| One year ago, if a speculator wanted to take a position on eastern Europe, there were few options available. In the case of a western supplier wanting to hedge against non-payment from a state-owned buyer, options were non-existent. All this has changed in past few months with the development of a variety of over-the-counter (OTC) structured products. Not only can structured products offer a convenient way to hedge investments, OTC products offer an alternative to Russia's electronic custodial and settlement system. The fastest-growing products so far have been those linked to Russian government paper. These are traded in London's OTC market, traders are reluctant to reveal the size of their trading books. Equity-linked products also likely to take off in line with increased local trading in Moscow's equity market where volumes have doubled from an average daily turnover of $30 million in March 1996 to over $60 million today. Although this volume is insignificant compared to turnover in the massive GKO, MinFin and Eurobond markets, derivatives could be the next big step for eastern Europe's maturing capital markets. The arrival of derivative products has had most impact on the sale of Russian government, rouble-denominated paper, GKOs. |