Russia FX Regulatory Reform Continues as CBR Takes Over New Role as Financial Markets' Watchdog

This Wednesday the state DUMA is expected to review key Forex legislation which will affect subsequent regulatory implementation carried out

Mr. Sergey Shvetsov Deputy Chairman CBR
Mr. Sergey Shvetsov Deputy Chairman CBR

Less than two months since its new role in the regulation of local financial markets, the Central Bank of Russia (CBR) is pursuing a regulatory reform agenda as financial markets’ watchdog, including proposed changes which will affect Forex and Securities Markets in the Federation.

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The State DUMA (lower house of the federation assembly) is expected this Wednesday, October 23, 2013, to review amendments made to a previous draft of the bill from June 2013. The draft includes the regulation of dealers in OTC forex markets in Russia and pertains to how dealers establish price discovery, quotations and other parameters related to execution methods. According to Forex Magnates’ research, it’s expected that there will be a high probability of approval of the amendments made to the draft, which is to be reviewed this Wednesday.

With regards to market regulation, the Financial Supervision Committee (FSC), a permanent body of the CBR, will carry out the central banks supervisory, surveillance and regulatory role in overseeing non-credit institutions in financial markets. Among other asset classes including securities, the bill also aims to clarify the taxation of forex transactions from OTC dealers and their customers.

Potential Ban on Foreign Companies Soliciting Domestic Investors

An example for the use of a restrictive measure that would prevent foreign companies from advertising in the local Russian markets was delivered last week in a statement to the media, quoting Mr. Sergey Shvetsov, First Deputy Chairman of the Central Bank of Russia.

“You might also need restrictive measures relating to the prohibition of advertising mediation services in the territory of the Russian Federation to foreign companies,” Mr. Shvestsov said in the Russian-written statement, and further added, “So within the country, licensed brokers should have an exclusive right to provide brokerage services, including on foreign markets, if the customer signs up for these services from within Russia.”

In a further demonstration of the exchanges and regulators participation efforts on a global scale, Mr. Shvetsov is scheduled to speak on October 23rd in New York, at a Forum hosted by the Moscow Exchange at the Grand Hyatt.

Russia: Recent Capital Market Developments

Russia is competing for its place aside major financial markets centers and via intra-market connectivity, with a series of recent announcements including the completion of the Moscow Exchange connectivity through TMX Atrium. This connection enables access to the Moscow Exchange market data from 30 POPs in 11 countries across TMX’s venue-neutral platform, as was covered in a previous article by Forex Magnates in September.

TMX AtriumCommenting on the corporate statement from TMX Atrium regarding the completion, Emmanuel Carjat, Managing Director of TMX Atrium said, “We are delighted to offer access to an increasingly important source of Russian market liquidity. Appetite for access and operation within the Moscow markets is growing and we anticipate this trend will continue as the market develops and investors look to implement increasingly complex trading strategies. The Moscow Exchange offers opportunities for trading cash equities, Russian derivatives, Russian FX and Russian fixed income;  asset classes that are becoming increasingly important for the international trading community.”

This follows last week’s launch from the Moscow Exchange of a gold ETF, followed with precious metals being announced just yesterday.

Financial Market Regulations

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The CBR regulates the local stock market, including the Moscow Exchange which formed as a result of the Moscow Interbank Currency Exchange (MICEX) and Russian Trading System (RTS) exchange merger in 2011.

As per Mr. Shvetsov’s comments to the media last week, he voiced concerns of keeping domestically-based brokerages focused on the local markets and said, “It is now obvious foreign markets are available to our investors, but we thereby encourage our brokers have an offshore component of their business […] we need to analyse how the industry does not get to ‘draw their offshore participation’, and provide services from within Russia, this is good for taxes and for all.”

The CBR is the legal successor of the Federal Financial Markets Service (FFMS), which has been defunct since September 1st, after the Central Bank assumed the regulatory authority and responsibilities of the ill-fated FFMS. These authorities include regulating non-credit financial institutions such as those carrying out the following activities:

  • Professional participants of the securities market
  • Investment fund management companies, mutual funds and private pension funds
  • Specialized depositories of investment fund, mutual fund and pension fund
  • Equity investment funds
  • Clearing activities
  • Central counterparty activities
  • Trade organizing activities
  • Central depository activities
  • Insurance activities
  • Private pension funds
  • Micro-finance institutions
  • Credit consumer cooperatives
  • Housing savings cooperatives
  • Credit bureaus
  • Actuarial activities
  • Credit rating agencies
  • Agricultural credit consumer cooperatives.
Chairman Sergey M. Ignatiev
Chairman Sergey M. Ignatiev

 

Earlier this year, Russian President Vladimir V. Putin announced the appointment of  Elvira Nabiullina to take the helm of the Bank of Russia as Governor, while leaving the role of Chairman to the current post held by Sergey M. Ignatiev since 2002.

Ms. Nabiullina has served as Mr. Putin’s chief economic adviser, and the Russian President made comments to the media regarding her appointment, saying that, “The central bank isn’t simply a commercial bank, it is above all the regulator of our financial system and the most powerful institution responsible for state economic policy.”

With regards to her meetings in Washington D.C. last week at the Annual Meeting of the Board of Governors of the IMF and the World Bank Group, as well as at the G20 Finance Ministers’ and Central Bank Governors’ Meeting, her quotes were referenced in an interview with Rossiya 24 where the CBR Governor said, “We don’t need high short- term growth rates. We need steady and consistent growth that is mainly the result of greater efficiency, higher productivity and economic diversity. This is the main objective of the Central Bank’s monetary policy.”

During the meetings she was also quoted in the interview as saying, “This time in Washington, attention was strongly focused on the consequences of a longer QE3, which could in fact lead to more economic bubbles and other system-wide risks.” The Central Bank Governor further stressed, “Of course it is a complicated issue. Withdrawing too soon could be just as adverse as withdrawing too late. In any case, it is obvious – and all the participants mentioned this – that as the economy grows and recovers, the country should go back to more traditional monetary policy measures.”

Navigating New Market Uncertainties With Confidence

Forex related rules in Russia are projected to go into effect by January 1, 2014, according to an estimate by Forex Magnates’ research, in order to provide FX brokers time to comply with the new guidelines which could include minimum capital requirements of $1.2mln, and be more dependent on the liquidity of instruments traded/offered. The Self Regulatory Organization (SRO) likely to maintain internal oversight for FX in Russia is CRFIN, according to Peter Tatarnikov of GFF Corp.

GFF FM logo The OTC Forex Market in Russia is estimated to be growing rapidly and vibrantly, according to a joint research report conducted by Forex Magnates and GFF CORP, which is available for purchase.

This Russia-specific research report contains invaluable information for decision-makers of firms looking to enter a region that could experience an influx of participants following recent economic growth and increasing regulatory efficiencies in its capital markets structure, as demand continues to grow in FX and beyond.

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