Bank of Russia improves brokerage regulation
The regulator has established cases when brokers may perform internal over-the-counter (OTC) transactions (including between their customers) to execute ‘best execution’ client orders without placing them with an exchange.
This is possible through internalisation, introduced by recent legislative amendments. In this mode, a broker, instructed by the customer, enters into a deal with a third party on its behalf and at its own account and then into a mirror deal with the customer at the same terms.
The internalisation mode may be convenient for both market participants and investors, for example, when the price at which a broker sells or buys securities is better than it would be in the case of on-exchange execution. This mode can also be applied if a security is not admitted to exchange trading or the trading in it is suspended, as well as if a customer submits a large order. In order for this mode to be used, it must be provided for by the brokerage agreement and client instructions. A respective Bank of Russia ordinance has been registered by the Russian Ministry of Justice and comes into force on the date of its official publication.
Market participants are obliged to disclose information about bid and ask prices of securities, brokerage fees and other charges to non-qualified investors before each deal. This obligation was introduced from 1 January 2021. The disclosure procedure is described in the basic standard for broker operations, whose new version was approved earlier by the Bank of Russia.