Traders prepare to abandon the Moscow ruble rate

(Bloomberg) — Currency traders are preparing to abandon Russia’s local exchange rate for the ruble in some transactions, a sign of the growing divide between the country’s domestic and international forex markets since the outbreak of the war in Ukraine.

The Emerging Markets Trade Association (EMTA) recommends that, beginning June 6, traders use WM/Refinitiv pricing data as the primary settlement rate option for some contracts. derivatives, according to an April 20 statement. That could come as a relief to traders who had questioned the reliability of the ruble’s exchange rate since Russia came under extensive sanctions and capital controls after the invasion.

The planned change will update, unless otherwise agreed, the EMTA template conditions, which act as the recommended basis for non-ruble currency forwards, currency options and cross currency transactions. The template will continue to offer an alternative reference price linked to the exchange rate of the Moscow Stock Exchange.

The planned change, unless otherwise agreed, will update the EMTA template terms, which act as a recommended basis for non-deliverable currency forward ruble contracts, currency options and cross currency transactions. The template will continue to offer an alternative reference price linked to the Moscow Stock Exchange rate.

Before Russia’s invasion of Ukraine, traders had little qualms about using the domestic exchange rate, given the close relationship between it and those used in foreign banking centers such as London. But in the months since the war broke out, some have said the local exchange rate is being inflated by capital controls, and the currency has rebounded sharply from heavy losses in the first weeks of the conflict.

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The possibility of diverging domestic and foreign rates was demonstrated after the Russian invasion, when Moscow’s rate differed markedly from those quoted abroad as the currency sank. Although they have since grown closer, one gap remains: The ruble traded at 69.4 per dollar on the local stock exchange and 67.9 per dollar abroad on May 6, according to Refinitiv data.

Non-deliverable contracts are those that are not settled in the local currency, which is often not convertible, but in currencies such as the dollar. Payment is the difference between the agreed term rate and the reference rate on the due date.

“This market practice is only a recommendation, intended to promote and improve market efficiency, and is not binding,” the EMTA wrote in the April 20 statement. EMTA declined to comment further.

Although the EMTA Recommended Market Practices are non-binding, its members include major international banks such as Barclays Plc, Citigroup Inc. and Goldman Sachs Group Inc. As such, they easily become the market norm.

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Traders Prepare to Ditch Moscow Ruble Rate as Market Split Grows

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