November 26, 2018 / 5:22 PM / 19 days ago

Russia broker BCS targets ‘broader church’ with synthetic prime plan

LONDON (Reuters) - Russia’s largest stockbroker BCS hopes to open the country’s financial markets to a “broader church” of foreign investors, from hedge funds to retail buyers, with a new trading product.

Trading Russian assets traditionally requires a rouble and Russian depository account, but BCS says its new “synthetic prime brokerage” will effectively allow trades in dollars.

“We will open up to a broader church of people who haven’t traded Russia before because it’s either too exotic or too difficult,” BCS’s head of prime brokerage Tim Bevan said.

The “synthetic” product, which is already offered by most top tier investment banks, refers to the way that trades are effectively done as swaps rather than straight transactions which would entail more requirements, he added.

Though it will offer no protection against any new U.S. sanctions that are expected in the coming weeks, volatility in Russian markets should encourage demand.

Hedge funds have been betting on how severe sanctions could be by taking ‘short’ or ‘long’ positions in Sberbank, traders say, while data shows there has been a big foreign sell off in OFZ government debt.

“We have got some classic hedge funds, investment banks are using us for access to the futures, we are talking to the spreadbetters and CFD guys and I think for the first time giving UK retail (funds) access to the Russian market,” Bevan said.

BCS is controlled by Oleg Mikhasenko who has taken market share from big state banks like Sberbank and VTB Group since U.S. sanctions were first introduced in 2014.

Bevan acknowledged the new set up could cannibalize its existing prime brokerage business that offers a bundle of services to hedge funds and other money managers.

But BCS hopes it will benefit by bringing in new players.

“U.S. institutions can’t trade Russian futures because the Russian market is not CFTC recognized. But if I do it as a swap that is fine ... and you don’t have to open a rouble bank account, so it just overcomes a lot of headaches,” he said

But when it comes to more sanctions against Russia, it is clear this will offer little protection. “Sanctions are sanctions, there is no way around that,” Bevan added.

Reporting by Marc Jones; Editing by Alexander Smith

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