Press Service

The Central Bank of the Russian Federation (Bank of Russia)

Press Service

12 Neglinnaya Street, Moscow, 107016 Russia;

Information Notice

On switch transactions

In the course of its monitoring of organised trading the Bank of Russia has revealed transactions persistently made by trading participants under so-called switch scheme. Under certain circumstances the use of this scheme may infringe the Federal Law No. 224-FZ, dated 27 July 2010, ‘On Countering the Misuse of Insider Information and Market Manipulation and Amending Certain Laws of the Russian Federation’ (hereinafter, the Law).

The switch scheme implies the transfer of ownership of financial instruments from one person to another through an intermediary person, resulting from a couple or a series of purchase and sale transactions with insignificant price differences in a series of such transactions. The related difference assures reimbursements of the intermediary person’s expenses for the transactions and may include a service fee. The transactions under the scheme can occur both overnight and in several days’ time in case that the liquidity of a financial instrument allows the parties to believe that the prices remain unchanged for all the transactions with an intermediary person involved. The nature and facts of these transactions are indicative of a preliminary agreement between the transaction parties.

In this regard, the Bank of Russia finds it necessary to draw the market participants’ attention to the followings.

Trade regimes specially provided for address limit orders are available for organised trading transactions agreed beforehand by the parties. Such transactions under different trade regimes shall be subject to more tight monitoring of involving party transactions.

A series of transactions under the switch scheme may be treated as market manipulation pursuant to Clause 2, Part 1, Article 5 of the Law in the event that at least one of them has been made based on the orders intended for all the organised trading participants. This scheme can also be used to conceal a conflict of interest to bypass the laws, abuse the rights, commit a fraud, etc.

It is essential that intermediary persons who provide services to make transactions under the switch scheme should assess the related risks.

The Bank of Russia expects responsible actions of the market participants to prevent possible consequences.

21 March 2016

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