Markets End Day Stuck In Limbo

In an unprecedented step, trading on Russian stock markets was suspended midday Wednesday until further notice, as financial authorities stepped in after the country's top two banks lost one-fifth of their value in an hour.

The Federal Service for Financial Markets called a halt on the RTS at 12:01 p.m., after the index had lost 7.6 percent in just over an hour. The MICEX was closed at 12:10 p.m., after it plummeted as much as 16.8 percent, according to Bloomberg data.

The RTS was left down 6.4 percent on the day, while the MICEX was down 3.1 percent, after receiving a dead-cat bounce just before the close.

The government regulator must halt trading if either of the indexes falls by more than 10 percent, according to financial market regulations.

The suspension was the second in two days and came after the MICEX fell a record 17.5 percent on Tuesday.

As of Wednesday evening, it was not immediately clear how long the markets would stay shut.

Both the MICEX and RTS rose in early trading, buoyed in part by news of a bailout by the U.S. Federal Reserve of beleaguered insurance giant AIG.

But both indexes plummeted after brokerage KIT Finance said it was seeking a strategic investor to pay off repurchase auction debts amid fears that a spreading liquidity crisis could push troubled banks into insolvency.

KIT Finance said late Wednesday that it was in "the final stage of negotiation" to sell a controlling stake to Leader Asset Management, a company that lists Gazprombank and Gazfond as major shareholders.

Around midday, stocks of Sberbank and VTB both fell more than 20 percent in a sharp reversal of earlier gains.

VTB fell 22.5 percent, while Sberbank dropped 20.4 percent after gaining more than 14 percent earlier in the day.

Earlier in the day, the Finance Ministry announced that it was pumping more than $44 billion of cash into Sberbank, VTB and Gazprombank, while banks loaned more than $13 billion in a Central Bank repo auction.

"We have a banking crisis when stocks get locked up because people don't know what is going on in terms of risk," said Ronald Smith, chief strategist at Alfa Bank. "One of the reasons the [market] decline really accelerated this week is that the margin calls haven't peaked. You have too many sellers in the market, thereby increasing margin calls and creating negative feedback on prices."

Global financial woes coincided with purely Russian factors such as capital outflows after the Georgia war and tax payments coming due, he said.

Andrei Kukk, a senior trader at UralSib, said the government had to "control the crisis of confidence spreading in the market as fast as possible," by injecting more funds into the banking system.

Suspending trading was counterproductive, as the market could have been left to sort itself out, Kukk said.

"I think nothing good will result from closing the stock exchanges. The London Stock Exchange continued trading … and Russian ADRs gained as a result," he said.

The Federal Service for Financial Markets said it was considering reopening the markets and asked the stock exchanges to send proposals to stabilize the market by 5 p.m.

Senior officials from the Central Bank, the markets service, the stock exchanges and the National Stock Market Association met Wednesday afternoon to discuss the crisis, a spokeswoman for the market association said.

Spokespeople for the participants in the meeting said they were unavailable for comment Wednesday afternoon and later said they would not comment.

"We are keeping our fingers crossed and waiting for instructions from the Federal Service for Financial Markets," said Lev Bystrov, a spokesman for the RTS.

"There's not much we could do, we don't decide anything."