«The implementation of long-awaited infrastructure reforms in 2012-2015 made trading on Moscow Exchange as sophisticated and convenient as on the world’s major exchanges»
Part 1. Moscow Exchange: Markets and Products
Chapter 1. Establishment of Moscow Exchange
Today Moscow Exchange Group (hereinafter also referred to as — Moscow Exchange, the Exchange ) is a high-tech universal exchange holding, which includes companies providing quality trading services (Moscow Exchange, MICEX Stock Exchange) and post-trading services (the National Settlement Depository, hereinafter — the NSD; the Bank National Clearing Centre (CJSC), hereinafter — the NCC Clearing Bank).
Moscow Exchange — is a unique vertically-integrated exchange holding providing financial market participants with a full list of trading, clearing, settlement, depository, and information services. The Group provides services in the following segments: the FX market; the bond markets (sovereign, corporate and regional bonds); the equity market; the money market; the derivatives market; and the commodities market. By providing listing and securities placement services, Moscow Exchange contributes to raising capital for the real economy.
With NSD and NCC Clearing Bank included in Moscow Exchange Group, the Group now ranks alongside the world’s leading exchange holdings which increases the sustainability, credibility and transparency of the domestic financial system.
Chapter 2. Moscow Exchange’s Markets
Moscow Exchange Group operates the following markets:
- Equity & Bond Market
- Derivatives Market
- FX Market
- Money Market
- Market of Standardised OTC Derivatives
- Commodities Market.
Participants on the securities market include Russian brokers, proprietary traders (dealers) and asset management companies, while the FX trading members of Moscow Exchange also include banks (and other credit institutions). Other investors may trade by placing orders via member firms.
1. Equity & Bond Market
Moscow Exchange Group's — Equity & Bond Market is the largest in Eastern and Central Europe and the CIS. It is a liquidity centre and a major platform for international investment in Russian securities. Moscow Exchange ranks among the top-ten exchanges in the world in terms of bond trading and among the top-twenty-five in terms of equity trading volumes.
The securities market offers trading with the central counterparty, partial prefunding and deferred settlement.
Moscow Exchange offers trading in both Russian and foreign instruments.
Russian financial instruments:
- Shares and depositary receipts
- Corporate and exchange bonds
- Sovereign bonds (OFZ)
- Regional (sub-federal and municipal) bonds
- Instruments of the mutual funds market (shares or investment units of mutual funds)
- Mortgage securities (mortgage-backed bonds, mortgage participation certificates).
Foreign financial instruments:
- Shares and depositary receipts (ADRs, GDRs, etc.)
- Bonds and Eurobonds
- Exchange-traded funds (ETF).
There are two types of trades on the Equity & Bond Market: electronic order book trades (the counterparties are unknown to each other) and off-book trades (the counterparties know each other).
The NCC Clearing Bank is the central counterparty to all electronic order book trades. Electronic order book trades in shares, units of mutual funds and depositary receipts are settled on a Т+2 basis, while corporate, sub-federal and municipal bonds are settled on a Т+0 basis. Trades in OFZs are settled on a Т+1 basis.
Exchange members are more than 500 organisations — professional securities market participants, whose clients include over 1 million investors — legal entities and individuals.
Shares of issuers from key Russian industry sectors are traded on the market:
- Oil and gas
- Metals and Mining
- Power Utilities
- Information technology
The share of foreign investors on the market has grown in recent years – from 28% in 2010 to 44% in 2015.
2. Derivatives Market
Moscow Exchange’s Derivatives Market is the only trading platform in Russia that provides an opportunity to trade futures and options on shares, bonds, indices, FX quotations, commodities and interest rates. Moreover, this is a key derivatives trading platform in Central and Eastern Europe and the CIS.
Moscow Exchange ranks among the top-five derivatives exchanges in the world in terms of trading volumes 1. The most heavily traded instruments on Moscow Exchange’s Derivatives Market are futures contracts on the RTS Index and the RUB/USD currency pair.
