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15 Dec, 2008 03:43

Insider trading to become criminal offence

The Russian government is cracking down on insider trading, in a bid to bring order to the financial markets, but bringing in a new law is only half the solution.

Outlawing insider trading has been a crusade for Oleg Vyugin. He spent 3 years fighting for reform of the law, as Russia's top financial regulator.

Now he says a new law backed by Prime Minister Vladimir Putin could help win back foreign investors after volatile Russian markets plunged this year.  Putin has called for insider trading to be made a criminal offence. Vyugin, now chairman of MDM Bank, blames most insider trading on bureacrats – who tip off brokers just before announcing news to the markets. And its bureaucrats who've been blocking the law.

“It was a huge resistance on the level of the ministries. This law is not just about the private sector. This is about the public sector also, and bureaucrats could also be involved in this insider trading, and using inside information will also be subject to serious penalties.”

In the USA, the authorities have brought 670 cases of insider trading and price manipulation in the last year, If Russia had a similar incidence of insider trading in its much smaller stock markets, that would suggest around 17 cases a year.  In Russia the draft law will bring discipline, and deter wrongdoing, says Sergey Voitishkin of Baker and Mckenzie.

“I think criminal sanctions will be the ultimate sword of Damocles which will stop people from – or make them think very carefully – before they make a gain in violation of the new provisions.”

But experts say the real test will be how well the law is implemented by Russian courts.And that's a battle that could take several years, with judges needing special training to handle cases of insider trading.