The Bank of Russia tightens requirements for novice investors

The Bank of Russia has suggested imposing a limit on the leverage available to new investors.

A new type of investor is being introduced: those with a starting risk level of KNUR.

The Central Bank's innovation was met with negative reactions from market participants.

Kommersant reports that the Bank of Russia has taken steps to reduce the risks of inexperienced investors in margin trading. This could lead to the emergence of a new type of investor - those with an Initial Risk Level (IHR).

Investors with less than one year of margin trading experience, as well as those who are not classified as standard (CRMS) or high risk (CRRM) clients, will be included.

Clients with assets of RUB 3 million or more will be classified as CRMS. Those with assets of at least 600 thousand rubles, provided they have been a client of the broker for the last 180 days and have entered into transactions with leverage for at least 5 days, will also be classified as CRMS.

Brokers must lower the maximum leverage for a new group of inexperienced investors compared to what is currently available, and alert these clients when a trade leads to an uncovered position.

In order to reduce the risks associated with margin trading for novice investors and to enhance the current legal framework, this has been noted in the accompanying explanatory note.

Market participants had a negative reaction to the Central Bank's new innovation. Previously, a qualified investor had a wide range of strategies available to them, but now their options have been significantly reduced.

Many clients use a margin loan not only to leverage their profits, but also to reduce risk by opening short positions and hedging their portfolio against losses. Simultaneously, this allows them to do so.

Amid plans to drastically raise the skill level needed, these modifications are being implemented.

The Bank of Russia reported that in the first quarter of 2023, the number of qualified investors was 586 thousand. Additionally, the Moscow Exchange stated that the number of individuals with unique passport data who had brokerage accounts had increased to 24.5 million.