legally or almost not to pay taxes, and at the same time to classify enough the name of beneficiary. The agreement on avoidance of the double taxation (officially this country is not offshore one now, but it has kept many features) was concluded between Cyprus and Russia.

Correspondingly, it is enough "to pay" the account dealing income tax in the Cyprian territory, where the zero rate holds. And according to Russian legislation residents' taxes make 24 % for the organizations and 13 % for private individuals, for non-residents – 30 %.

   The registration of issue of registered stocks at establishment of a new company, for example, on the British Virgin Islands (BVI), takes less than an hour, the head of tax planning department of large law company tells. Procedure represents preparation of standard paper with requisites and press of new joint-stock company, signature of director, with indication of quantity of securities and their owners. The state registration of stocks in many of such countries is not provided; the certificate becomes the only document certifying the property rights. It should be noted that primitiveness of procedure cuts both ways.

On the one hand, it is possible to keep beneficiary in secret and to administrate assets anyways, on the other hand it is easy to forge documents to try to dispute possession.

   Offshore trade successfully moved to the 21 century. According to the market participants, many of them agreed to discuss this topic only on condition of anonymity, at the period of BRIC a great volume of transactions with Russian securities was registered in areas with preferential tax treatment.

It is impossible to evaluate this sector accurately: the legal registration of operations is that change of an owner in registers of stockholders is not reflected.

But the director general of National Rating Agency Vikor Chetverikov considers that the offshore sector is now comparable to Russian stock exchange segment by volume.

   Meanwhile, on the exchange market that vigorously develops since the beginning of 2000 is considered "resident" one, the share of transactions through offshore also grows. For example, in the documents of the Moscow Interbank Currency Exchange (MICEX) there is the following stat

istics. Only for January-November participation of non-residents in the average daily turnover of stock exchange surged from 18 % to 31 % in comparison with 2006. Though earlier the tendency was less expressed. If to look at "the origin" of the foreign participants of trades, there are no surprises: the majority of them are representatives of Cyprus.

And in whole this country, together with "neighbors in Europe", provides 98 % of stock exchange turnover of non-residents.

   Why does the "Cyprian" component grow now? Probably, it is connected with toughening of marginal trade rules, when broker finances investor with money or securities. On the one hand, the legislation of Cyprus allows to use any proportions between own and borrowing costs (in Russia there is a restriction of "one to three" and tightened supervision over observance of these rules). On the other hand, intermediary can accept as collateral any assets, the managing director of Investment Company "East capital" Aleksey Ivanov notes. Also, the securities that were not included in the list of marginal ones on the MICEX are added.

   The top-manager of well-known investment group says that among his clients there are players who trade through offshore on the futures and options market of RTS also. As it was announced by RTS press service, FORTS has 23,8 thousand registered clients, 785 of them are non-residents.

At the same time their share in turnover is rather big – about 17 %.

   Last years rules of offshore trade considerably changed. Many small brokers abandoned own subsidiary in Cyprus and concentrated on servicing on the territory Russia.

It is not a matter of economy as a new turnkey company is still possible to be incorporated only for $2-3 000, about as much as annual service.

The director of Saratov Investment Group "Veldega" Aleksander Kusmartsev reminds that though offshore is a legal way of taxation minimization, scowling glances of the Tax Authorities are guaranteed.

Clients who nevertheless are interested in "individual service" are redirected to partners in large investment companies and banks.

   At the same time a number of other market participants supplied their Cyprian structures with broker licenses.

Chief executive of Investment Company "Olma" Andrey Belinsky considers that investors have only benefited from it. In Cyprus the licensed companies participate in formation of indemnification fund which goes for payments to clients of careless stock intermediaries. "The insurance system" works even if such operations take place on the Russian stock exchanges, says Andrey Belinsky. The main thing is that the contract has to be made with the Cyprian licensed broker. He will access the MICEX and RTS with the help of Russian professional market parties, with which he works "in cluster".