Soviet exchange is near, NYSE chief says


NEW YORK -- Within 18 months, the hammer and sickle will fly next to the Stars and Stripes outside the United States' best-known bastion of capitalism, New York Stock Exchange Chairman John J. Phelan Jr. said yesterday.

Mr. Phelan, just back from a trip to the Soviet Union, predicted that "the basic elements" of that country's first post-revolution financial market will soon be in place. He said he had promised his Soviet hosts that on the day the Moscow exchange opened, he would order the Soviet flag raised outside the New York market.

Mr. Phelan warned prospective investors not to expect too much, however. Initial trading probably will be restricted to debt instruments, he said, with stocks offered later.

The limited convertibility of Soviet rubles is the greatest obstacle in the way of the market, he said, adding that Western investors will be willing to buy Soviet shares only "as long as you can take profits out," which is not feasible now.

"An unstable currency corrupts everything else," he said.

The creation of an exchange is complicated by Soviet statutes limiting profits and a lack of laws protecting private property, as well as unfamiliarity with trading itself, Mr. Phelan said.

Even without a formal exchange, however, some modest securities dealing already has begun in the Soviet Union, Mr. HTC Phelan said. Earlier this year, a government issue offering 5 percent interest flopped, he noted, while several bank issues paying 11 percent succeeded. That suggested that Soviet investors have a sense what constitutes an attractive return, Mr. Phelan said.

Moreover, a small commodities exchange made its debut in Moscow last month. A second -- offering footwear, clothes and other goods -- opened Tuesday, with a Russian Orthodox priest sprinkling holy water and providing a dedication blessing.

Mr. Phelan characterized the Soviet Union's decision to open an exchange as "the end of a 70-year experience that doesn't work."

Before the 1917 revolution, Russia had numerous stock and commodity exchanges, and its debt was traded internationally. In a corner of the gold-gilded boardroom of the New York Stock Exchange is a large Faberge urn, presented in the name of Czar Nicholas II in 1904 to commemorate the exchange's listing of $2 billion in Russian bonds.

The Imperial Russian Loan, as it was officially known, went into default shortly after the revolution and was officially suspended from trading on the New York Exchange in 1921.

Sporadic negotiations between the U.S. and Soviet governments on repayment are thought to have occurred since the 1970s, a NYSE spokesman said.

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