The Central Bank revealed a new way of manipulating securities


According to the report of the Central Bank, during the monitoring of the stock market regulator revealed the transactions of transfer of assets under the scheme, dubbed “switch”. Under this type of transaction, one market participant sells the asset to another through the exchange, but at that price, which was agreed. From such transaction (or series of transactions) market looks like, but in fact is not.

According to the regulator, to conduct such transactions, the market participants are typically targeted bidding — when the transaction is outside the market and not accounted for in the change of quotations. At closing the switch address mode of bidding is not used, the deal is supposedly on the open market, and thus considered when calculating the quotes.

The Central Bank pay attention that the transaction “switch” on the exchange market can be considered as market manipulation because, according to the regulator, “the schema may be used including for the purpose of concealment of conflict of interests in circumvention of the law, when abuse of rights, fraud”. The regulator also notes that it will more closely monitor such transactions that the parties commit not in target mode. “Persons providing intermediary services in the conclusion of transactions under the scheme “switch”, you need to assess the risks arising from participation. The Bank of Russia offers to market participants to take responsibility for the possible consequences of their actions”, — stated in the press release of the Central Bank.

As explained by the Director of the Department of active operations “Veles the Capital” Evgenie Shilenkov, in practice, many participants indeed frequently carry out the transaction “switch” in the organized bidding, since it is much more convenient. “For example, if a participant needs to transfer the paper from one account to another account or sell the cheapened bonds at a price that will not require to reflect the loss. In this case using the broker to transfer paper according to him the cost and deal on formal grounds because the market will be held in addressless mode,” he explained.

According to Silenkova, it might be interesting for UK or NPF, have a lot of legal restrictions. “There is a risk that if you buy paper at a price different from the market, then you have to explain to the regulator the economic substance of the transaction and certain tax consequences of the surcharges on income tax”, — says the expert. “

In early March, the regulator submitted to the state Duma a bill that requires funds to place funds solely in the interests of their clients. If the Fund has incurred a loss under operations with the customer, we shall reimburse him for the expense of own means. The Fund will be obliged to compensate lost profit.

“Dishonest behaviour will be, for example, the fundís investments in high-risk bonds at a low yield, buying shares at inflated prices, placement of deposits at lower rates”, — explained in the press service of the Bank of Russia. The Central Bank also clarified that the investments of the Fund in any instruments in the presence on the market alternatives that provide less risk for a given level of return or greater return at a comparable risk can also be qualified as “unfair behaviour”.

“Apparently, the regulator believes that such transactions, if, for example, they are conducted at a price different from the market, may mislead participants and to influence the prices” — suggests Shilenkov. He notes that such “non-market” transaction, the parties often see and usually don’t respond to them, realizing that they may be hiding some private interest.

A top Manager of a major brokerage companies said that the deal switch often held through a broker participants have limited limits on each other. “For example, if a small Bank wants to buy a portfolio of securities, but risk management can’t make a deal with one or another party, use the services of a broker who receives a small Commission”, — he told. According to the financier, such transactions usually take place in negotiation (addressed) mode. “I think that the regulator was interested in why some negotiated deals someone trying to pass off a market,” he says.