The West will not remain even on paper – Newspaper Kommersant No. 164 (7365) of 09/07/2022

The Central Bank ordered brokers to stop by the beginning of 2023 purchases by unqualified investors of foreign securities (FSBs). The restriction may affect 1-2 million citizens who will lose the opportunity to diversify their portfolios. Professional market participants, respectively, will lose income.

The Bank of Russia sent brokers an order (available to Kommersant) on the execution of operations by unqualified investors with securities of issuers from “unfriendly countries”. From October 1, brokers should not execute orders leading to an increase in the share of such securities in the investor’s portfolio by more than 15%. From November 1, the threshold is reduced to 10%, and from December 1 to 5%. From the beginning of 2023, brokers must suspend the execution of any order to increase such positions.

The restrictions will not affect operations with foreign securities of Russian companies and issuers from “friendly countries”. The decision is aimed at minimizing infrastructure risks for unqualified investors, the Central Bank explains.

According to the Central Bank, as of June 30, the number of Russian unqualified investors in brokerage companies was estimated at 2.47 million people, in banks – 22.66 million people. At the same time, 64% of the accounts of individuals were empty, and another 28% – up to 100 thousand rubles. Taking into account the structure of investments, potentially 2 million citizens may have investments in foreign assets totaling up to 800 billion rubles. Executive Director of Ivolga Capital Dmitry Alexandrov believes that about 1-1.5 million people will fall under the restrictions.

Professional market participants reacted “extremely negatively” to the decision of the regulator. As noted in Tinkoff Investments, the Central Bank’s instruction is “a rare case when the position of key brokers was not heard. It does not encourage the exchange to improve the infrastructure for holding foreign securities, although steps have already been taken to this end.”

On the “SPB Exchange” also consider the regulator’s decision to be excessively harsh: “A longer transitional period is needed to stop the access of unqualified investors to securities from unfriendly jurisdictions.” Exchange intends expand for Russian investors the choice of securities from “friendly countries”, including actively increasing the list of securities from Hong Kong and mainland China. At Tinkoff Investments do not exclude the flow of investors to foreign brokers.

The offer of professional participants to regulate the access of unqualified investors to foreign securities was softer. A Kommersant source in one of the banks explained that market participants suggested that the Central Bank limit the share of such securities in portfolios at 50%. According to NAUFOR President Alexei Timofeev, it was supposed to warn unqualified investors about the risks of blocking, and possibly limit the share of securities issued by issuers of “unfriendly countries”. In his opinion, the infrastructure has taken important steps in several months to reduce the risks of holding foreign securities, and together with a warning about the risks, this would be enough.

According to Victor Tunev, Chief Analyst of Ingosstrakh-Investments Management Company, operations with almost all securities traded on the SPB Exchange, including issuers from “friendly countries”, for example, Chinese companies, may be limited, because they themselves “may be unfriendly.” As a result, Georgy Vashchenko, deputy director of the analytical department of Freedom Finance Global, notes that the volume of operations and incomes of market participants will decrease.

Meanwhile, the risks for investors may even increase. For example, brokers emphasize, restrictions will affect the ability to make diversified portfolios. After all, some of the companies traded on the SPB Exchange belong to industries that are not among Russian issuers. “Clients will lose the opportunity to invest in companies that have high investment qualities, that is, the largest companies with a history, corporate governance, and a high-quality level of information disclosure,” emphasizes Dmitry Lesnov, Head of the Finam Client Service Development Department.

Therefore, Mr. Lesnov admits an outflow of investors towards unreliable companies, which “will only worsen the situation with investment and reduce the confidence of retail investors.”

Otkritie Investments believes that as a result, we can expect an increase in interest in obtaining the status of qualified investors (see also “Kommersant” dated July 29). Moreover, the threshold for this may soon rise: the Central Bank advocates tightening certain requirements regarding the minimum amount of assets for recognizing an investor as qualified from 6 million to 30 million rubles.

Vitaly Gaidaev, Ksenia Kulikova, Dmitry Ladygin