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. Last Updated: 07/27/2016

Shuffling the Ruble Rate, MICEX Style

In a semi-circular room with a parquet floor in the former Transport Construction Ministry, a fragile, dark-haired young woman holds in her hands one of Russia's most powerful financial instruments: the ruble/dollar rate.


The woman is an auctioneer for hard-currency trading at the Moscow Interbank Currency Exchange, or MICEX, whose daily ruble rate against the dollar sets the parameters for business transactions throughout the country.


She watches, as if playing a game of red-light, green-light (or grandmother's footsteps for British readers), some 70 brokers equipped with cellular telephones. As they sit in soft chairs, watching her, she raises and cuts the exchange rate.


On Friday, she first tried raising the ruble by 3 points against the dollar, after it became clear that no banks wanted to trade at the previous day's rate of 4,590 rubles to the dollar.


The brokers hushed and waited, but only for a moment. Then they started canceling purchase orders their banks had made before the auction started. The brokers had canceled $27.3 million worth of bids before the auctioneer announced another rise in the ruble rate against the dollar of 20 points.


Suddenly, what had looked before like a rather dapper audience at a concert became a screaming crowd, as the brokers talked to their banks over the cellular phones and asked what to do.


Just as suddenly it was over.


The whole process had lasted precisely seven minutes. The day's new ruble rate was fixed at 4,567 to the dollar.


Friday was an average day at MICEX. The trading volume -- the number of dollars bought and sold during those seven minutes -- had been $99.86 million, down from Thursday's $355.41 million. On a day of heavy trading, around $500 million will change hands.


Despite the cellular phones, the MICEX auction is hardly high-tech. The brokers -- about 70 percent men and 30 percent women, aged mainly in their 20s -- sit in a room that looks more like a conference hall than how you might imagine a currency exchange.


The banks begin with maximum bids to buy and sell dollars at the start of the auction, and they cannot go beyond these in the course of trading. If they do not like the rate once the auction begins and want to cancel part or all of their bid and offer, they write it on a slip of paper, raise their hand, and give it to one of the MICEX women. She then hands it on to the auctioneer, who announces the deal to the audience.


It is a very simple system, but things can happen very fast.


The announcement of each deal, together with the initial total demand and offer amounts for the day, the size of the gap between them and the current ruble/dollar rate also appear on two television screens up front, written in English.


Friday's total initial offer to sell dollars was $139.47 million, while the total initial demand to buy them was $99.86 million.


There were not enough buyers to take the $40 million difference and these additional offers to sell dollars had to be canceled.


The brokers believed that Friday, the Central Bank had not intervened in the market to do any buying or selling itself.


That was denied by Yevgeny Afanasyev, the Central Bank's dealer, but he declined to elaborate.


"Everything is in the Central Bank's hands," said Alexander Vasilyev, a broker with mid-sized Promradtekhbank. He explained that the Central Bank calls the auctioneer directly if it wants to cancel its bid. On Friday, she did not appear to get any telephone calls.


The are just four computers in the hall, and these are designed to take information from the trading floor to the Central Bank as the trading progresses and to register its orders.


Vitaly Shmelyov, a broker with ChasPromBank, explained that the Central Bank did not have to intervene Friday to keep the ruble rising, as commercial banks were making good money on the difference in the rate on the exchange and the interbank market, where it has been cheaper for several weeks.


Friday's trading started 17 minutes later than scheduled, because the Central Bank was making up its mind what to do after receiving the day's demand and offer information, he said.


According to MICEX rules, the Central Bank -- just as in Black Jack -- has the right to bid last.


Driven by Central Bank interventions, the ruble has gained 11 percent on its value over the last month and a half, after losing about 40 percent in the first quarter of 1995.


However, after a period of rising steadily, the ruble has fallen by 44 points in the last two days, making the market more volatile.


"It is more difficult to work now," Vasilyev said. "You never know what to expect."


A recent Central Bank regulation has added to the unprofitability of the country's hard currency market, brokers said.


The Central Bank has this week ordered commercial banks buying rubles to deposit their dollar payments with the MICEX on the day of the transaction and receive rubles the following day.


"I have to work harder on the interbank market to make the same profit as before," Shemelyov said.