Russia’s CRFIN (Center for Regulation in OTC Financial Instruments and Technologies), a self-regulatory body for the Forex industry in the Russian Federation, has advised lawmakers to set a maximum leverage limit at 1:100.
There has not been much clarity around the rules for FX trading and the industry sector as a whole in Russia after the State Duma, the lower chamber of the Russian parliament, postponed one more time the second reading of the Forex bill. Matters such as advertising of FX products, capital requirements, customer protection and broker licenses are still in the dark. However, some light has been shed on an important matter concerning the regulation FX brokers and traders alike – the size of the maximum leverage allowed.
Ulyana Vlasenko, a member of the management team within CRFIN, has confirmed that the organisation, which unites 38 companies active in the Forex industry in Russia, recommends a leverage cap of 1:100. She told Russian newspaper “Vedomosti” that this is the maximum leverage considered rational and acceptable by the members of CRFIN and that this the level recommended by CRFIN to lawmakers during discussions of the Forex bill.
This cap may seem overly conservative to many, especially to traders who would like to have a chance to open bigger positions with various instruments and make use of as many trading opportunities as possible. At this precise moment there are many FX brokers active in Russia that offer leverage well above 1:100. For instance, Alpari allows holders of ECN and Standard accounts to tap leverage as high as 1:1000. Despite this, Boris Shilov, Alpari’s chief executive officer, has explained that traders rarely apply for leverage in excess of 1:500, with most clients opting to trade with leverage set at more moderate levels of 1:25 or 1:30.
It will be interesting to observe whether Russia’s lawmakers agree to a 1:100 leverage cap. Before Ms. Vlasenko’s comment, speculation pointed to a more conservative restriction of 1:50. If this restriction gets accepted, then Russia will be amid the countries with the most severe caps on leverage, alongside the United States and Japan. As is widely recognized, the US cap is set at 1:50 on majors and at 1:20 on other pairs, while in Japan the restriction is set at 1:25.
It is possible, however, that the Russian cap on leverage, if there is one at all, will be less restrictive than the one in the US and even less rigid than the one proposed by CRFIN. This may be the case if the situation with the low volatility in the Forex markets continues. VTB-24, a bank which is partially owned by the state, sparked controversial reactions over the past days with its decision to raise leverage on currency pairs without the RUB to 1:200, with the move blamed on low volatility.
Whether there will be a cap on the leverage or not should become clear this autumn, when the Duma is set to vote on the amended FX bill. Russia’s president Vladimir Putin is pushing for a law regulating the Forex industry as Russia vies for its position as a major region in which the FX industry can flourish, hence, chances are high that these proposals may come to fruition.