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The Federal Financial Markets Service (FFMS) has developed new minimal capital requirements for professional market participants, thus offering almost 3-times increase of the former requirements. This measure is intended to increase capitalization and consolidation of financial market participants, but is strongly opposed by participants themselves who warned that this would lower competitiveness of the whole system and, consequently, increase costs, fees and prices for services.

The intention was announced at yesterday’s roundtable by FFMS’ chief Vladimir Milovidov. The conference was dedicated to today’s conditions of Russia’s financial markets in times of the crisis: “first lessons learned”, so to speak. According to him, capital requirements await at least threefold increase. At the moment, those are defined by the FFMS’ order of April 24th 2007 (effective since the beginning of 2008): 5 million rubles for dealers, 10 million rubles for brokers, and 35 million rubles for those engaged into both types of business activity (that is, for broker-dealers). 

Ivan Oskolkov, chief of the corporate governance department within the Ministry for Economic Development, noted that this increase in requirements would not provide any additional guarantees to investors, but of course, “it will certainly make job done by FFMS much easier: there will be fewer supervised parties!” He also added that this initiative would affect competition: “For investors and their counteragents, not only guarantees matter, but also prices for services provided”. And prices will obviously be increased. Unfortunately, the Ministry for Economic Development won’t be able to intervene because minimal capital requirements are increased by the FFMS’ order which doesn’t need any approval by the ministry.

Chairman of the National Association of Securities Market Participants (NAUFOR) Alexei Timofeev reminded that important innovations like that should always be accompanied by additional solutions (like, for instance, implementation of tax stimulus to increase capitalization of participating parties). “Otherwise, this would undermine competitiveness, increase costs and monopolization of the market, which contradicts the main idea to attract investors to the market”.

Vladimir Milovidov (chief of the Federal Financial Markets Service) explained the details. Whenever an entity is engaged into several types of business activities, those “mixed type businesses” will be divided into three broad categories. First category: entities simultaneously providing broker, dealer and depository services; second category: trust management plus management companies; third category: stock exchanges, clearing organizations and trade organizers. In respect to those three groups, there will be separate minimal capital requirements, said Mr. Milovidov, also providing an illustrative example. For instance, whenever a company wants to acquire a broker license, it should meet the first category requirements, and so on.  He promised to provide market participant with enough time to get their capital in accordance with changed legislation (it should come into force on July 1st 2010). However, even in the nearest future it will become obvious who is okay and who desperately needs additional capital: already there is an effective FFMS’ order that provides mandatory quarterly public disclosures of capital. 

Source: RBC-Daily