Jul 30, 2022
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Sanctions war: attacks on the Russian stock exchange

By September, the Chinese currency may take first place on the Moscow Exchange in terms of trading volume

The West has long been eyeing such an object of strike in the sanctions war as the Russian stock exchange. Actually, today there are two of them in Russia – Moscow and St. Petersburg.

The Moscow Exchange was founded in 1992. This exchange holding is the organizer of trading in shares, bonds, derivatives, currencies, money market instruments, precious metals, grain and sugar. The Moscow Exchange is a joint-stock company, its main shareholders are the Bank of Russia (11.779%), Sberbank (10.002%), VEB.RF (8.404%). The exchange holding includes a central depository (NCO JSC National Settlement Depository, abbreviated as NSD), as well as the largest clearing center – Non-Banking Credit Organization National Clearing Center JSC NCO NCC.

Saint Petersburg Stock Exchange was founded in 1997. On the site of this exchange, securities and futures contracts for a number of major exchange commodities (diesel, wheat, cotton, etc.) are traded. The main shareholder is the non-profit partnership for the development of the financial market RTS (51.7953%). Since 2014, the St. Petersburg Exchange has begun trading in securities of foreign issuers. As of 2019, the list of foreign securities traded on the St. Petersburg Exchange exceeded 1,000 items (foreign securities began to be traded on the Moscow Exchange later, in 2019).

The first sanctions strikes on the Russian stock exchange have already been dealt. In March, the international depositories Euroclear and Clearstream blocked the accounts of the National Settlement Depository (NSD) of Russia, which held part of the foreign securities of Russian investors. In early June, the EU imposed sanctions against the NSD as part of the sixth package, which finally consolidated the blocking. According to the Bank of Russia, investments of 5 million Russians totaling 300 billion rubles were blocked.

Later, other figures appeared. In mid-June, First Deputy Chairman of the Bank of Russia Vladimir Chistyukhin reported that the amount blocked by the European Union in the National Settlement Depository of foreign securities of residents of the Russian Federation amounted to approximately 6 trillion rubles. The amount named by the official is 20 times different from the above. Probably, the first figure includes the assets of “physicists” only, and the second figure also includes the assets of legal entities. Another figure is circulating in the Russian media. July 13 President of the National Association of Stock Market Participants (NAUFOR) Alexey Timofeev In an extensive interview, he stated that the approximate amount of frozen foreign assets of Russian investors in Europe is $ 30 billion.

After the start of the CBO on the Russian stock exchange, there was a collapse in quotations of all domestic securities. The stock exchange was closed. The first trading on the Moscow Exchange in a limited range of Russian securities was resumed on March 24. Gradually, the range began to expand, and quotes of securities partially recovered. Russia’s response was to freeze operations with foreign securities (not all, but only those whose issuers are “registered” in unfriendly countries, but there are an overwhelming majority of those on the Russian stock exchange, especially from the United States).

As far back as last year, on the Russian exchange market, at certain moments, half of all transactions for the purchase and sale of Russian shares and bonds were accounted for by foreigners. By the time the SVO began, non-residents owned approximately 40% of the turnover on the market. However, already in January, many foreigners began to withdraw from Russian securities, leaving the Russian stock exchange. The investments of those foreigners who did not have time to escape before February 24 were frozen.

For reference, I note that as of April 1, according to the Bank of Russia, the total amount of foreign assets in the Russian economy in the form of direct and portfolio investments amounted to 495.2 billion dollars (direct – 401.5 billion, portfolio – 93.7 billion Doll.).

But the West is not going to stop. He set his sights on the currency exchange, which operates within the framework of the Moscow Exchange. The following currencies are traded on the Moscow Exchange currency market: US dollar (USD), euro (EUR), Chinese yuan (CNY), British pound sterling (GBP), Hong Kong dollar (HKD), Swiss franc (CHF), Kazakh tenge (KZT) ), Belarusian ruble (BYR), Japanese yen (JPY) and Turkish lira (TRY). The weighted average of the dollar/ruble currency pair at 11:30 Moscow time with “tomorrow” settlements is used by the Bank of Russia to determine the official exchange rate of the ruble against the US dollar.

July 29 magazine Forbes published a resonant material “The Central Bank is preparing to cancel exchange trading in the dollar.” It says that about two months ago, the leadership of the Bank of Russia held a meeting with participants in foreign exchange trading. At it, as three participants of the meeting told the magazine, the scenario of imposing sanctions against the Moscow Exchange and the National Clearing Center (NCC) was discussed. The Bank of Russia confirmed to Forbes that such a scenario is being worked out.

“This is a tough option, in which all client funds in the NCC will be frozen and trading in dollars and euros on the Moscow Exchange will be stopped,” – said one of the participants of the meeting on the Neglinka. He clarified that the NCC works mainly with client funds. They are kept in foreign banks. One of the participants estimated the amount of such funds at 30-40 billion dollars, the other – at 50 billion dollars.

