Russian central bank trains brokerages to identify dubious transactions

MOSCOW: The Russian central bank is training brokerages to identify dubious transactions in order to avoid artificial price moves amid a rapid surge in the number of retail investors, said Valeriy Lyakh, head of the bank's department for countering market misconduct.

A trading frenzy by retail investors on online forums such as Reddit's WallStreetBets in the United States sent some stocks, including GameStop, to meteoric gains earlier this year. That fuelled a copycat trading boom in Europe, raising concerns about so-called "meme stocks" in Russia.

The Russian central bank, which has already blocked some brokerage accounts to stop the violation of market-manipulation laws, is working on ways to avoid market swings that can be caused by the organised actions of retail investors.

While it is not the central bank's mission as a regulator to detect and punish players with small accounts that violate market rules, it is working with brokerages to prevent irregular trading at the early stages, Lyakh said in an interview with Reuters.

Possible details that a brokerage could track to identify dubious operations include phone numbers, email addresses, and computers that market participants use to access the market.

"So we don't have to later run with a club after each home-grown manipulator to neutralise them," Lyakh added.

Organised speculation can cause abrupt moves in the market, leading to potential damage for a wider number of players as they result in a domino effect by triggering stop-loss orders.

The number of people with brokerage accounts in Russia has exceeded 11 million, doubling in 2020 when banks' deposit rates declined and the COVID-19 pandemic prompted people to seek new sources of incomes.

Brokerages are usually in a position to track amateur investors who read anonymous recommendations on social media networks and sometimes unite in groups to artificially move market prices, Lyakh said.

Since February, the central bank has detected four cases of artificial share price orchestration by people on social networks.

The central bank is ready to share with brokerages the criteria to identify dubious transactions, Lyakh said.

"It is natural that someone is going there (to the stock market) not only to make money but to play, to get some adrenaline. Our task is not to allow that such players affect the market, that they destabilise and ruin it."