New Market Rules in Offing for Irate Traders

MTMICEX CEO Alexei Rybnikov, left, greeting RTS CEO Roman Goryunov at Troika Dialog's Russia Forum last week.��
Since September, Moscow traders have had to put up with 30 trading freezes on the MICEX and have watched the exchange lose 52 percent of its value, while the RTS has fallen by 69 percent.

Now they've just about had enough.

One trader from Troika Dialog stood up at a panel on market regulation last week at the investment bank's annual Russia Forum and demanded changes from the CEOs of both Russian exchanges: MICEX's Alexei Rybnikov and RTS's Roman Goryunov.

The trader rattled off a laundry list of grievances, including poor transparency, the extended trading hours and seemingly erratic market closures.

"You guys get all the bad rap because you didn't get in front of the market," he said. "You need to get in front of the press. You need to say: 'This is why we're closing the market. This is what we're going to do.'"

Speaking after the conference, Rybnikov acknowledged that this was not the first time he had heard complaints. "We are, and we have to be, in very direct and constant contact with the biggest brokers. We think we pretty much understand their concerns," he said.

The Federal Service for Financial Markets introduced a new set of regulations for the exchanges to follow that will go into effect on March 1. The revised regulations will formalize rules on trading halts and widen the corridors for market suspensions.

Currently, MICEX trading is suspended until the next day if a share price falls more than 10 percent. Under the new rules, it will take a 15 percent deviation to stop trading for an hour and a change of 25 percent to halt trading until the end of the day. "It's huge progress," Rybnikov said.

"People will have absolute transparency as to when and how market holds are being applied. People will have predictability. This is a transparent legal act that has been approved by the regulator and registered with the Justice Ministry so everyone knows exactly how it operates," he said.

The changes are arriving at a time when MICEX is facing increased competition from London, Rybnikov said.

East Capital Asset Management, for example, has been forced to begin trading more in London because of the irregularities on the Russian exchanges, the fund's director, Peter Elam Hakansson, said at the conference.

In addition to rules on delistings and trading suspensions, MICEX is creating a trading platform for private equity placements in response to the drop-off in Russian initial public offerings, Rybnikov said.

The platform is meant to be an investment tool for funds and a capital-raising vehicle for issuers for whom Russia's stock market drop-off ruined all chances of an IPO.

"We are offering this platform because there is still a huge demand for IPO among issuers and they can't raise capital through exchange placements," Rybnikov said.

The new rules also call for regulations in bond trading, requiring issuers to delist in case of default, as well as overseeing their use in repo operations.

Using repos, or repurchase agreements, financial institutions use bonds as collateral to borrow short-term money at a fixed rate. Securities are transferred to the lender if the borrower does not manage repayment.

Presently, there is no formal method for regulating conflicts in the event of a default on the bonds used as collateral. The new rules would make it easier for the side holding the bond as collateral to price the security and sell it.

Pavel Pikulev, a fixed-income analyst at Trust National Bank in Moscow, said the rules would "prevent future chain defaults on the repo market.

"When the market was liquid and the borrower defaulted, you could sell the bonds and get your money back. But in the fall, there were no buyers for the bonds so then these lenders defaulted on their obligations as well and the domino effect took off," Pikulev said.