26 August 2013, 00:00

Managers will risk capital

It’s time for brokers, managers and dealers to learn to monitor capital adequacy in the same way as banks do, follows from the draft order of the Federal Financial Markets Service Yulia Orlova A. Makhonin / Vedomosti

On Friday, the Federal Financial Markets Service published a draft order introducing prudential supervision over stock market participants. It obliges brokers, dealers and managers to calculate capital (see sidebar) taking into account changing indicators - credit, market and operational risk. In a similar way, the Central Bank monitors the capital of banks, but the Federal Financial Markets Service still looks only at absolute capital adequacy: from 35 million rubles. - for dealers and brokers, from 80 million rubles. - for managers. The minimum level of capital in the project is even lowered: for dealers - no less than 5 million rubles, and for management companies and brokers - no less than 10 million rubles.

The head of the Federal Financial Markets Service, Dmitry Pankin, who left in September, indicated in a blog that he was posting the project “before the launch of the official procedure on the unified information disclosure portal.” He believes that the most controversial issue of the project is the frequency of calculating the standard, which is directly related to the reservation of capital to cover risks (now companies do not do this at all). From Pankin’s explanations it follows that the lower the frequency for which the risk is assessed, the higher the burden on capital. In the project, the standard is recalculated frequently - once a day at daily risk rates.

A representative of the Federal Financial Markets Service says that the general approaches and the need to introduce prudential supervision have been agreed upon with the Central Bank, but detailed implementation has yet to be agreed upon by the regulator and discussed with market participants. According to an official familiar with the discussion of the project, the current version does not cover all the issues and requires improvement. Thus, it does not clearly spell out the issue of accounting for foreign securities in capital: in the current version they can receive a discount of up to 100%, which is critical, for example, for brokers actively trading abroad. “This version has not been tested with market participants, and if during the discussion it turns out that the requirements have a significant impact on the market, they will be revised,” he knows.

Market participants who have become familiar with the project and were interviewed by Vedomosti believe that it does not take into account the risks of repo transactions and operational risks: for example, employee errors or stock exchange failures. “With the current monopolization of the infrastructure of the Russian stock market, colossal risks are concentrated in the operational part,” says Alexander Baranov, deputy general director of Pallada Asset Management.

New requirements for capital calculation will increase costs for professional participants, who have been constantly cutting costs since the 2008 crisis. For example, they will have to hire an appraiser to calculate capital adequacy. Pankin agrees: “I do not rule out that market participants may experience increased operating costs.”

The professional participants surveyed by Vedomosti found it difficult to assess whether they fit into the new requirements. NAUFOR Chairman Alexey Timofeev says that he plans to discuss the project with professional participants this week. He fears that, taking into account discounts, in practice the minimum capital requirement of 5 million may turn out to be, for example, a requirement of 10 million rubles. There is no chance of this order being accepted and registered with the Ministry of Justice before September, notes Timofeev, so the issue will need to be discussed with the Central Bank.