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. Last Updated: 07/27/2016

Officials Seek New Way to Control Stocks

The collapse of the MMM investment fund has demonstrated the government's inability to control the stock market and the need to shift responsibility for regulation away from the state and onto brokerage houses working in the market, a top governmental official said Thursday.


"The scandal testifies to a crisis in the state system of stock market regulation," said Dmitry Vasiliyev, the deputy chairman of the governmental Securities and Exchange Commission, at a news conference.


"This system is in deep contradiction with the demands of the market," he said. "If we do not change our approach to stock market regulation, then scandals will multiply, grow, and strengthen."


Vasiliyev said that officials at the Finance Ministry, the Anti-Trust Committee, the Central Bank and the State Property Committee were indifferent to the need to regulate the stock market.


"About a thousand bureaucrats are working ineffectively," he said, adding that the only cure for this situation would be to shift the state's powers to associations of stock brokers, or to self-regulating organizations, as he called them.


"If the state does not know how to use it, power should shift from the state to the participants in the market," Vasiliyev said.


He said self-regulating organizations would provide investors with more information about the stock market and its participants. "For them, transparency in the market is a matter of life and death," Vasiliyev said.


He said millions of people invested in MMM without realizing what kind of game they were playing.


Andrei Orekhov, the president of the Stock Market Participants' Professional Association, which two weeks ago united 15 brokerage houses, said one function of his association would be to exert control over brokers in the market.


"We must ensure that expulsion from the association will mean an end to a company's business," he said.


Orekhov said now that serious foreign investment into Russian stocks had begun, brokers and companies offering shares have gained an interest in having "a clear, regulated, transparent market without scandals."


Vasiliyev said the government should limit itself to setting standards and rules for the market. He also said the government should reduce its shares in privatized enterprises, including those in the fuel and energy sectors, while lifting all obstacles that currently prevent companies from making second share emissions.


He said that a Finance Ministry regulation, issued in February, requires re-evaluation of a company's charter capital before it can make a second share issue and levies a heavy tax on it. First share emissions of privatized enterprises were made under a 1991 charter capital evaluation.