Investors’ protection in brokerage sector enhanced
From next year, brokers will be obliged to execute client orders on best terms – this is required by the law on improving the regulation of brokerage activity. This law was approved by the Council of the Federation. It protects investors’ property rights and creates favourable conditions for developing the institute of finance brokers.
The law established that where there are no special instructions from a client regarding transaction parameters, a broker should act in the client’s interests and opt for parameters that are most beneficial for the client: the best asset price, lowest transaction costs and reliable counterparties.
The document also takes into account new practices applied by professional securities market participants. In particular, the law regulates internalisation – a method for handling client orders when the broker makes transactions on his/her own behalf and at his/her own expense for the benefit of the client simultaneously concluding back-to-back transactions with this client. The law stipulates that the broker shall make back-to-back transactions at the price of the transaction conducted at the broker’s expense. In addition, there are special auto-follow rules to be implemented that prohibit charging a fee for every transaction made within such service.
The draft law sets a new broker’s duty to deliver information to a client needed to make an investment decision. Currently, such information is only provided by the most responsible financial intermediaries. After the law becomes effective, such practice shall be implemented by all brokers.
From 2021, the range of assets that a broker may accept from a client to secure margin transactions will be expanded through encompassing foreign currency and precious metals. They will also be allowed to credit into a special brokerage account, which will guarantee protection against recovery for a broker’s debt.
The law also provides for proportionate regulation of professional market participants where an internal control system is created. Currently, legislation does not imply a differential approach in this area depending on the scale of operations and the nature of conducted transactions, due to which companies are experiencing an excessive regulatory burden.