Russian investors switched to active trading in "junk stocks" – low-liquid companies from the so-called second and third echelons of the quotation list of the Moscow Exchange. They are united, as a rule, by a small trading volume and low demand for securities. Papers from the second and third echelons are much easier to manipulate, especially in the current conditions, when foreign investors have left the Russian market. Against this background, the Moscow Exchange is considering the possibility of introducing a special type of trading for such securities – a discrete auction, Frank RG reports with reference to the press service of the exchange.
A discrete auction implies a ban on market trading, that is, only limit orders of market participants are executed (with a specific volume and a specific price). The mechanism involves reducing the opportunities for speculation and price manipulation, which should reduce the risks for retail investors. At the moment, the trading platform can introduce a discrete auction only for securities from the Moscow Exchange index (first-tier securities) and only if there is increased volatility for the instrument – that is, it deviates by 20% up or down compared to the opening price. At the same time, the Moscow Exchange is limited by its own rules: during one trading session, it can introduce a similar trading mechanism for only 30 minutes and only twice a day, and after 16:40 Moscow time this mechanism cannot be introduced at all.
The need to introduce such measures is due to a sharp increase in demand for low-liquidity shares from retail investors. According to the stock exchange, over the past six months, the share of trading in securities of the third tier in relation to trading in securities of the first has increased from 2-3% to 18-20%, that is, 5-10 times, and the total number of transactions – from 4-6% to 21 -23%. Professional market participants and the Bank of Russia explain this trend by two factors. The first is the exodus of foreign investors amid the war with Ukraine, the lack of access to capital for companies from “unfriendly countries” and the high risks for investors from “friendly countries”. This factor has led to the fact that retail investors now account for more than 80% of all trading volumes on the market.
The second factor is the many anonymous Telegram channels that retail investors subscribe to. Channel authors often give signals to buy a particular security, thus accelerating the price of a low-liquid asset, after which they begin to dump shares, driving ordinary citizens into them who believe in continued growth. Another possible factor behind the increased interest in low-liquidity securities is the reduction in the number of securities available for trading. Western sanctions, coupled with the actions of the regulator, cut off access for Russians to Western instruments (bonds, stocks, etc.).
The first trends in the active use of the classical scheme (pump & dump, “accelerate and reset”) were observed by the Russian authorities back in 2020–2021, when a boom in retail investors began on the Russian market. However, in 2022, due to the exodus of foreign players and the growing influence of retail investors, the problem has taken on a whole new dimension. Some securities during the implementation of such schemes in one trading day could grow by 80%, after which they fell just as rapidly, leaving thousands of investors with losses.
The Russian authorities did not intervene in the situation for a long time, trying to punish the authors of the schemes, but now the Bank of Russia, together with the Moscow Exchange, are considering other ways to influence retail investors and the tools that are available to them.