How exchanges and brokers will work with clients: Bank of Russia’s consultation paper
The Bank of Russia suggests discussing two models of exchanges’ and brokers’ work: preserving functional differentiation or allowing combination of functions. Consequences and risks of the two scenarios and future development of the regulation are discussed in the Bank of Russia’s consultation paper Universalisation or Specialisation? Stock Market Participants’ Roles.
There have been new trends emerging in the Russian stock market in recent years. On the one hand, brokers have been collating clients’ securities purchase and sale orders themselves, without participating in on-exchange trading. On the other hand, the professional community has been discussing whether certain groups of investors should be allowed to conduct transactions in on-exchange trading without intermediaries.
Both trends are blurring the boundaries between the functions of the infrastructure and brokers. This is changing the balance of interests and affecting the stability of the market, its infrastructure and financial intermediaries. In the Bank of Russia’s opinion, brokers’ and exchanges’ costs might increase if they combine the functions. Moreover, the fragmentation of trading across several venues would require new approaches to pricing financial instruments.
The analysis shows that the preferred scenario is to preserve the separation of infrastructures’ and brokers’ functions. The Bank of Russia proposes discussing the benefits and effects of this model, possible alternatives, and the introduction of additional requirements for exchanges’ and intermediaries’ work.
Market participants are welcome to send their comments regarding the issues discussed in the paper and suggestions about the development prospects of exchanges’ and brokers’ regulation through 31 July 2024.