Moscow Exchange: Shaping Russia’s Financial Markets


Ruben Aganbegyan of the newly formed MICEX-RTS (Moscow Exchange) discusses the challenges and benefits presented by the recent merger both locally and globally.
The Impact of the Exchange Merger on Trading in Russia
The merger lays the foundation for tomorrow’s success today. It is a landmark transaction for the Russian market. The primary challenge faced by the united exchange is withstanding foreign competition. Therefore the most important benefit of the merger will be the market’s increased competitiveness and stronger position in the international arena. Both RTS and MICEX bring enough to the table to complement one another. MICEX came with a strong position in cash equities, fixed income and FX trading. RTS came with derivatives and clearing. This has created a very strong basis for growth and increased investment into new products and technologies. In general, the united platform will provide better infrastructure for Russian capital markets. Moscow Exchange plans to have a strong voice in shaping Russia’s financial markets and will become a regional financial hub with the potential to create a CIS exchange platform network.
The Financial Impact of the Merger
We understand that the market expects us to reduce costs and create a comfortable environment for business. Our fee policy is determined by the Supervisory Board, which makes decisions based on the recommendations of the Customers’ Committee. Fee changes are subject to the approval of this committee in a vote of at least 75% of its members. If the Customers’ Committee has objections, the resolution in question will be reconsidered in order to find common ground. The Supervisory Board can lift the veto imposed by the Customers’ Committee, but only in order to resolve a dividend situation.
Algorithmic Trading
Algorithmic trading already accounts for a large percentage of trading on MICEX-RTS. There is a global trend toward an increased share of algorithmic trading at all exchanges. This makes it necessary for banks and brokerages to expand their infrastructures in order to process the rising volumes of trades and orders. The exchange also needs to develop both technologies and regulations concerning algorithmic and high frequency trading (HFT).
We have extensive plans for improving the trading environment for HFT and algo traders. MICEX-RTS will modernize its technology infrastructure and provide a seamless transition and uniform access to its participants. The exchange already provides access via the internationally recognized FIX Protocol and allows qualifying clients to host their HFT platforms at co-location facilities. The technology migration and upgrade plans will take place during the next year.
Currently the priorities for technological development are reducing data distribution intervals, expanding core services capacity and stabilizing FIX solutions.

HFT and algorithmic trading do pose certain threats, including equipment failure, a flash crash or technical glitches that the trading system and market must be ready for. This issue requires the joint cooperation of brokers, system providers and the exchange. MICEX-RTS is actively involved in developing its IT platform and intends to invest in developing the technology so as to be ready to process an increasing number of orders. International investors are more and more willing to engage in direct trading and even though the Russian market is at a very early stage of that process, the growth potential is huge.
The Impact of the Merger on Clearing Systems
One of the main priorities of the merger was to improve the market through sharing resources and working together to build a fully-fledged trading and clearing infrastructure for all products with a single entry point for market participants. MICEX-RTS is working towards the creation of a single clearing center, which will operate in accordance with global standards and will meet the requirements of both local and international clients.
Over almost two decades, the lack of T+ and a central depository kept most foreign investors away from the Russian market. By the end of 2012, two extremely important things will happen: National Settlement Depository (NSD) will become the central depository and T+ settlement along with delivery versus payment (DVP) will be developed. The central depository law adopted at the end of 2011 completely changes Russia’s business practice concerning the safekeeping of securities. The law has set the basis for a central depository, an organization exclusively performing the functions of depository and nominal holder of securities traded on the stock market. The outstanding legislative work is expected to be completed by the end of 2012. At that point, the Russian cash equities market will be fully compliant with the 17f-7 SEC rule. In addition, the T+/DVP is expected to go live around the third quarter of 2012. The launch of this facility will bring the Russian market up to date with the most common international practices for settlement.
The Next Project for MICEX-RTS
One of the priority projects MICEX-RTS is about to launch is the company’s IPO. The shareholders of the Moscow Exchange tasked us to prepare the company for IPO by the end of 2012; however, the placement itself will take place a bit later. Much depends on the market situation and MICEX-RTS’s strategy will focus on becoming one of the leading global exchanges, which will help establish Moscow’s position as a regional financial center.