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. Last Updated: 07/27/2016

Stockbroker Group Seeks Regulatory Status

Russia's stockbrokers' association will appeal to the nation's securities watchdog for formal status as a self-regulatory organization, or SRO, a move that would solidify the group's power to crack down on transgressors, its president said Friday.


If granted, the status of an SRO would allow NAUFOR -- the National Association of Stock Market Participants -- to effectively exercise state-sanctioned authority in closing down shady brokerages.


"Once the SRO says, 'I don't want to see this particular company among my members,' that means the [Federal Securities] Commission may have authority to take their license away," said NAUFOR President Dmitry Ponomaryov.


The commission gave its stamp of approval to the idea of SROs in the Conception of the Development of the Securities Market, a document which was confirmed by presidential decree July 1.


One of the "basic principles of government regulation" is "the use of mechanisms of self-regulation of the market, created with the help of the government and under its control," the document said. But it did not spell out a specific role for NAUFOR or any other organization.


Details on the rights and duties of SROs are given in the federal Law on Securities, adopted in April. Commission officials could not be reached for comment Friday.


As it stands now, the city trading group PAUFOR, Moscow -- sister organization to NAUFOR predecessor PAUFOR, Russia -- earlier this year dismissed from its ranks four firms for trading violations. Akrus, Fedgy, Sibirsky Torgovy Bank and Reptors Group lost little more than their reputations, but as members of an SRO they would likely have been stripped of their licenses.


Ponomaryov said he sent a letter to chairman of the Federal Commission on the Securities Market Dmitry Vasiliyev requesting consideration for SRO approval but said the documents for official application are still months from completion.


With an officially sanctioned SRO the Securities Commission -- and any other government body it authorizes to issue licenses -- would license broking firms on the condition that the company joins the SRO. That way, brokers will be obligated to observe trading and other rules or risk being closed down. Now, NAUFOR members agree to observe the rules but are under no obligation to do so. "We do discipline our members, but in the future it will be more serious because any member will always know that being put out of the association means he's risking seeing his license be cancelled by the Securities Commission," Ponomaryov said.


Market participants said the move would be positive for the market's development. "Anything that can take the regulatory powers up to the next level is good for the market locally and internationally," said Peter Kizenko, a trader at ING Bank Eurasia. "The profile really has to be expanded."


Ponomaryov said there are no other possible contenders for an SRO of broker-dealers, but said the Commission's position remains unclear. "We think we are the best candidate for this ... but the Securities Commission as a regulator may have its own priorities, its own view on how an SRO should be structured," he said.