The Central Bank of Russia is studying the possible consequences of providing investors with direct access to stock market deals without intermediaries. The decision may mean losing commissions, at the same time for investors it is an excellent way to reduce financial costs. How will such an initiative affect the Russian market, what could be its consequences?

The central bank explained its position by stating that the decision is relevant, and currently it is holding discussions with market participants to assess the pros and cons of this step. Previously, the Moscow Exchange expressed a desire to have direct access to individual investors by 2023. The chairman of the exchange’s board of directors explained: such a move would avoid unnecessary standardized offers and ensure protection of investors’ interests.

Sergey Shvets believes it is necessary to change the market structure by providing investors with access without brokers. He believes that demand for brokerage services may decrease or even completely disappear due to the rapid development of artificial intelligence and the latest technologies. In addition, it is not profitable for the exchange to share profits from margin operations with intermediaries – it is better to focus on effective management of market risks.

Monopolization on the way?

However, not everyone approves of this idea and even openly criticizes it. Many brokers, as well as the St. Petersburg Exchange, opposed opening direct accounts for investors on the Moscow Exchange. The St. Petersburg Exchange plans to maintain cooperation with brokers, remaining an independent structure. Its general director E. Serdyukov emphasizes: exchanges and intermediaries provide fundamentally different services and products.

According to Serdyukov, combining the functions of an exchange and intermediaries can become a starting point for monopolization of the market instead of competition between market professionals stimulating improvement of services for investors. He also expressed concerns that the absence of brokers will lead to accumulation of market/credit risks. Originally they were distributed among intermediaries without threatening the financial system as a whole.

It is also possible that such a decision may negatively affect the quality of services. Exchange representatives claim that cooperation with brokers provides an opportunity to present a variety of products and services. Combining these functions may negatively impact the market.

Giving any individual investor the opportunity to trade directly on the Moscow Exchange may have serious consequences both for the exchange itself and for the depositor. The Bank of Russia is considering introducing this possibility in order to reduce costs for investors and exclude intermediaries.

Alexei Timofeev, Deputy Chairman of NAUFOR, warns about the potential for monopolization of the market and fragmentation of the financial sector when combining the functions of the exchange with the obligations of brokers. This will lead to increased operational risks and costs for investors – the desired reduction in prices will not occur. In addition, such practices do not exist abroad, indicating the unpredictability of consequences.

Despite the additional opportunities that may arise through access to the exchange, many experts express concerns about possible consequences. For example, Vladimir Chistyukhin, Deputy Chairman of the Central Bank, notes: exchanges do not have experience serving end customers. He considers the innovation an excessive risk and assumes that the introduction of this practice can have negative consequences for the financial market and reduce the quality of service for investors.

Another anonymous source from among brokers emphasizes: the Moscow Exchange has information about intermediaries’ trading with their clients. He claims: the platform is able to establish small commissions and affordable rates for trading on borrowed funds, which is considered market competition.

No intermediaries – no costs: the benefit of saving on brokerage services

Previously, the Bank of Russia criticized this practice, but is now considering it in the context of modern trends. The final decision will be made after a thorough discussion and assessment of all possible consequences. In turn, the Moscow Exchange and brokers work in tandem, continuing to provide investors with a variety of investment services.

Ilya Khersontsev, head of ARI, notes that direct operations, increased transparency and lower fees could benefit investors. The expert believes the Moscow Exchange is a well-known brand capable of guaranteeing stable connectivity to any trading during periods of high demand.

Alexander Rybin, a member of the ACouncil board, also approves of the idea, noting that due to intensifying competition, intermediaries are forced to offer clients unreasonable additional services to attract their attention, competing directly with the exchange.

Khersontsev expresses the opinion that demand for such services will remain, but the exchange will have to increase marketing costs, create and launch a convenient mobile client, and strengthen the back office to effectively interact with individual investors. It will require readiness for tough competition due to the affordable fees offered. In general, direct access for investors without brokers can have both positive and negative consequences. Additional research and consultations are needed to make a well-balanced decision that takes into account the interests of all parties.