Russia's stock market has been in a slump for several months. After an initial period of excitement and euphoria in the middle of this year, the foreign investors that drove the heady growth of share prices in Russia's top privatized companies have taken to the sidelines.


Why? High-risk hedge funds triggered a crash in September and October by taking profits, causing the dollar-adjusted Moscow Times Index to drop by about 20 percent. But more significant was what happened while share prices fell: investors realized firsthand just how difficult it was to trade shares in Russia's chaotic stock market. Horror stories spread about the obstacles to realizing paper profits made on Russian equities, and money stayed away.


Before Russia's stock market can attract new money from institutional investors like pension funds and big emerging-market funds, more efficient and transparent trading procedures must be implemented, and shareholders need guarantees of ownership.


Many solutions are in the works: private banks and financial institutions are planning to set up limited custodial services in which they would guarantee investors' shareholdings; Deloitte & Touche and USAID are working on a model independent share registry and have helped establish the Professional Association of Registrars, Transit Agents and Depositories; the Russian government is planning to set up several large registries; the newly formed Depository Clearing Company may someday provide custodial, registry and trading services under one roof.


All these efforts are laudable, but they will be based only on trust and reputation until Russia's parliament passes legislation to regulate the securities market. The government has taken a smart approach to this by consulting with brokers and experts to come up with a bill that would have wide support in the market. Support in the parliament, however, is another issue.


Legislation and clear property rights are not only important for the health of Russia's equities trade. They are essential to attract the management know-how needed to turn many Russian enterprises around, as the removal of British metals trader Transworld's holdings from the shareholders' register of Krasnoyarsk aluminum has shown.


The fact that Krasnoyarsk's share price has risen since the scandal broke might seem positive. But the buyers seem to be mainly speculative investors who do not plan to influence management and thus feel less at risk of summoning the directors' ire.


If the custodians, the registrars, and the parliament can get their respective acts together, such directors could soon be forced to listen to their shareholders, whether they like it or not.