RUSSIA FORUM BUZZ. Market Regulation and Practice: Restoring Confidence

The market regulation session opened with an international investor perspective stating that the lack of clear rules on market closure had severely damaged investors’ confidence in the Russian market in autumn 2008. Ongoing concerns include the complicated structure of the market, particularly two competing exchanges, two currencies and settlement systems, and the lack of a central depository and registry. These issues were key factors behind the move of a great deal of trading of Russian securities to London during the crisis. Institutional investors require simplicity and transparency of market infrastructure. A good emerging market example is Turkey, which took advantage of its financial and banking crisis in 2001 to transform and simplify its market infrastructure, making it one of the most transparent and liquid markets in the EMEA universe.

At the same time, representatives of Russian stock exchanges said that they do not see any problems with competition itself, and instead argue that the main source of problems lies in imperfect market regulation, such as non-transparent rules governing market closure. The CEO of MICEX said that the exchange had adopted new trading and listing rules that comply with new FSCM regulations and will make the circuit-breaker rules more clear. The trading halts will be based on the MICEX Index rather than its technical index. These rules will be effective starting March 1, 2009.

Representatives from both exchanges said that market infrastructure had coped well with the crisis in September, ensuring that all transactions were executed despite a huge increase in volatility.

Both market participants and exchanges said that after the crisis passes it will be necessary to develop trading on both a t+2 and t+3 basis rather than the current t+0 prevalent on MICEX. Roman Goryunov from RTS said that dealing on a t+0 basis is unrealistic, as market participants must provide funding on the basis of bilateral repo deals. Alexei Rybnikov from MICEX sees a great need to develop t+n deals to respond to the potential strengthening of the LSE’s competitiveness after it introduces a central counterparty system to deal in ADRs.

Rainer Riess from Deutche Boerse added an international perspective. He said that better regulation and transparency will be key in creating a regional financial center in Moscow. He quoted the example of Germany, which managed to create a sound financial infrastructure in the 1990’s by establishing efficient market rules. He suggested five measures that Russia can implement using the experience of Germany as it modernized its market over a period of ten years:

  • Creating a central counterparty clearing institution
  • Adopting and enforcing strong insider trading laws
  • Creating a single exchange regulator
  • Improving trading in financial derivatives, and introducing master agreements and netting systems
  • Creating a single depository and registrar

All panel participants agreed that banning short selling is counter-productive, except in the very short term. For example, the recent ban in the US dried out liquidity and undermined market participants’ ability to hedge. The participants are trying to persuade the Russian market regulator to lift the ban as soon as possible.


Peter Derby, Chairman, CreditStar
Roman Goryunov, Chief Executive Officer, RTS Stock Exchange
Peter Elam Hakansson, Chairman of the Board of Directors, East Capital Asset Management
Rainer Riess, Member of the Management Board, Frankfurt Stock Exchange, Managing Director Cash Market Development, Deutsche Borse
Alexei Rybnikov, Chief Executive Officer, MICEX Stock Exchange
Benn Steil, Director of International Economics, Council of Foreign Relations
Alexey Timofeyev, Chairman, NAUFOR

Troika Dialog

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