Special Extra: Now, Preemption

It’s truly amazing how Russia retains its ability to surprise one with unanticipated new levels of barbarism. Even we, cynical as we are on Russia, are not immune.

This morning at 10:30 am Moscow time the Russian government shut down the Russian stock market preemptively for two hours, though the MICEX index was down just 1% in early trading (the RTS hadn’t even opened yet and couldn’t even say when it would be allowed to do so; short-selling had been banned before the MICEX even opened).  In a shocking display, it was the second time in as a many weeks that this barbaric tactic had been invoked, and this time the circumstances on the ground weren’t close to justifying it.  The Kremlin simply panicked with the index flirting with the critical 1,000 point psychological barrier (it had just slipped below 1,010 when the order came to shut down).   It did not trust its own stock market, and it could not preserve its poker face. If the Russian government itself feels that way, how is a mere investor (well, riverboat gambler) supposed to react?

True, Gazprom shares were in freefall, having dropped nearly 8% in less than two hours on the prior day’s news that oil prices had plunged nearly 10%, the biggest one-day drop in nearly two decades, and state-owned Sberbank was down a like amount. True, the whole market was down over 7% the day before, and hadn’t yet had the chance to fully absorb the news of the collapse of bailout efforts aimed at saving U.S. financial companies in trouble with cash flow.

But you can’t shut down a whole market just to save the share prices in a tiny handful of state-controlled companies or out of blind panic about what may happen if you don’t.  If you do that, you are transmitting the message that you don’t really have a stock market, but rather just an appendage of the government itself (and indeed, the government had already announced an intention to flood the market with a pile of new cash, indicating that the government itself is one of the major players in the market, burning through Russia’s savings at a rapid rate to preserve appearances, with no public debate such as the U.S. is having right now).  Pravda had an article headlined “USA spreads financial chaos around the world,” but nobody else was closing their stock markets. Only Russia.

Russia, however, doesn’t seem to care.  Like a bull in a china shop, it is plunging forward to obliterate the last vestiges of a market economy, just as desperate as the Soviets ever were to avoid revealing its fundamental weakness.  Does Russia really think these Potemkin tactics of shutting the market and then buying the shares itself will fool anyone? Does it actually believe it can keep this up indefinitely, even as oil prices are plummeting and its resources dry up and blow away?

As of 3 pm Moscow time, finally having been allowed to do a bit of actual trading, the RTS was down just 1.5%.  But now, nobody in the world has any idea whether that is a real number or not.  For all the Kremlin knew, the RTS would have weathered the American storm impressively.  The U.S. market would go on to retake over 400 points of its loss the prior day, and many international markets were stable. But it never got the chance to try, and now the total charade that is the Russian stock market is laid utterly bare.

Perhaps Pravda might actually like to try a little something called journalism, and ask whether its rabid contempt for the U.S. isn’t actually damaging to Russian interests — as is that of the Kremlin. Perhaps instead of trying to attack and destroy the U.S. and the world’s largest economy, Russia ought to be trying to see what it can do to help.

That kind of thinking, though, appears to be too nuanced for the Russians to manage.


Well, now we have officially seen everything. The Kremlin is simply making up new rules as it goes along, rules which essentially amount to a Stalin-like pronoucement that the markets are not allowed to lose too much money. The RTS exchange reports:

The Federal Financial Markets Service issued an instruction in compliance with which starting from September 30th, 2008, 12:30 pm, Moscow time, and until further notice from the FFMS, the Russian stock exchanges shall suspend trading in shares, bonds and (or) investment units for at least one hour if the opening value of the appropriate technical index goes up or down by more than 10% as compared to its closing value of the previous trading day, as well as if the current value of the corresponding technical index changes both ways by more than 5% as compared to its opening value of the current trading day. Starting from 10:00am Moscow time September 30, 2008 Federal Financial Markets Service suspends operations of submitting orders for sale for securities on the markets of trading organizers, if the client, on whose behalf the corresponding operation is to be performed, has not enough securities subject to the trade in the required volume and (or) there have not been any transactions concluded for the benefit of this client to purchase these securities in the required volume (except for the first part of a Repo), providing execution at the moment of settlement at the end of the main trading session on the day when the obligations under the submitted order are supposed to be fulfilled.

Gosh. Wonder what the market won’t be allowed to do tomorrow.

4 responses to “Special Extra: Now, Preemption

  1. For those who speak Russian, there is a nice video today on Vedomosti based on an interview with Vladimir Milov: http://www.vedomosti.ru/video/89_189.

    Here, he sums up the argument that he has been making for years: GAZPROM (and by extension all the other state-owned companies) have not been investing in production and the managers don’t care about the long-term. They are only worried about enriching themselves as quickly as possible and could care less about the consequences of the actions: “After us, the deluge.”

    Vedomosti also reports that it will now be official policy for the Russian markets to shut down for at least one hour if the market falls too far: http://www.vedomosti.ru/newsline/index.shtml?2008/09/30/661150. Makes you wonder what the real purpose is of this policy. They say they want to avoid “panic” but makes me wonder whether it is to ensure that they have enough time for the right players to get money from the state to spent to prop up the market.

    LA RUSSOPHOBE RESPONDS: Bolshoe spasibo!

  2. Russia no longer has a stock market. It is a vacuum cleaner that sucks foreign and Russian investment down a black hole that suddenly reappears on the French Riviera.

  3. Kolchak well said :)


    You might want to translate this new article by Ilarionov:


    LA RUSSOPHOBE RESPONDS: Maybe you could give us a link to a source other than KC? We wouldn’t like to rely on them alone for the text contents.

  4. Well as much as I hate to say it, KC has been accurate on a number of post concerning Russian affairs. It’s unfortunate that one must filter out the scathing propaganda to get anywhere though.

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