bne -

Something funny is going on at Russia's newly merged stock exchanges. On May 22, the merged board of directors of Russia's main exchange Micex-RTS appointed Alexander Afanasiev as chairman of the management board, effectively demoting Ruben Aganbegyan, formerly president and chairman of the management board, but now only president.

Aganbegyan's new role is supposed to focus on IPOs, interaction between the exchange and regulators, and the exchange's main clients, but he will report to Afanasiev, who will supervise all administrative and operational aspects of Micex. Roman Sulzhyk, an ex-Deutsche Bank trader, was put in charge of risk management of Micex-RTS and will also report to Afanasiev.

The reshuffle is a blow to Aganbegyan, who has been the driving force behind bringing Russia's two biggest exchanges together and helping to turn Moscow into the international financial centre (IFC) that President Vladimir Putin called for in 2008.

A former president of investment bank Renaissance Capital, Aganbegyan is extremely well qualified for the job and has been hankering after a political one, sources close to Aganbegyan have told bne. For most of the last two years, Aganbegyan has been lobbying the government to make sure market-friendly mechanisms and legislation have been put in place to make the capital market development happen. He has also been a regular fixture at most international investment conferences and the first joint Micex-RTS session held earlier this year was the crowning of his efforts.

But Aganbegyan's demotion comes at a time when other worrying signs on the political commitment to see through real reforms of the capital market have been called into question.

While the creation of Central Securities Depository (CSD) - a key piece of financial infrastructure - has already happened, the change that would enable money to flow and the capital market to actually grow is Russia's decision to join Euroclear, a continental-wide settlement system that would effectively hook Russia's capital market into the global financial system. However, at the last board meeting the vote was effectively split on whether to join the system, with Aganbegyan surprisingly voting against joining the system. "The vote was split, with several of the international custodians voting against," says a bne source close to the action. "Moreover, the vote was split along nationalistic lines. The final decision is now due to be made on June 7."

Following membership of Euroclear, foreign investors would be able to buy Russian ruble-denominated bonds on the Moscow exchange directly from their chairs on London trading desks. The idea is to significantly increase the pool of investors and capital that will give the government the option of financing at home the expected federal budget deficit for years to come.

The reshuffle at the top of Micex and confusion over Euroclear's membership have injected a note of uncertainty into the whole programme of turning Moscow into a IFC and market participants will be watching closely to see how this story plays out.