The rise of proprietary trading (prop trading) inRussia has caught the attention of the country’s central bank, but not for thereasons traders might hope.
While prop trading firms have gained traction bothdomestically and internationally, the Bank of Russia now views their operationsas a potential threat to market stability, raising concerns about manipulation,according to the central bank’s 2024 annual report to State Duma.
Without clear regulations governing their activities,these firms operate in a legal gray area—one the regulator may soon seek toaddress. In the report, the Bank of Russia highlighted its efforts to combatunfair trading practices.
Russia’s Central Bank Flags Market Risks
‘The first months of 2025 suggest that the economy isgradually restoring this balance. Price growth is decelerating, while theeconomy is still growing, although at a more moderate pace,” Elvira Nabiullina,The Governor of the Central Bank of Russia, said.
“In other words, production capacities continue toexpand, while the increase in demand is becoming more balanced, withoutprovoking a further acceleration of inflation and depreciation of the ruble.”
It identified prop trading as a growing concern, notdue to consumer protection issues, but because of its potential impact onmarket integrity. According to the report, prop trading firms account for asignificant share of securities and derivatives trading.
The regulator believes their reliance on repetitivetrading strategies, high-frequency transactions, and large trade volumes coulddistort organized market parameters.
It emphasized that these firms’ influence extends beyond individual transactions, affecting market trends as a whole. Oneof the core issues raised by the regulator is the lack of legal provisionsspecifically governing prop trading firms.
First Findings of Market Manipulation
The current legislation does not impose internalcontrol requirements on these firms, creating regulatory blind spots that couldfacilitate unfair practices.
The central bank’s concerns are not just theoretical.Following inspections, authorities uncovered instances of market manipulationinvolving futures contracts and shares traded on organized exchanges. While theregulator has taken action in these cases, the broader structural risks remainunaddressed.
“These companies occupy a significant share in theturnover of trading in securities and derivatives market instruments. Theiractivities influence the formation of the parameters of organized trading dueto the use of template trading strategies,” the report says. “The multiplicity of traders involved in trading, the high frequency oftransactions in certain periods of time and the significant volumes of transactionscarried out on the market.”
In response, the Bank of Russia has urged prop tradingfirms to strengthen internal controls over individuals managing theiroperations, including those developing trading strategies. The regulator also wants these measures, along withproper training, could help prevent violations of financial market laws.
This article was written by Jared Kirui at www.financemagnates.com.
