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. Last Updated: 07/27/2016

Watchdog to Probe Suspect VTB Trades

The Federal Service for Financial Markets said Tuesday that it would open an investigation into suspected insider trading of VTB government-owned shares on Monday, the day the bank's new free float shares went on sale in Moscow.

During their first day of local trading Monday, VTB government-owned shares soared 54 percent to 24.15 kopeks from 15.64 kopeks, fueling speculation that some traders were intentionally manipulating the market.

VTB, the country's second-largest bank, earlier this month raised $8 billion in the world's biggest initial public offering this year, reducing the government's stake in the bank from 99.9 percent to 77.4 percent.

"We knew some individuals or group of individuals were buying up and reselling VTB stocks with intent to raise the price," said a spokeswoman for the markets service, who spoke on condition of anonymity, citing agency policy. "We are going to get to the root of this to bring them to justice."

Oleg Vyugin, the former head of the markets service who stepped down earlier this month, had been pushing for a law to provide more effective deterrents to insider trading and market manipulation. Under current law, these terms are not well defined and are inadequately regulated.

The MICEX exchange intervened to suspend trade in VTB government-owned shares at 1 p.m. after prices skyrocketed.

VTB also halted trading of the government-owned shares for a period of three months, effective Monday.

Repeated requests Tuesday to VTB officials to comment on the issue were declined.

VTB free float trading on the dollar-dominated RTS index was far smoother, with the shares opening at $0.0055 per stock and closing at $0.00543. About 338 million shares were traded.

At MICEX, VTB put 5.2 trillion government-owned shares on the market along with 1.5 trillion free float shares from this month's IPO, MICEX spokesman Vadim Yegorov said

"The new stocks issued via the IPO generated heated interest, causing the wide fluctuation in price," Yegorov said.

Yegorov said it was up to the issuer of the shares whether both old and new emissions would trade together.

After a couple hours of trading, quotes for the state-owned common shares had soared 54 percent, forcing MICEX to suspend trading.

"It is a standard practice to suspend trading if the price range exceeds certain limits," Yegorov said.

"This is not an isolated event, it happens every time new stocks are introduced to the market."

Analysts pointed out that prices of VTB's more liquid new stocks remained stable Monday, closing at 14.16 kopeks.

"The first local trading of VTB stocks on the RTS and MICEX justified investors' expectations," said Bob Kommers, a banking analyst with UBS. "There was nothing out of ordinary in the demand for new issues."

The bank's Global Depositary Receipts, each representing 2,000 ordinary shares, began unrestricted trading on the London Stock Exchange on May 17.