“The foreign exchange market died on June 12”: experts on sanctions against Moscow Exchange and NCC
The US Treasury Department OFAC (Office of Foreign Assets Control), which is responsible for enforcing sanctions, decided on June 12 in his own style to “congratulate” our country on Russia Day, striking a blow to the financial market. The Moscow Exchange, the National Clearing Center (NCC) and the National Settlement Depository (NSD) were included by this structure in the restrictive list. This means that trading in the dollar and euro will be stopped from June 13th. MK found out from experts how this will affect the country’s economy and how much it will affect the lives of Russians.
Commenting on the introduction of restrictions, the Moscow Exchange stated that the group has all the “necessary tools” to ensure uninterrupted trading. Possibilities such as discrete auctions and mechanisms for quickly changing risk parameters are listed, but before the opening of the site on June 13, it is still unclear how they can help in the current situation. Part of the confidence is instilled by the business spirit of the company. “In the face of new challenges, the Moscow Exchange will continue to provide clients with access to all segments of the trading platform,” they said.
However, experts are more pessimistic. “The Russian foreign exchange market was born on July 1, 1992 and died on June 12, 2024,” says Alexander Razuvaev, a member of the supervisory board of the Guild of Financial Analysts and Risk Managers. The new sanctions are a problem for exporting and importing companies that used toxic currencies: it is better to stay away from their shares. There may be disruptions to imports, including pharmaceuticals and other critical goods. “In principle, this story was expected in the fall of 2022,” recalls Razuvaev. — They said that the foreign exchange market would be “crooked” through the yuan, only huge spreads (an exchange term from the English spread — this is the name for the difference between the sale and purchase price of a stock or currency, any asset — editor's note). Americans and Europeans really want to kill the status of their reserve currencies.”
The expert believes that Islamic banking, the introduction of the digital ruble and regulation of industrial mining can be a salvation for Russia in the current situation. In addition, the Bank of Russia keeps the key rate at a high level, which encourages people to place money in ruble deposits. The quotes of the main state bank pleased holders with profits and dividends. There are companies whose quotes have grown fourfold. «What else was needed for Russians to exchange dollars and euros for rubles and buy shares or put money on deposit?» the expert asks. «There will be no banking crisis. The Moscow Exchange market will open in the red zone tomorrow. The market decline should be used for targeted purchases.» The analyst recommends buying shares in blue chips of the banking sector and alcohol producers, since «what will happen to imports is unclear, and people always need to relieve stress.» In general, everything that happened was expected. «God willing, we will still see the Eurasian euro or altyn,» Razuvaev concluded.
The Bank of Russia has already published a press release in which it confirmed the suspension of exchange trading and settlements in US dollars and euros on the Moscow Exchange. At the same time, the regulator emphasized that for all other instruments and in all other currencies, transactions will take place “as usual.” As for the American and European currencies, there is a hint that the regulator may have found a way out. “Transactions in the US dollar and euro will continue to be carried out on the over-the-counter market,” the Central Bank of the Russian Federation notes in a publication. How to understand the reaction of the Bank of Russia and what to expect next for Russians, explained Ruslan Spinka, director of sales and customer service at Fontvielle Investment Company.
— The Bank of Russia and the Moscow Exchange were ready for such a development of events, as their representatives have repeatedly stated previously. The Central Bank of the Russian Federation has already stated the following in a number of its press releases:
Firstly, due to US sanctions against the Moscow Exchange group, trading and settlements in dollars and euros are suspended from June 13, 2024.
Secondly, transactions in dollars and euros will be carried out on the over-the-counter market .
Thirdly, the Bank of Russia will determine exchange rates based on data from banks and digital platforms.
Fourthly, the purchase and sale of dollars and euros through Russian banks remains intact.
Fourthly, the purchase and sale of dollars and euros through Russian banks is preserved.
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Fifthly, funds in accounts and deposits in dollars and euros will remain available, the mode of issuing funds will not change.
Sixth, trading in rubles and other currencies will continue as usual.
— Firstly, there will most likely no longer be exchange trading in ruble-dollar and ruble-euro pairs in our usual form. A new mechanism for forming exchange rates, determined based on the results of over-the-counter trading, will be introduced. We will learn exactly how this mechanism will function and the exchange rate will be formed from further explanations from the regulator and emerging market practices. It is worth noting that over-the-counter currency trading in Russia is not something exotic. According to various estimates, exchange trading accounts for only about half of the total volume of foreign exchange transactions, which means that over-the-counter trading occupies a significant place in the structure of the Russian foreign exchange market.
Secondly, the currencies of third countries will become even more widespread. For example, in May 2024, the share of the yuan in the Russian foreign exchange market reached a historical maximum. On the exchange market, the yuan's share was 53.4% of the total trading volume, and on the over-the-counter market — 39.6%. It is obvious that in the near future the share of the yuan will continue to increase, and the yuan will become the main foreign currency on the Russian market.
Thirdly, as, unfortunately, practice shows, in the first hours after the opening of trading on June 13, not very rational transactions will be made on the Russian market. At the same time, there are no reasons, other than panic fueled by unscrupulous market participants in order to make a profit (first of all, exchangers and banks will take advantage of the information feed). The Bank of Russia and the Moscow Exchange were prepared for such a development of events and formed action scenarios in advance.
— Our expectations are as follows. Exchange trading in the dollar and euro will be suspended, but trading in the yuan and other currencies will continue. The yuan will become the main foreign currency on the Moscow Exchange. Exchange rate formation will occur through the yuan and over-the-counter interbank trading. Perhaps dollars and euros in brokerage accounts can be transferred to bank accounts and exchanged at the cross rate or through the NCC at the rate of the Central Bank of the Russian Federation. Changes are possible in the derivatives market, but a global collapse is not expected. The markets will probably open lower, but will quickly recover.
— It is not yet entirely clear how the exchange rate will be formed in the current circumstances. Whether it will be established by the Bank of Russia, or now the authorities will want to form it over-the-counter, or will find some kind of special solution, it is difficult to say anything definite. We need to wait for official statements from the Russian leadership.