Bank of Russia establishes facts of market manipulation in trading for futures contracts

The Bank of Russia established facts of market manipulation from 20 December 2021 to 29 December 2021 in on-exchange trading for futures contracts for zinc (Zn-1.22), nickel (NL-1.22, NL-2.22, NL-3.22) (hereinafter, Futures Contracts 1), and aluminium (ALMN-2.22, ALMN-3.22) (hereinafter, Futures Contracts 2).

Between 20 October 2021 and 30 December 2021, the Moscow Exchange held the contest Non-ferrous Metal Futures (hereinafter, the Contest) to promote futures contracts for non-ferrous and industrial metals, and boost the activity of market participants and their clients. The key criteria for assessing the results were the amount of trading, open positions, and the number of active clients and transactions.

In order to win the Contest, its participants Vladislav D. Znaenok and Denis A. Znaenok conducted transactions with Futures Contracts 1 in collusion, coordinating their actions by phone. In addition, V.D. Znaenok involved Nikita V. Ivanov and Yana D. Shakhova in this scheme and conducted transactions with Futures Contracts 2 using the brokerage accounts of these persons with their consent.

All transactions between the Contest participants V.D. Znaenok and D.A. Znaenok with Futures Contracts 1, as well as those between the Contest participants N.V. Ivanov and Ya.D. Shakhova with Futures Contracts 2 led to significant deviations in the amount of trading.

According to the findings of the investigation, these transactions are qualified as market manipulation pursuant to Clause 2 of Part 1 of Article 5 of Federal Law No. 224-FZ, dated 27 July 2010, ‘On Countering the Misuse of Insider Information and Market Manipulation and Amending Certain Laws of the Russian Federation’ (hereinafter, Federal Law No. 224-FZ).

Accordingly, V.D. Znaenok, D.A. Znaenok, N.V. Ivanov and Ya.D. Shakhova broke the ban established by Part 2 of Article 6 of Federal Law No. 224-FZ.

The Bank of Russia sent binding orders to V.D. Znaenok, D.A. Znaenok, N.V. Ivanov and Ya.D. Shakhova to cease and desist from similar violations in the future. Furthermore, these persons are subject to administrative proceedings.

The Moscow Exchange did not adequately ensure the implementation of compliance procedures when preparing for and holding the Contest, the victory in which was made contingent on the amount of trading and the number of transactions. Such conditions and the absence of a comprehensive consideration of the issue of control over transactions during the Contest led to the trading behaviour of the participants, which resulted in the violation of the requirements of Federal Law No. 224-FZ. This proves that the Moscow Exchange did not establish effective internal controls to prevent, detect and deter the misuse of insider information and market manipulation when organising and holding the Contest.

Considering the above, the Bank of Russia took measures in respect of the Moscow Exchange as part of administrative proceedings due to non-compliance with the requirements of Federal Law No. 224-FZ.

The Bank of Russia reminds professional securities market participants and trade organisers of the need to fully and comprehensively inform persons participating in the events similar to the Contest about bans and restrictions imposed by Federal Law No. 224-FZ.

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