Strengthening FX regulations in Russia

Russia, the world’s eleventh largest economy and part of the famous Bric’s pact has been discussing regulations in derivates trading

Russia, the world’s eleventh largest economy and part of the famous Bric’s pact has been discussing regulations in derivates trading in a recent money market forum in Moscow.

Russia has developed its free market economy post Soviet divide; it now boasts liquid stock and derivatives exchanges for both retail and institutional investors.

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The online FX trading boom has been partly due to rise in internet access and usage and disposable income. However getting involved in financial derivatives isn’t open to all, a survey found that financial literacy levels remain low in Russia around 50% of the public confirmed that they were not confident in understanding how financial systems work.

Russians faced substantial Forex scams in the physical market, this was ripe during the 90’s however government reforms have made it harder to exploit people.

The central bank has placed a ban on unofficial money changers operating in the country. However problems are still occurring as a Moscow pensioner was conned out of 1 million roubles (about $33,000) whilst trying to exchange them for foreign currency at an unofficial currency exchange booth in downtown Moscow.

The spot FX market has come under much scrutiny by the Federal Service for Financial Markets (FSFM) a regulatory body who wants to bring margin trading under a standardised framework.

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Russian originated brokers have taken initiatives to try and make a case for themselves, leading brokers including Forex Club and Alpari formed the KROUFR established a self regulatory organisation where significant issues are discussed and brought forward to improve understanding transparency of the operations.

The domestic futures market is seeing an impressive $17 billion daily volume, the OTC market as recorded by the NFEA is around $20 billion per day. The new RTS (options and futures exchange) saw an impressive growth in 2010. During 2010; 226,504,533 single stock futures contracts were traded on RTS, overtaking Eurex which had a total trading volume of 202 188 048 contracts in 2010 and NYSE Liffe London with 183,614,306 contracts.

Experts at the Money Market forum noted that there is still significant room for greater regulation and education. Grigory Birg, co-director of the InvestCafe think tank said that current foreign exchange courses do not protect students strongly enough against the risks of the market.

“Foreign exchange courses do disclose risks to their students, but the FX marketing campaigns are very active and clearly designed specifically to attract money in trading deposits,” Birg said.

Another reason the experts cited for the need for greater regulation is that Russia’s foreign exchange market has come to be treated as a casino for gamblers, who often with little financial education.

Turnover on Russia’s foreign exchange market has risen sharply since the government outlawed gambling in casinos and slot machine halls in 2009. Gamblers are attracted to the quick speculative gains which characterize the market.

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