Russia’ upper house of Parliament, the Federation Council has passed a new legislation number 607338-7 which requires equities and other financial brokers to adhere to new ‘best practices’ aimed at assisting traders and investors and improving their experience. In some ways, these new measures mimic ESMA rules in Europe, which are already being used for the Forex market.
Specifically, the new measures spell out ‘best execution’ as it is commonly known – requiring brokers to execute the customer’s order at the best available price, with as little cost incurred as possible and by using ‘reliable’ counterparties. In many ways, this is just like the ESMA directives.
The new legislation also sets out limits on the amount of fees that can be collected from traders using ‘auto follow’ techniques or other trade orders used to manage risk or book profits during trading. The legislation also aims to regulate the concept of “internalizing” – when brokers A-book a customer’s orders and take the other side of the trade, while opening mirroring orders elsewhere. The new rules prescribe that all orders, whether internal or external, must be executed as the same order prices.
The new law also requires that brokers provide customers with decision-making tools (such as research or signals) internally and directly to customers, rather than relying on 3rd party services, like today. This may alleviate some of the conflicts of interest that have been identified between retail brokers and 3rd party signals or research firms, who rely on commission from clients’ trading in order to do business.
One of the major developments in the legislation is that by 2021 brokers will be able to accept new forms of collateral from traders in order to satisfy margin requirements. Specifically, traders will be able to use foreign currency, such as USD to satisfy their account’s margin requirements, and also precious metals. Such instruments will be placed in special bank accounts to ensure that a broker will not go after the client in order to recoup any losses incurred while trading.