Insider Trading Law goes into effect

Enacted after two decades of debate, the law “On Countering the Abuse of Inside Information and Market Manipulation in the Russian Federation” – commonly known as the Insider Trading Law – went into effect last week.  The Insider Trading Law, which was signed by President Medvedev in July 2010, specifically defines and prohibits all forms of insider trading and price manipulation in Russian financial corporations and markets.

The law defines key concepts such as insider information, market manipulation and financial insiders.  The latter are classified under five specific categories: market participants, corporate entities, individuals working under civil or labor contracts, public officials, and media and rating agency personnel. The law also defines what insider information is not - for instance, information that turns out to be public knowledge as a result of its exposure. More, the law:

• Provides new oversight powers for the Federal Financial Markets Services (FFMS) bureau;
• Prohibits the use of inside information when trading in financial instruments, services or goods;
• Establishes liability for both individuals and legal entities for violation of the law.

Uralsib Chief Strategist Chris Weafer has called the law’s implementation a “red letter day in Russia,” but has also cautioned that the effectiveness of the regulations established in the Insider Trading Law will rely on authorities’ willingness to enforce it.  But as Weafer notes, in a country that has never had such a law in place, the two-decade fight to pass it is “another step forward” for Russia.  The law was largely advocated by the FFMS and is concurrent with the government’s plans to develop Moscow as a global financial center and Russia’s financial modernization agenda more broadly.

What effects will the long-awaited Insider Trading Law have for Russia’s financial sector?