Even before the publication of Forbes, many felt that clouds were gathering over the currency exchange. First Deputy Chairman of the Central Bank Vladimir Chistyukhin at the end of June, at the St. Petersburg International Economic Forum, he advised market participants to reduce their currency positions in the NCC due to the risk of sanctions against him.

The National Clearing Center was the most concerned. At the end of June, the NCC sent out to the participants of the currency market a regulation, according to which it will act in case of restrictions on the circulation of currencies. Firstlyit will replace the currency of execution of obligations under transactions on all markets of the Moscow Exchange. Secondlywill stop crediting and debiting the currency that fell under the sanctions. Thirdlyterminate its accounting as collateral. The regulation, as it turned out, was approved back in 2014. Even then, sanctions against the Russian currency exchange were not ruled out. Unfortunately, the document does not say anything about how the exchange rate will be determined if they stop trading on the stock exchange. But the course is needed by both exporters and importers.

As noted in the Forbes publication, the Bank of Russia is working on this problem. One of the interlocutors Forbeswell acquainted with the plans of the Bank of Russia, explained: “The exchange rate of the dollar will no longer exist, but exports and imports will remain, so you need to understand at what rate to exchange rubles. The Central Bank does not want to take on the function of determining the exchange rate. The plans of the Bank of Russia in the event of blocking the currency exchange include the creation of a Russian analogue of the Bloomberg system. The system will be an off-exchange platform, to which the largest banks (there will be approximately 10) will provide their quotes. “For the general public, this will be the Central Bank rate, for large participants the mechanism will be transparent”– said the interlocutor Forbes.

However, some experts have already expressed their opinion on the resonant Forbes publication and assess the likelihood of blocking operations on the Russian currency exchange as not very high. If the exchange of rubles for toxic currencies stops, then the implementation of most of the contracts for the supply of import and export goods, which are still paid for by these toxic currencies, may stop. The blow to natural gas deliveries to Europe, which, according to the procedure established by the presidential decree, must be paid in euros and immediately converted into rubles on the Moscow Exchange, will be especially deadly. For Europe, which will lose Russian gas, it will be a shot not even in the leg, but in the head.

And yet, what will happen to us if the collective West blocks transactions with the US dollar, euro, British pound, Japanese yen and other toxic currencies on the Moscow Exchange?

A number of experts believe that this will not be a lethal sanction for Russia. After all, currency trading in almost all countries is carried out not only on the stock exchange. There is also an over-the-counter market. The most famous case of such a market is FOREX. Russia also has over-the-counter currency trading, which is carried out by a number of Russian banks. Trade in prohibited currencies will be taken over by banks that have gained experience in this area.

Will the currency exchange remain? Most likely it will stay. Only currencies of friendly countries will be used on it. And new ones may be added to those that are currently traded on the Moscow Exchange. For example, Indian rupee, Brazilian rial, South African rand. Maybe some currencies of neighboring countries (in addition to the Belarusian ruble and Kazakh tenge).

It is noteworthy that the demand for toxic currencies from the participants of the Moscow Exchange is falling. In the third decade of July, brokers began to introduce commissions for storing currency on brokerage accounts. So, from July 26, Aton began to accrue 5% per annum for storing dollars and euros on a brokerage account from an investment amount of more than 1,000 US dollars, from July 29 – Swiss francs and pounds sterling. Aton brokers will charge all commissions daily.

Early July Frank Media polled 15 brokerage companies about tariff plans. Only three brokers – KIT Finance, BCS World of Investments and Vector X – confirmed that they are not going to introduce commissions. However, BCS World of Investments and KIT Finance already revised their plans in the third decade of July and admitted that they would introduce commissions.

In addition, market participants admit that the Central Bank (through calls to brokers) is pushing them to get rid of toxic currencies. Either sold or transferred to a bank account. Okay, and sell for what currency? It is possible for rubles, but this will further strengthen the exchange rate of the Russian currency. Best of all – in the yuan.

In the Russian market, the position of the Chinese yuan is rapidly strengthening. Judge for yourself: daily trading volumes in the yuan / ruble pair on the Moscow Exchange more than doubled over the week – from 33.65 billion rubles on July 20 to 70.51 billion rubles by July 27. July 29 Bloomberg hastened to announce the results of its latest calculations: the yuan-ruble trading volume in July on the Moscow Exchange exceeded 100 billion yuan ($14.8 billion) compared to 54 billion yuan ($8 billion) in June. The last working week of July is especially impressive: daily trading volumes on the Moscow Exchange in the yuan / ruble pair reached another all-time high of 7.82 billion yuan ($1.16 billion) last week. The agency writes that the volumes for the yuan/ruble currency pair are already higher than for the euro/ruble pair. According to the Moscow Exchange, in the last week of July, the dollar / ruble pair was still in first place in trading, its turnover was approximately two times higher than that of the yuan / ruble pair. But if we extrapolate the July dynamics of yuan and dollar trading, then by the beginning of autumn, the Chinese currency may take first place on the Moscow Exchange.


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