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. Last Updated: 07/27/2016

MICEX Sets Out Rules For New Forex Sessions




The Moscow Interbank Currency Exchange on Friday announced rules for the special trading sessions in which exporters will sell and importers will buy foreign currency.


The sessions, which will start Monday, will automatically become the heart of Moscow's foreign exchange market, analysts said.


The Central Bank and banks representing exporters and importers will trade between 10:30 and 11:30 a.m. Then a second session will be held between noon and 4:30 p.m., but restrictions the Central Bank has imposed on buying hard currency in these sessions will reduce trade to a trickle, according to traders.


During the second session, banks can buy dollars on behalf of clients who are repatriating dividends to foreign entities, repaying foreign loans or purchasing imports. Banks will not be allowed to buy dollars in their own name but they will be able to purchase dollars for their depositors.


The supply of dollars however will be restricted since exporters can only trade in the morning session. As a result, the ruble exchange rate in the afternoon is also likely to be a lot less favorable.


"I don't expect trade volumes at the second session to exceed $15 million-$20 million," said Alexei Zabotkine, a fixed-income analyst with United Financial Group. "This will be sheer pretense."


Trading in "today" contracts, which are settled on the day of the deal, will be restricted to the first session, while "tomorrow," "tomorrow next" and "in two days" contracts will be traded in the afternoon.


Other Central Bank rules limit exchange rate jumps in the first session to 15 percent from one day to the next.


Russian exporters are currently obliged to sell 50 percent of their hard-currency revenues on MICEX. The idea behind the special morning session was to enforce the sales and prevent panic buying of dollars.


However, according to analysts, the measure may be only partially successful, partly because exporters are likely to conceal their revenues.


"People will always find ways around this, such as fake import contracts [allowing them to buy dollars], Zabotkine said.


But it is clear to traders that the Central Bank will benefit from the new morning sessions in at least one way: It will be able to buy dollars cheaply. The morning market will be flooded with dollars, since imports have been fallen 60 percent in the wake of the Aug. 17 ruble devaluation but exports have stayed at pre-devaluation levels.


"The Central Bank did not [set up the new sessions] to support the ruble but to replenish its hard-currency reserves, which grew to $12.4 billion from $12 billion this week," said Konstantin Svyatny, head of fixed income at Rossiisky Kredit bank.


Some analysts have said the difference between the morning and afternoon exchange rates could be as big as 20 percent, but Zabotkine expected it to be much smaller.


"If it's more than 3 percent, one can say that the Central Bank is playing unfairly, trying to buy the dollars on the cheap," he said, adding that the Central Bank was unlikely to try to arbitrate between the morning and afternoon sessions.


While traders generally have no problem with the new set-up, exporters' outlook is gloomy ahead of Monday's trading. "Our attitude toward the morning session is negative," said a spokesman for Russia's largest oil producer LUKoil. "The introduction of a second rate is another indirect tax on importers, who have been put in an unequal position relative to other market participants."