Investing in the Russian market is not for the faint of heart. International investors are so distrustful of the Moscow Exchange that trading volume has fallen 38% in the year to July. Even Russian state-owned companies have preferred to float shares on markets like London and New York over their home turf. President Vladimir Putin has had to step in to ban them from doing that.
In his latest move to dispel investor disillusionment with Moscow, Putin is replacing the Federal Service for Financial Markets (FSFM) with a new mega-regulator for banks and financial markets. Sergei Shvetsov, the 42-year old economist who has been managing the central bank’s foreign exchange reserves, will head it. He will also be promoted to the position of first deputy chairman of the Bank of Russia.
Consolidating financial-markets and bank regulation and putting both under the central bank marks the end of Russia’s decade-long experiment with an independent regulator. It echoes, as well, the trend in Europe to add regulatory control to the systemic oversight by central banks of banks and financial markets. The FSFR improved clearing processes and made other technical changes at the Moscow bourse, but it never got to grips with the sharper practices of market participants. Insider trading, for example, is still rife. Indeed, the FSFR’s recent investigation of insider trading connected to the takeover of Kalina, a cosmetics firm, embarrassingly ran out of time after exceeding the statute of limitations of a 2011 law banning the practice.
Shvetsov looks to be made of sterner stuff. In April, when minority shareholders were complaining of being short-changed during the $55 billion takeover of the Anglo-Russian joint venture TNK-BP by state oil company Rosneft, he opined that what Rosneft was doing was lawful — so the law would have to be changed. Come September 1, he will be the one making the rules.