RTS to Tie Blue Chip Packages to Its Index

The Russian Trading System plans to start trading with a new financial instrument: packages of shares in seven blue-chip companies tied to the RTS index and priced at about $160.

Each package of securities will include 300 ordinary shares in national power grid Unified Energy Systems, five in the nations No. 1 oil firm LUKoil, 190 in Moscow power utility Mosenergo, one in metals giant Norilsk Nickel, six in long-distance telephone monopoly Rostelecom, 200 in No. 3 oil firm Surgutneftegaz and 20 in No. 5 oil firm Tatneft.

The cost of the package will be tied 99 percent to the movement of the RTS index. Trading will take place in the guaranteed quotation system with any member of the stock market eligible to participate.

RTS vice president Alexei Telyatnikov said the securities have been chosen in such a way that their rate of return will correspond entirely to the fluctuations of the RTS index. Investors will have no need to worry about individual papers that are subject to sharp fluctuations, but instead can make a single application and buy a set of liquid assets, he said.

The package is essentially a diversified portfolio.

"Putting together any portfolio is a complicated task, but here everything has already been done for the investor," said Konstantin Chernyshev, head of analysis with NIKoil brokerage.

Telyatnikov said the composition of the package may change, and if that happens it will be done in accordance with regulations established by the Federal Securities Commission. The RTS will give several months warning to investors if shares are added or replaced, he said.

Troika Dialog recently offered foreign investors the possibility of investing in Russian securities via a share index fund tied to Standard & Poors index for the Russian market.

"The new RTS product is very healthy for the market," said Pavel Teplukhin, president of Troika Dialog Asset Management. However, it will be rather hard to trade the packages, he said.

"The packages are formed for the investor by a broker who holds long positions for certain shares and short positions for others," Teplukhin said.

Sergei Sheikov, head of CentreInvest Securities, is still not sure which new instrument will enjoy the most demand.

"So far the guaranteed quotation system has been inferior to the Moscow Interbank Currency Exchange in terms of the attractiveness of trading for private individuals. But if investors begin to request this ‘basket [of shares] then brokers will find a way to satisfy demand despite the need to deposit securities in advance. After all the client will go to the competition otherwise," Sheikov said.

"If a broker has only a couple of clients [for the RTS package] and he earns $5 a day then this isnt what hes after. He needs critical mass," said Andrei Galperin, managing director of the Prospekt investment brokerage.

At the same time, Galperin says that if several brokers take a chance and start advertising the new product then it could attract the necessary number of clients