Retail Margin Calls Seen Behind Russian Blue-Chip Flash Crash

Jake Rudnitsky

14 Dec 2021, 11:18 PM IST

(Bloomberg) -- A flash crash of some of Russia’s most valuable companies during early trading on the Moscow Exchange Tuesday was probably the result of margin calls on retail investors rather than the geopolitical fears that often drive the market.

Gazprom PJSC shares fell as much as 8.7%, Sberbank PJSC lost 7.5% and United Co. Rusal International PJSC was down 9.3% before 8 a.m. in Moscow before recovering during regular trading hours.

Margin calls on retail investors after the market closed down 3.8% on Monday were the likely culprit behind the unusual activity during the recently introduced morning session, according to several traders.

“Most likely margin calls prompted it,” Sova Capital’s Senior Trader Igor Sukhanov said from London. “Gazprom and Sberbank are the most-liked stocks in the Russian retail universe, massively leveraged, so it wasn’t a surprise given the market’s performance yesterday.”

On Edge

Russian markets have been on edge due to geopolitical risks amid U.S. concerns that a buildup of Russian troops on its western border could signal plans to invade Ukraine. The benchmark MOEX Russia Index is down 15% from its October peak of 4,287.52.

“There were very significant volumes in morning trading today, over 40 billion rubles, which is about a third of the average daily volume,” the Moscow Exchange press service said in a statement. “The Moscow Exchange provided for several levels of liquidity provision and protection.”

The press service of Bank of Russia, which regulates the exchange, did not respond to a request to comment on the volatility.

The Moscow Exchange boasts some of the longest hours in the world. Morning trading was introduced this year from 7 a.m. to 10 a.m. and it also features an evening session that stretches until nearly midnight.

The bourse’s Chief Executive Officer Yuriy Denisov said during a press conference Tuesday that the exchange was considering adding even more trading hours.

“Institutional investors are asleep, so the early hours are a play for retail investors,” Sukhanov said. “This case hurts them the most, which is not good for market development in general.”