Russian retail investors to be tested from October

After a mess caused by non-professional investors in the US stock market in January, financial regulators all over the world began to talk about potential dangers of involving large numbers of amateurs. Russia’s Central Bank announced on Tuesday that it would start testing retail investors interested in complex products later this year.

Russia will limit retail investors’ access to complex products on financial markets from October, says Reuters citing the Bank of Russia. According to Elena Sherwood, deputy head of Consumer Protection at the Central Bank, the regulator will ask amateur investors to pass a test with questions about various financial instruments, for example, repo transactions, marginal trading, transactions with financial derivatives and the purchase of structured bonds.

The requirement will apply to those investors who wish to buy complex investment products such as structured products, repurchase agreements or marginal trading on Russian stock and foreign currency markets. According to the Central Bank, a lack of knowledge about financial markets leads to situations when retail investors buy stocks at inflated prices and then suffer substantial losses.

Sherwood said that the bank had almost finalised standards for brokerages to test millions of their retail clients willing to buy a complex financial market product. “A person who takes the [planned] tests will be able to — and we welcome this — use internet sources, read articles, find the right answers. All this will form this person’s knowledge of the financial market,” she said.

In January, a trading frenzy by US retail investors on online forums such as Reddit’s WallStreetBets sent some unpopular stocks to meteoric gains. Photo: Focalphoto

Last month, a trading frenzy by US retail investors on online forums such as Reddit’s WallStreetBets sent some unpopular stocks to meteoric gains. The precedent fuelled a copycat trading boom in Europe and raised concerns among regulators worldwide. Governor of the Bank of Russia Elvira Nabiullina said last week that the Reddit case was under the bank’s scrutiny. “Such situations, when a large number of retail investors are involved, are a dangerous practice for the financial market, as they undermine trust in it and turn market trading into gambling,” the regulator said in a statement.

Russia’s Central Bank has long considered tightening rules for amateur investors. At the end of 2019, it announced the intention to limit access to foreign stocks for non-professional investors. Last year, a record-high number of Russians turned to trading amid coronavirus lockdowns and record-low interest rates. Russia’s largest exchange platform, the Moscow Exchange, registered over 9 million new clients in 2020.

By Anna Litvina