Investors were divided into non-qualified and qualified back in 2007. This was done to protect individuals who are new to the stock market from unjustifiably risky investments and the associated losses.
Non-qualified investors are by default all investors who enter the stock market. They have access only to the simplest and least risky securities traded on Russian exchanges. To work with more complex instruments, the income and risks of which are harder to assess, a non-qualified investor must pass special testing.
Investing in assets for which profit is almost impossible to predict, and where the likelihood of losses is particularly high, is allowed only for qualified investors.
According to the law, qualified investors include organizations that operate professionally in the stock market—such as banks, insurance companies, brokers, trust managers, non-state pension funds, and management companies of mutual investment funds (MIFs), as well as certain state corporations (VEB, ASV, Rusnano) and the Central Bank of Russia. An individual can also obtain the status of a qualified investor if they have a financial education, certain work experience in the stock market, or significant personal wealth.
What Instruments Can Non-qualified Investors Freely Work With?
By law, all investors have the right to purchase the following on Russian exchanges and financial marketplaces:
- Government bonds of Russia (federal loan bonds—OFZ), excluding bonds with variable income;
- Corporate bonds with high credit ratings;
- Shares of Russian and foreign companies from the quotation lists;
- Shares of foreign companies included in the calculation of well-known stock market indices from the list of the Central Bank of Russia;
- Shares of exchange-traded, open-end, and interval MIFs.
However, due to sanctions, this list has been restricted. Starting January 1, 2023, due to the risk of blocking foreign assets in the accounts of Russians, non-qualified investors are no longer sold securities issued by issuers from unfriendly countries. Securities from friendly countries, as well as those from domestic companies and the Ministry of Finance issued abroad, are still available to non-qualified investors.
If a non-qualified investor wants to purchase more complex instruments not available to everyone by law, they must undergo testing. However, assets exclusively intended for qualified investors will still remain inaccessible to them. If they pass the tests successfully, the list of allowed instruments will significantly expand, including:
- Shares not included in quotation lists;
- Foreign shares not included in the approved index list;
- Bonds from Russian and foreign issuers without credit ratings or with ratings below the level set by the Central Bank of Russia;
- Bonds with structured income;
- Shares of closed mutual investment funds not intended for qualified investors;
- ETFs whose returns are linked to indices from the approved list;
- Exchange-traded derivative financial instruments (DFIs);
- Repo agreements;
- Unsecured transactions (using broker funds).
However, during the sanctions period, even after passing the tests, temporary restrictions on the purchase of foreign securities will still apply.
Each instrument has a separate verification process, and you can only take the test for the types of assets you plan to work with. Brokers and management companies of MIFs use standard questions, which you can find here.
Since October 2021, non-qualified investors have been allowed to conduct trades in the forex market after testing. You can find questions on forex here.
Starting April 2024, marketplaces will also conduct testing for complex and risky securities they trade. However, each online platform creates its own set of questions for its clients.
You only need to pass the test for the instrument of interest once with one broker, forex dealer, management company, or marketplace to gain permanent access. However, if you decide to switch intermediaries, you will have to retake the test.
Starting October 2024, insurance companies, their agents, and financial marketplaces will be required to test non-qualified investors when issuing life investment insurance (LII) policies.
Testing is not required in only two cases:
- When you immediately pay for a policy of at least 1.4 million rubles—it’s assumed that you are capable of assessing the risks of losing money at such expenses.
- Verification is also not needed if the contract stipulates that in the event of early termination, you will receive at least 95% of your contributions.