From the beginning of 2024, the Bank of Russia is canceling a number of relaxations for professional participants in the securities market, introduced earlier to overcome the crisis. Among the most important are the use of an alternative credit rating of an asset in the absence of an officially recognized one, taking into account blocked assets for calculating capital and liquidity ratios. This situation may require additional capitalization for a number of brokers.
The Bank of Russia on Monday, November 20, announced cancellation from January 1, 2024, a number of anti-crisis measures for professional participants in the securities market. The regulator believes: “Due to the adaptation of financial organizations to functioning in the current conditions, as well as the consolidation of a number of measures in the current regulation, the further use of individual support measures is inappropriate.”
In particular, the ability of professional participants, as well as non-state pension funds and management companies, in the event that individual assets (counterparties) do not have a credit rating, to use other credit ratings should cease to apply. Temporary requirements for the activities of brokers in terms of accounting for blocked assets for calculating the short-term liquidity ratio will also be terminated. The requirements for accounting for blocked assets used in calculating the capital adequacy ratio of a professional participant also cease to apply. Temporary requirements for accounting for blocked assets for calculating own funds are eliminated.
Vladimir Chistyukhin, first deputy chairman of the Central BankNovember 16:
“We have overcome the hole that 2022 brought us into.”
The brokers interviewed by Kommersant generally took the cancellation of the relaxations calmly. As independent financial analyst Andrey Barkhota notes, brokers do not have many tools left that use alternative credit ratings. However, they will now have to be accounted for as risky assets, and not on an equal basis with rated instruments. In the future, this may limit the range of investment instruments for clients and encourage brokers to manage their capital more efficiently, the expert believes.
The cessation of relaxations related to the accounting of blocked assets will also have some impact on the positions of brokers.
But market participants were generally ready for it: they created a buffer of highly liquid assets, which is designed to replace blocked funds that were previously included in the list of highly liquid assets, market participants note. “The creation of replacement resources to maintain the level of liquidity standards required additional efforts from brokers. But the process was extended over time, and this did not have a significant impact on brokers, for whom this volume did not occupy a large share of the portfolio,” says Mr. Barhota.
However, a number of brokers may have a decrease in the level of capital and liquid assets, since some assets remain blocked and can no longer be counted as liquid, says Dmitry Alexandrov, managing director of Ivolga Capital. However, over the past year, according to him, quite a lot of replacement bonds have been issued, which partly solved this problem. According to Russian issuer disclosures, to date, eight companies have issued replacement bonds worth more than $16 billion. In addition, about a dozen companies and banks have already decided to place such securities (nominally worth more than $10 billion), and some have already begun placement.
“For those brokers whose frozen assets made up a large share of their asset portfolio, after the lifting of the relaxations, additional capitalization may be required,” says Mr. Barhota.
However, a number of concessions for professional participants will continue for the next year. In particular, the permission not to publish reports is being extended, which is already being used by a number of brokers. At the same time, most large companies disclose their reports according to OSBU.