Updated March 31, 2008

   Federal Financial Markets Service (FFMS) developed the criteria for determination of qualified investors not being the professional market participants. This category of investors will have an opportunity to invest into the brand new for the Russian market high-yield financial instruments. Thus, the state will not compensate the high risks related to investments into such instruments.

   Also, FFMS developed the order determining the criteria for qualified investors and directed it to the registration to the Ministry of Justice. According to the strategy of the Russian financial market development for 2006-2008 a qualified investor is a person "capable to assess risks related to investments adequately and to carry out operations with securities on the basis of these assessments independently". The status of the qualified will allow an investor to make investments into more risky financial market instruments, such as hedge funds, commodity market funds, credit funds. The investments that bring higher profitability as compared to the traditional types of investing will be nonavailable to the unqualified investor.

   In the acts About the equity market and About investment funds the status of qualified investor is allocated only to 11 categories of professional financial market participants, such as Bank of Russia, brokers, and managing companies. FFMS was imposed to determine criteria for physical and legal bodies not being professional financial market participants. FFMS considered the main criteria as follows: experience at the equity market, volume of private funds and assets turnover. A physical body is obligated to correspond to two out of three and the legal body – to two out of four requirements indicated in the order.

   Qualified investors’ appearance in Russia will allow the managing companies to extend the range of investment products substantially, and their clients will have an opportunity to gain higher profit as experts agree. "Until now managers were forbidden to establish many types of funds, that compelled them to line up business-chains and to register funds in offshore", says UFG Asset Management director general Andrey Podoynitsyn. According to him, investment funds’ activity has been rather regulated until now.

   "The division of investors into qualified and unqualified will allow treating the activity regulation of investment funds more flexible", reported the head of FFMS collective investments market management Alexander Beskrovny. The funds with rather flexible requirements concerning composition and structure of assets, terms for shareholders and requirements for information disclosure will be established for qualified investors. "Investments into hedge funds, venture and credit funds, commodity market funds as well as some types of mutual funds such as close and interval ones are traditionally considered risky investments", says Zurich Capital Management Investment Company director general Shscheglov.

   However, when qualified investors receive opportunities to earn and take risks consciously, qualified investors will be "disconnected" from compensation mechanisms which will be envisaged for the unqualified market participants. According to Mr. Beskrovny, the system of such compensation is developed in FFMS now, and the corresponding act can be already passed by the end of this year. It will be applied in case of appearance of nonmarket risks such as the existent model of the bank deposits insurance.

   According to experts, criteria applied to qualified investors, physical bodies, turned out rather liberal. As compared to them requirements for qualified investors, legal bodies, are rather hard. If market participants do not have claims with FFMS regarding turnovers of transactions and terms of work at the market, so they consider requirements of equity capital and sum of assets overestimated. "Far not all professional participants meet these requirements, not to mention legal bodies who are mainly not engaged in a game at the market", is sure BrokerCreditService Investment Company vice-president Maksim Trotsenko. "Only large corporations yield the stable RUR 1 billion profit a year, and therefore, the middle business will not meet FFMS requirements by this criterion", is sure Mr. Shscheglov. According to his opinion, problems can arise with a company equity which should be no less than RUR 100 million.

   "FFMS’s logic is rather clear", considers Mr. Podoynitsyn. He names a fight against one-day firms and grey charts carried out at the stock market the main reasons of such hard requirements. "There are cases at the market when the managers of large companies register the connected organization to move money flows through it, and also to transfer the main assets", considers the National rating agency director Viktor Chetverikov. Until now the requirements for equity capital and assets for such subsidiaries were not discussed yet, and large companies used this for margin trade at the stock market in particular.

Funds for qualified investors will substantially increase the volumes of the Russian financial market, experts are sure. However, "in order to judge about the real market growth, one FFMS order is not enough; it should be the package of measures", Alexander Shscheglov supposes.