The Central Bank aims to adopt an approach differentiating between dealers that service business entities and those that offer their services to individual clients.
The Central Bank of Russia is seeking to widen its regulatory ambit with regard to companies active in the securities sector. On Monday, February 19, 2018, the Russian “Megaregulator” published the results of a consultation into the possible approaches on how to regulate the dealers and whether their activities should be understood more broadly, that is, whether they should cover contracts for difference, roll-spot contracts and derivatives.
In general, the market participants supported the Bank of Russia’s proposal of the usefulness of the broadening of the regulation of the dealers’ activities by including in the ambit all activities for public execution of contracts for the buying and selling of securities and the contracts with financial leverage for assets like contracts for difference, roll-spot contracts and derivatives.
The Central Bank believes that when such services are offered to business entities (institutional clients), they should be regulated within the ambit for dealer licenses. When the above-mentioned services are offered to individual clients, the offering should be regulated within the ambit for the Forex dealers.
The requirements concerning a dealer (such as the minimum capital requirement) will depend on whether the company is offering services for the buying and selling of securities or it is offering services with financial leverage too.
The “Megaregulator” says that such an approach reflects the existing division between dealer business models: one that is oriented towards the retail segment, and another that is focused on the institutional (business) segment. The Bank notes that such a change will allow it to introduce stricter requirements for companies servicing retail clients, where extra protection is needed, while keeping more relaxed oversight of the companies servicing institutional clients.
The Bank insists that this approach will also permit it to limit the public distribution and offer of complex derivatives to retail investors.
Regulators in other jurisdictions are also seeking to secure extra protection for retail investors. The European Securities and Markets Authority (ESMA) is currently considering new rules for CFD and binary options offering. In relation to CFDs, ESMA is considering restricting the marketing, distribution or sale to retail clients of CFDs, including rolling spot forex.
The measures proposed include leverage limits on the opening of a position by a retail client. The contemplated leverage limits would apply to any payment made to a product provider for the purpose of entering into a CFD, excluding commission and transaction fees. They would range from 30:1 to 5:1 to reflect the historical price behaviour of different classes of underlying assets.