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. Last Updated: 07/27/2016

Exchanges Feel Licensing Heat

Small stock exchanges and brokerages working in Moscow and throughout Russia may get squeezed out of work in October by federal licensing rules which some experts say are tailor-made for only the largest market players.


Russia's Federal Securities Commission awarded the first of its securities licenses last week to the Moscow Currency Interbank Exchange.


With the proper paperwork, any bank or exchange "may get the licenses even tomorrow," Federal Securities Commission head Dmitry Vasilyev told a press conference.


But industry analysts and participants said the move was a pre-emptive one which belied the difficulties facing many firms in search of licenses. In reality, they said, many small exchanges will never meet the Oct. 1 deadline.


The Commission's decree, dated March 14, sets ownership capital requirements for currency and commodities exchanges which also trade in equities: 1 million ecu ($1.39 million) charter capital for the currency exchanges and 10 million ecu for commodities.


Commission officials said the steep financial requirements are necessary for the equities market to be safe and stable.


"Our main goal is to keep only the most reliable exchanges, to provide maximum protection for investors from risk," said Yury Kotler, press secretary for the commission. "Commodities exchanges are much more risky. That is why the requirements are higher."


Within days of awarding a license to MICEX, the commission followed up with licenses allowing stock market activities for seven other large currency exchanges in St. Petersburg, Novosibirsk, Yekaterinburg, Nizhny Novgorod, Rostov-on-Don, Samara and Vladivostok.


Experts said there are seven exchanges in Moscow handling commodities, currency or stocks. That number includes the Moscow Stock Exchange, a pet project of the city's Mayor Yury Luzhkov, which was registered recently but is not yet functioning.


The new rules may cause big changes at Russia's biggest commodities exchange, the Russian Exchange in Moscow, officials there said.


Charter capital for the Russian Exchange is 5 billion rubles (approximately $871,000) -- too little to continue the exchange's current practice of trading in commodities and stocks, according to Maxim Belousov, chief of the equities department.


To survive, the exchange may have to stop commodities trading and receive a license to trade only in stocks, Belousov said, placing the price for such a license at 600,000 ecu.


Analysts, however, said that using exchanges for equities trading is almost pointless considering the size and dominance of the Russian Trading System.


"RTS is the only place in Russia for trading," said Christopher Granville, head of research at United City Bank. "MICEX, with its electronic clearing system, has a chance, but only few blue chips are currently ready."


Russia's small brokerages will also come under pressure in October, as the Commission has prepared similar licensing requirements that could drive many of them out of business.


But Granville said the industry is due for some weeding out.


"Theoretically, all brokerages have a chance to get licenses," Granville said. "In reality, not everyone will meet the requirements. Pint-sized companies are less reliable. The consolidation will be good for the market."