The Central Bank is seeking market makers for the domestic treasury bond market because a rising share of foreign investors makes the assets more vulnerable to global risk aversion, a deputy minister said.
The financial regulator warned in July that it saw risks from foreign investors' growing role in the domestic treasury bond market and may "react" if their share rises above 40 percent.
Foreign participation in the market has risen rapidly since February, when Russia allowed the international settlement system Euroclear to settle the bonds, known as OFZs. Foreigners' share is now close to 30 percent.
While external surpluses and low debts have helped shield Russia from the intense market pressures generated by signals that the U.S. Federal Reserve could soon begin to run down its supply of cheap money, the yield on Russia's 10-year treasury bond, now 7.7 percent, is just below a one-year high.
"We are talking about the creation of the institution of market-makers who are required to quote the key bonds with narrow spreads … and maintain certain liquidity in the market,
Deputy Finance Minister Alexei Moiseyev said.
"It is important for trading volumes to remain in Russia and not flow to Euroclear and Clearstream."
Moiseyev said there could be about 20 players on the market who have a significant position in OFZs and operate with large volumes. A reduction in trading commissions could be an incentive for them to play the role.
"This will not prevent the outflow of nonresidents, but it will help stabilize the market in the event of their departure, because the liquidity and pricing will remain in Russia," Moiseyev said.
The Central Bank and the Finance Ministry plan to meet major dealers on the market to discuss their interest.
Boris Sheraisin, a trader at Sberbank CIB, said he had not been contacted to set up a meeting. The main question is what preferences the regulators might offer, he said.
"I don't think that just a cut in trade commission would be a significant incentive, as trading volumes are minimal," Sheraisin said.
"In general, I don't see that this instrument [market-makers] is necessary, as the volatility on the OFZ market is not different from other emerging markets."