As Russian financial giant Bank Rossiya joins the list of banks on the receiving end of sanctions by US authorities, FX industry professionals debate the potential impact
Russia has made tremendous steps over recent months in its quest to become regarded as a region of importance and seek its position among regions with established and well-organized financial market economies.
In terms of electronic trading, particularly with liquid asset classes such as FX, such developments as connecting one of the nation’s most prominent venues, Moscow Exchange, via very low-latency direct connectivity to trading desks across the globe, giving rise to a surge in demand for ruble liquidity.
International governments view the virtues of conducting financial transactions between Russia and other nations through a different lens however, as the US Treasury has today demonstrated in its application of sanctions against one of Russia’s major banks, Bank Rossiya, which take the form of advising clients to refrain from foreign currency payments to their accounts.
This measure may reopen the previously held view that Russia has some way to go before gaining the confidence of the majority of market participants, especially bearing in mind that the sanctioning of Russian banks by US government departments has followed the political move which reunified Crimea with Russia recently, subsequent to a turmultuous situation in Ukraine.
According to Russia’s Ria Novosti, this latest bank to gain this unwanted accolade is partly owned by Russian businessman Yuri Kovalchuk, who is also named on the sanctions list.
Bank Rossiya added in its statement posted online that transactions in rubles were unaffected, however MasterCard and Visa, both multinational American payment firms have stopped processing retail and online payments by cardholders at four Russian banks Friday, including Bank Rossiya.
On Sunday, the companies resumed payments from cards issued by SMP Bank, which is majority owned by brothers Arkady and Boris Rotenberg, who were both named on the US sanctions list, reported Ria Novosti, continuing that the US and EU announced asset freezes and travel bans targeting a number of Russian officials last Monday, following Crimea’s referendum that saw voters support rejoining with Russia.
Brandon Russell, President of Etana, spoke to LeapRate on this matter today with his perspective on how the sanctions may affect companies based in the West, wishing to do business with Russian companies “From a US perspective, they will just update the OFAC list to make it impossible to do business with them.”
When enquiring as to the risks associated with doing business in Russia generally, Mr. Russell concluded that “I think that you are right in saying that it is dangerous but there will be opportunities for others to fill the gap. For the sanctions to work, the US needs complicity from the EU as an entirety.”
Max Lebedev, CEO of Forex4You, is an industry professional with considerable experience in the Russian and CIS region. “Russia is sending a strong signal that the ruble and the internal market will be its priority now” Mr. Lebedev explained to LeapRate today.
“That could have an unpredictable effect on US dollar and Euro acceptance as payment currency on doing business with Russia. The current situation is very close to the beginning of the biggest economical war in history, due to a chain of sanctions and counter-sanctions. In the end, this will have a destructive effect for all parties, and the only acceptable solution would be the unbinding of geo-political questions from economical ones” he concluded.
Aside from the increasing difficulties being imposed by the aforementioned sanctions, some FX companies are experiencing other peripheral difficulties. One institutional FX company whose preference for anonymity must be honored, explained to LeapRate that the Middle East and North Africa (MENA) FX conference which was scheduled to take place in Dubai recently had been postponed due to the crisis in Ukraine.
This is a particularly bizarre series of events due to not only that the region which was set to host the conference bears no relevence to Ukraine, but indeed the magnitude as to how such events can be used to put paid to corporate plans.
In this particular situation, the institutional FX firm concerned had only been informed ten days prior to the postponing, with the company’s spokesperson explaining to LeapRate today that “We were shocked that the conference was postponed at such short notice and for such spurious reasons.”
“This being their 13th show, we are very disappointed that this could happen to such an established event that has been sponsored by so many well known firms in the past” was the company’s view.
Indeed, whilst the world’s financial markets economy ranges from regions of extreme efficiency such as that of United States, Australia and the United Kingdom, it is clear that whilst the allure of developing markets carries some potential advantages, the risks of parameters changing without warning can be grave indeed.