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According to the revised version of the Forex bill, set to have its second reading next week, leverage will be limited to 1:100 and strict accounting practices will come into force. However, the issues of capital requirements and trading software still spark disputes.
As the second reading of Russia’s Forex bill comes near, the text of the document has undergone significant changes. According to Russian newspaper Vedomosti, which has seen the revised version of the bill, one of the biggest jurisdictions in the world will have its working Forex law in March 2015.
Among the most important changes in the amended document is the introduction of limit on maximum leverage. Normally, the cap will be at 1:100, although the Bank of Russia will be able to raise the limit to 1:200 on certain instruments. This restriction has been discussed for quite some time, as many lawmakers have been worried of the risks associated with unlimited leverage. As LeapRate has reported earlier, the limit of 1:100 has been recommended by CRFIN, an FX self-regulatory organization in Russia.
Forex brokers in Russia will face strict requirements regarding accounting and reports to the state regulators. All operations and contracts should be part of the accounting procedures at a Russian FX broker. The bill does not mention anything of trade repositories but Natalya Burykina who chairs the State Duma Committee on Financial Markets says in the future “all FX trades should flow into the repositories”.
FX brokers will be prohibited from terminating a client contract at their own discretion, as well as to change the bid price without changing the ask price.
Among the most disputable points in the FX bill remain the issues of capitalization. Ms Burykina has mentioned a very high capital requirement for an FX broker in Russia of at least 100 million rubles.
These numbers most likely will be revised, as the Central Bank itself has cut the requirements for capitalization of all participants in the securities market, a change that may apply to Forex brokers too. Even the most conservative interpretation of the Russian law on the securities market means that the requirement will be at RUB 35 million, as for all securities dealers. Once the Central Bank implements the new rules, however, the demands are poised to be significantly relaxed.
The requirements concerning trading software are somewhat complex. Despite there being no such requirements in the first version of the FX bill, these have now been included, insisting that FX brokers own their own software as well as have the technological means for trading located in Russia. This echos the Turkish system, whereby the domestic regulator requires FX companies to own their own technology provider.
Given that most FX brokers don’t own the software products but just license them, this will require large infrastructural and commercial adaptations. Furthermore, ancillary services such as VPS are often located outside of the country of operation of a broker, presenting a further challenge to firms.
Burykina says the new text of the Forex bill should complete its journey through the State Duma by the end of this year and come into force in March 2015.
You can find out more details on Russia’s Forex regulation in LeapRate’s recently released research piece.