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. Last Updated: 07/27/2016

MICEX Loses Equity License




In the latest round in its political battle with the Central Bank, the Federal Securities Commission on Tuesday revoked the Central Bank's license to work on the equity market.


Now the Central Bank may no longer license commercial banks to trade in equities, though it may continue supervising the activities of banks that have already received licenses, said FSC spokesman Vadim Bely.


The FSC has long insisted on dividing Russian banks into merchant banks and investment banks. Merchant banks would not be allowed to invest more than 10 percent of their assets in securities, including equities, and investment banks would not be allowed to work with individual depositors. The plan has not received government support, however, and the Central Bank has fought it all the way.


The FSC's ruling Tuesday was formally unrelated to that former plan.


"We passed a resolution suspending the Central Bank license because it has continued to violate FSC regulations on state employees working in commercial structures," Bely said. "The issue of Central Bank bonds also violated Russian securities legislation."


The FSC, Russia's capital markets watchdog, maintains that the issue of Central Bank bonds, popularly known as OBRs, was illegal because they were not registered with the commission. OBRs have been in circulation since September.


"The license will remain suspended until the bank corrects this violation and as long as its representatives sit on the boards of commercial structures," Bely said.


The FSC has apparently decided to go after the Central Bank rather than stick to an earlier plan to revoke the equity trading license of the Moscow Interbank Currency Exchange.


The commission had given MICEX until Dec. 1 to remove Central Bank and Fina nce Ministry officials from its board of directors. While the Finance Ministry responded by withdrawing its representative, Central Bank deputy chairman Andrei Kozlov continues to sit on the MICEX board.


"The FSC decided to allow MICEX trading to continue because that is in the interest of stock market participants," Bely said.


MICEX was pleased with the FSC decision Tuesday.


"It is up to the Central Bank and FSC to sort out their differences, we are just happy to be allowed to continue trading," said MICEX spokesman Vadim Yegorov.


The presence of Central Bank officials on the MICEX board is a clear conflict of interest, the FSC believes. "How else could MICEX allow the OBRs to be traded when they are not even properly registered?" said one FSC official who requested anonymity.


Central Bank officials refused to comment.


Traders were unruffled by the cancellation of the Central Bank's equity market license, which they said will not dampen the OBR market. The OBR market is small but relatively stable with trading volumes of about 100 million rubles a day.


"Unless there is a radical change in the balance of power between the FSC and the Central Bank, most investors will not take this seriously," said Andrei Zaitsev, a bond trader at ING Barings in Moscow. "Investors are more confident about the Central Bank's powers."


"I cannot see the Central Bank backing off and withdrawing the OBRs from the market," Zaitsev added.


But the FSC promises to keep the pressure on. It is now debating the course of action on the National Depository Center, which was supposed to remove Central Bank officials from its board of directors by Tuesday but did not do so.