Trading : Russia & CEE


Roger Aitken surveys the markets of Eastern Europe and questions whether Russia has what it takes to be a leading financial light?

During Soviet times, the slogan ‘Catch up and overtake America!’ was widely used in both short- and long-term planning. Today the government is hoping to follow the same path and turn Moscow to rival London, New York and Tokyo. Sceptics are not sure, pointing out that it took these cities tens or hundreds of years while World Bank economist Lucio Vinhas de Souza has even suggested that the capital city could only aspire to becoming a regional financial hub.


Emmanuel Carjat, Managing Director, TMX Atrium in London, a low latency venue-neutral infrastructure provider that has been active in the Russian market for several years, commenting says, “When one talks about Russia the key thing to bear in mind is that this was a Communist country thirty years ago. And, whilst they have moved swiftly forward over the past decade it will be difficult for them to get on a par with New York or London as a financial centre.”

He adds: “But for sure Russia has a strong desire to become a global player. So, whilst they might not actually get on a level par, Moscow will become a global player.”

Carjat says that there are challenges for foreigners gaining easy access to this market. For example, M1, Moscow Exchange’s (MOEX) data and co-location centre where TMX Atrium has equipment, places restrictions on where foreign nationals can go within its facility during trading hours, whilst it is off limits at night.

He notes that the Russian market is becoming more mainstream with large global players becoming more interested. Two years ago it saw the more agile prop shop-type of players blazing a trail.

Market reforms

This February the MOEX, created by the merger of the MICEX and dollar-denominated RTS exchange in 2011, successfully sold Rubles 15bn (c.$500m) of shares – valuing the entity at some $4.2bn. It was the biggest initial public offering (IPO) in Russia since the 2008 financial crisis. Dmitry Pankin, head of the Federal Service for Financial Markets, asserted after the IPO that: “There will be real competition with London, Frankfurt and New York.”

Moscow though has a job to convince more Russian companies to float shares at home given that between 2010 and 2012 only about 20% of listings by domestic companies took place within the country. Most look to dual list in London and Moscow. State-owned lender Sberbank followed this format last year to raise $5.2bn.

As of August 2013 the London Stock Exchange Group’s (LSEG) International Order Book (IOB) comprised 206 issuers, with 36 companies having Russia as their country of incorporation. The IOB traded just over $12bn in that month, with Russian stocks in ADR form accounting for a whopping 90% of the total and Gazprom alone representing almost one fifth (18.5%).

Some foreign investors still need convincing that market reforms are taking hold. On this score T+2 settlement has been introduced replacing T0, while Euroclear Bank was granted access to Russia’s National Settlement Depository last October, allowing the ICSD to offer post-trade settlement services in Russia. In addition, a super regulator was created this September under the Central Bank.


Tim Bevan, head of sales at BCS Financial Group (BCS FG), a leading investment and brokerage house in Russia providing services to institutional and retail clients, says, “Clearly T0 was a significant barrier since having the stock at exchange [in Moscow] or money in place pre-trade meant it was difficult for non-domestic investors to have that infrastructure in place.”

Russia vs CEE: Different dynamics


Philippe Carré, global Head of Connectivity (Capital Markets) at SunGard, notes a number of key questions for Russia in terms of its ambition as a future regional financial centre.

They include whether Moscow can attract international trading volumes back from London and other financial centres onto its own trading platform, akin to a “sort of DTB versus LIFFE defining moment for equities”, attracting regional listings from the Middle East, China and ‘Stan’ countries (e.g. Kazakhstan, Uzbekistan etc.). Also, he asks whether Russian companies can afford to remain undervalued due to a risk premium for investors.

He says: “The markets in central and eastern Europe are not all at the same point on the development curve. Russia is by far the largest market out there and going through some huge market structure changes. Meanwhile, many of the other markets in the region are much smaller, although they will eventually undergo similar kinds of changes.”

SunGard, which provides connectivity and access through its network to around 150 trading venues worldwide, has been engaged in some serious work over the past year or so in central and Eastern Europe.

Russia is in a bucket of its own and very much a “multi-asset play” offering trading in equities, derivatives, fixed income and FX. He adds: “In a second bucket one has the Warsaw Stock Exchange (‘WSE’), the Central Eastern European Stock Exchange Group (CEESEG) plus Borsa Istanbul The third bucket runs literally from the Macedonia Stock Exchange and Georgia, which are very small exchange entities…all the way to Romania.”

Indeed, the trading volumes speak for themselves. MOEX, for example, recorded a daily average of Ruble 0.85tn (€0.02tn/$0.027tn) in securities, RDRs and mutual fund units trading. By contrast Budapest Stock Exchange saw average daily equities trading volume through 2013 of c.€30m.

Carré says: “Moscow is not competing against CEESEG or against Warsaw. Russia is already a major market on its own and they definitely do not view it as a competition. What the Russians are very keen on is making Moscow an international financial centre and they do not want to be somebody else’s backyard. They view themselves as a fully fledged financial centre due to the strength of the market, the size of their economy and the market dynamics.”

CEESEG, which comprises the exchanges of Vienna, Prague, Budapest and Ljubljana, is largely an “equities story” with some derivatives trading. WSE, which Carré describes as something of a “Poster Child” for central eastern European exchanges and has seen stellar growth over recent years, is also looking to beef up its derivatives offering under CEO Adam Maciejewski.

By contrast CEESEG has fared less well in recent years and particularly as regards to IPO activity. However, TMX Atrium’s Carjat believes there will “still be a place” for CEESEG in gaining listings from companies based within the region. A few bright lights exist for CEESEG including Budapest Stock Exchange’s upcoming migration to a Xetra (Deutsche Börse) trading platform this December – the last among the CEESEG’s four members to unify on a single platform.

Late this September, Warsaw said it could merge with CEESEG within months. The jury is out on whether this combination would enhance shareholder value. Should this deal fail WSE’s CEO says the exchange will focus on organic growth and co-operation with other business partners like new MTF Aquis, in which WSE has acquired a stake.

SunGard’s Carré contends that if Russia is serious about attracting international investors it may well have to “get close to accepting that internal and political interference may have to stop or be seriously reduced.”

However, the immediate tug of war will be between listings of Russian companies on London and Moscow, and particularly now that President Putin has stressed that forthcoming Russian state sell-offs should be undertaken on domestic exchanges rather abroad.

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