Moscow Exchange Plans Gold to Silver Trading to Broaden Appeal

October 16, 2013

RUSSIA (Oct 17)  Moscow Exchange will introduce trading of gold and silver as early as this month as part of plans to make metals more accessible to smaller banks by reducing transaction costs.

The exchange will quote gold and silver in Russian rubles per gram, with minimum trades starting at 10 grams of gold and 100 grams of silver, the bourse’s Deputy Chief Executive Officer Andrey Shemetov said in an e-mailed response to questions yesterday. Platinum and palladium contracts will start trading in the first half of 2014, he said. Russia is the world’s largest developing-nation producer of gold after China.

Most metals trading in the country takes place via the over-the-counter market, which is dominated by Russia’s biggest banks, such as OAO Sberbank. Smaller lenders including Moscow-based Absolut Bank ZAO take on higher costs and risks because they turn to the market makers to close positions, limiting their ability to offer precious-metal trading to clients.

“It’s a cheaper way of tapping into ruble-denominated gold,” Ivan Fomenko, head of asset management at Absolut Bank, which offers metals accounts to clients, said by phone on Oct. 9. “You will be able to buy, sell, swap easily. It’s awesome.”

Fomenko couldn’t provide a cost-savings estimate.

The Moscow Exchange is following Shanghai Gold Exchange in listing precious metals to augment over-the-counter, or OTC, trading and broaden the range of instruments available for hedging and liquidity purposes. The bourse will also introduce swap agreements for the metals that aren’t available on the OTC market, Shemetov said.

‘Unusual Move’

It’s an “unusual move” for the stock and currency exchange to list physical metals, and has the potential to affect the gold market as trading volume grows, Marcus Grubb, managing director of investment research at the World Gold Council, said in an e-mailed response to questions on Oct. 9.

The exchange will quote prices and enable traders to settle contracts via delivery to and from unallocated metals accounts at its National Clearing Center. Banks can deposit or withdraw precious metals in the form of physical bullion bars, and delivery and collection will occur at a nominated Moscow vault, the bourse said. The contracts are also likely to appeal to brokers, producers, jewelers and private investors in the long run, it said.

“A transparent, exchange-based market will emerge as the best place for determining fair value for Russia’s precious metals,” Shemetov said. “We hope to bring some change to the Russian precious metals market, whose current structure is primarily vertical.”

Trading hours will run from 10 a.m. to 11:50 p.m. Moscow time, with settlement taking place on the day after the trade. Negotiated deals will include same-day and forward settlements of as far as six months in the future, the exchange said.

“Operational costs will be lower, bringing in new players and making the gold market more efficient,” Fomenko said.

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