What the future holds for Forex regulations in Russia

In April of 2013 year deputies of the State Duma of the RF Federal Assembly Mrs. A. Babakov and V. Shestakov introduced amendments to the law “About securities market” and to legislative acts of the Russian Federation in the part of legal regulation of dealers' activity on the over-the-counter Forex market. This law was accepted during the first readings and is supposed to enter into the force since January 1, 2014

New law proposes a following definition: “International Forex market – is the total of transactions concluded both on the territory of the Russian Federation and abroad with international or (and) Russian currency as their subject according to prices depending on demand and supply (free prices), and financial result of such transactions is equal to change of a transaction's price. Over-the-counter Forex market is the total of transactions that are not subject to registration on the stock market and concluded by Forex dealers, whereas subject of such transactions are over-the-counter settlement derivative financial instruments and base asset is the quote of currency pair.”

Body of the law also contains a definition of Forex dealer and transaction concluded on over-the-counter Forex market. In particular, “Forex dealer is a legal body registered under prescribed procedure n the territory of the Russian Federation as per license issued by specialized federal executive body and which is a member of Russian union of Forex dealers.

For the purpose hereof, transaction concluded on over-the-counter Forex market is the contract being an over-the-counter settlement derivative financial instrument with its base asset as the quote of currency pair determined by prices of currency formed on the international Forex market, and concluded inter alia by means of information and telecommunication technologies; requirements to such agreement include pointing currency constituting currency pair participating in present operation, number of currency units, type of transaction (long or short), method and term of implementation of transaction by Forex dealer. Parties of this agreement are Forex dealer and individual or legal entity (clients of Forex dealer)”

One of the main propositions of the document is considered introducing of judicial protection applied to operations on over-the-counter finane market: “Disputes between clients of Forex dealers and Forex dealers related to participation in transactions on over-the-counter Forex market, shall proceed through the court.”

On the event of adoption, key element of Forex regulation in Russia will be introduction of Russian union of Forex dealers that will be in charge of Forex market supervision along with state bodies. This entity is established as Self-regulatory Organization, acting under Federal Law “About Self-regulatory Organizations” and other relevant acts. As per the law project, Forex dealer must pay monthly contribution as well as deposit to SRO's compensation fund. According to experts, such measures can significantly cut the number of companies operating on that market, and expectations speak for large companies having serious financial sustainability.

Besides, this new law is aimed to eliminate uncertainties related to fiscal aspect. Finance instrument with currency quote as its base asset forming by prices of the Forex international market will be categorized as the financial instrument of futures business. Also “Professional participant of securities market conducting dealer's activity on over-the-counter Forex market including banks have the right to decrease tax base calculated under 274 article of the present Code for the amount of loss received in the result of operations with financial instruments of futures transactions that are not circulated on arranged market.” In case of adoption of the law, transactions conducted on the Forex over-the-counter market can be legally categorized as operations with financial instruments of futures business, by virtue whereof above-mentioned activity will fall within taxation with income tax under 301 – 310 articles of the Tax Code of the RF.

It is supposed that draft law will come into force not earlier than on January 1 of 2014, following which transaction involving contracts for difference will be entered into Russian law environment. Experts note that this fact can improve transparency of the Russian over-the-counter currency market and security of its participants.