The third echelon will be held on takeoff – Newspaper Kommersant No. 66 (7511) dated 04/17/2023
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The Central Bank and the Moscow Exchange have prepared a set of measures to combat the volatility of third-tier stocks on the Russian market. We are talking about extending the discrete auction regime to all securities, refining the methodology for counteracting destabilization, reducing possible price limits and increasing the price increment, and expanding analytical coverage. Experts, however, doubt the effectiveness of many of these measures. To combat the problem, they advise more active coverage of the results of combating insider trading.
As two sources told Kommersant and confirmed at the Moscow Exchange, at the end of last week, the stock market committee approved measures to combat short-term explosive growth and the subsequent decline in volatility and trading volume in low-liquid securities (for more details on the problem, see below). “Kommersant” dated February 17).
One of Kommersant’s interlocutors specified that four areas of work had been approved.
- Firstly, it is planned to extend the discrete auction mode to all shares circulating on the floor (now it is valid only for securities from the exchange index).
- Secondly, to refine the methodology for counteracting destabilization in terms of the criteria for triggering and accelerating the reaction. As the source explained to Kommersant, this must be done taking into account “structural changes in the market over the past year.”
- The third measure is the reduction of possible price limits, which are now set at 40%.
- Fourth, for a number of securities, for which the price step leads to the presence of any unfair practices, the price step will be changed upwards in an extraordinary manner.
Boris Blokhin, director of the stock market department at the Moscow Exchange, added that the expansion of analytical coverage in the segment is being discussed.
“These papers are now, for obvious reasons, not well known to a wide range of investors, and when a person tries to figure it out, it is very difficult for him to find an expert opinion. We intend to work in this direction,” Mr. Blokhin explained.
Also, according to him, the very procedure for holding a discrete auction can be changed, for example, the duration of the auction, which is now 30 minutes, can be increased or decreased. “We are in constant dialogue with issuers and are discussing various options for eliminating destabilization,” Mr. Blokhin added.
A Kommersant source in the financial market said that initially it was proposed, among other things, to work out the issue of raising the commission for transactions at times when there is a strong movement. However, he says, the committee “came to the conclusion that the measure would be ineffective and create more hardship for clients than it would do any good.” In addition, according to the interlocutor of Kommersant, it was proposed to limit the ability to deliver a very large number of applications in such papers in a short time, but the committee voted against.
Elvira Nabiullinathe head of the Central Bank at a press conference on March 17:
“Individuals often lack knowledge and are more subject to emotional decisions. This leads to large price fluctuations.”
Initially, the Moscow Exchange discussed measures to eliminate excessive non-market volatility with the Bank of Russia. The Central Bank confirmed that it offered the trading platform “its vision”. But, the Bank of Russia clarified, the final decision on the introduction of any mechanisms is made by the exchange, the task of the regulator is “to propose effective measures and take part in the discussion.”
Market volatility arose almost immediately after the outbreak of hostilities in Ukraine more than a year ago as a response to a sharp decrease in liquidity and the dominance of individuals in trading (their share in turnover exceeded 80%), explains Dmitry Alexandrov, managing director of Ivolga Capital investment company. However, the problem reached its maximum volume at the end of 2022, when, against the backdrop of the recovery of the market as a whole, a sharp increase in quotations in the third tier became commonplace, he clarifies. Then, for no apparent reason, stock quotes of more than a dozen companies on the Moscow Exchange soared by tens of percent per day, and their trading volumes competed with the “blue chips”.
The proposed initiatives relate exclusively to the financial market regulation regime and do not affect the fundamental economic mechanisms of the issuers themselves, Anna Avakimyan, chief analyst at RegBlok, emphasizes: “The symptoms are being treated, not the causes of the disease.”
Dmitry Alexandrov believes that expanding analytical coverage is “an unrealistic measure, since it should be provided by analysts of professional participants who have no motivation.” But some option to introduce a “cooling off period” (for example, through a discrete auction) is a good idea, the expert believes.
“Market participants, trade unions and the regulator should be more active in highlighting the results of the fight against insider trading and other illegal actions in the financial industry,” believes Stanislav Portnenko, managing director of the electronic markets department of Sberbank. Investors, he emphasizes, should be aware that manipulation of the stock markets is punishable by law.
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