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. Last Updated: 07/27/2016

MICEX Aims to Cut Volatility on Markets

The MICEX stock exchange will introduce three key measures next month aimed at tackling speculation and sharp price volatility in domestic markets.

The country's largest exchange plans, among other measures, to give select market players regulatory powers and install a delay in trading of new shares so as to make stock trading more transparent.

"In the near term, we expect a lot of new share issues. Therefore, for very practical reasons, it is necessary to have the [new] measures in place," the head of the MICEX exchange, Alexei Rybnikov, said at a briefing late Friday. "We have to resolve the issue of initial pricing."

The MICEX has faced criticism in recent months as trading in a number of newly listed companies fell foul to speculative trading.

Most recently, state generation company TGK-6 started trading on Wednesday at a price more than double that expected by the market. Rogue starting bids of 15 kopeks per share sharply differed from the 1.4 kopek-per-share price quoted on the same day on the rival RTS bourse, angering market participants.

MICEX plans to set up a Specialists Institute similar to the market-makers system at the New York Stock Exchange, which will vest in a broker nominated by the issuer the exclusive right to set the initial pricing for its shares. The broker would then continue to monitor the share price.

In addition, the exchange plans to delay the start of trading in new shares until a certain volume of bids for the issue have come in, on both the buy and the sell side. This "discreet double auction" will help "reach an objective initial price level," MICEX said.

Price volatility of new shares tends to be strongest during the first 10 trades, during which most "deliberate mispricing," or speculation, takes place, Rybnikov said.

The bourse will also adjust its share volatility limits, allowing the company or its advisor to determine at which point trading in its shares should cease. MICEX can now halt trading when prices rise or fall by more than 15 percent.

While welcoming MICEX's initiative on what has been a "painful subject," Alexei Tsyganok, director of capital markets at Troika Dialog, said he could only see one of the measures working immediately. "An expert analysis of pricing on the first day could solve problems with speculative trading," he said.

"If someone has to buy the stock, like for an index, and there's not enough shares, they'll pay any price," said Nick Mokhoff, head of sales and trading at UBS. "When there's good liquidity, it's much more difficult for some joker out there to try racketeering."