The Derivatives Market has significant potential to increase trading volumes as a result of the more active use of derivatives by both Russian and foreign investors for hedging risk. The share of foreign investors grew from 19% in 2010 to 40% in 2015.
3. FX Market
Moscow Exchange is one of the few exchange platforms in the world that offers FX trading. It offers the opportunity to trade in a multitude of currency pairs, including USD/RUB, EUR/RUB, EUR/USD, CNY/RUB, HKD/RUB, GBP/RUB, UAH/RUB, KZT/RUB, and BYR/RUB. Both spot and swap instruments are traded. Investors use swap instruments to manage liquidity. Therefore, swap trading volumes tend to grow when liquidity tightens.
Moscow Exchange accounts approximately for 50% of trading volumes on the domestic FX market. The start of the global financial and economic crisis led to a surge in trading volumes as the Exchange’s central counterparty system allows members to substantially mitigate risk.
Prior to 2012, only credit institutions were allowed to trade on the FX market. In 2013, non-credit organisations were admitted to FX trading on the Exchange. Since 2010, clients of trading members have also been granted DMA to the market. Currently due to development of DMA (Direct Market Access) and SMA (Sponsored Market Access) technologies access to the market is granted to market participants clients: banks which are not market participants, non-credit organizations, retail investors and foreign investors. Separating of trading and clearing participants statuses led to creation of new category – clearing members – what allows Russian and foreign financial companies to provide clearing services for market participants and clients.
4. Money Market
The Money Market offers repo transactions with shares and bonds, depositary receipts and Eurobonds, as well as deposit and credit operations with the Bank of Russia, deposit operations with Vnesheconombank, the Federal Treasury, Russia’s Pension Fund, etc.
On the repo market, members have access to direct repo with the Bank of Russia, interdealer repo, repo with collateral management system, and repo with the central counterparty (the NCC Clearing Bank). The Bank of Russia uses Moscow Exchange’s repo market to implement its monetary policy.
5. Standardised OTC Derivatives Market
In October 2013, Moscow Exchange launched the Standardised OTC Derivatives Market, with regulated interest swaps (1W-5Y), cross currency and interest rate swaps (1Y-5Y), currency swaps (1Y-5Y) and clearing via the central counterparty (the NCC Clearing Bank) offered to market participants.
The Standardised OTC Derivatives Market (better known as the OTC Derivatives Market) was established to put into practice the Declaration made by the G20 leaders following their summit in Pittsburgh in 2009. Among other resolutions, it was agreed that standardised OTC derivatives should be traded on exchanges. G20 countries, including Russia, reaffirmed their commitment to strengthen the role of central counterparties in subsequent years (according to data provided by Futures Industry Association).
6. Commodities Market
Since October 2013, Moscow Exchange has been trading precious metals – gold and silver. The market’s trading hours are 10:00 - 23:50 MSK. Trading takes place on the same platform as the FX Market.
Projects to organise and develop the Group’s exchange market for grain are being implemented via the National Mercantile Exchange, in which companies belonging to Moscow Exchange Group hold a 62% stake.
The National Mercantile Exchange takes part in preparing, organising and conducting trades involving government procurement and intervention in order to regulate the Russian market for agricultural produce, commodities and food. It is the authorised exchange of the Russian Ministry of Agriculture.
In December 2015 National Mercantile Exchange launched on-exchange trading in grain. NCC Clearing Bank acts as the central counterparty. National Logistic Company will act as logistics provider, alongside surveyor companies. Accredited elevators will provide grain storage solutions.
Chapter 3. Key Infrastructure Changes
1. Transition to T+2 settlement cycle
- On 2 September 2013, the Exchange’s equity market switched to the T+2 settlement cycle (implying absence of the full prefunding requirement and the settlement of trades two days after the trade date). This approach to trading is a standard practice worldwide.
- After the migration to Т+2 settlement, major global banks like Citigroup, Credit Suisse, Merrill Lynch, Morgan Stanley, UBS and Deutsche Bank opened DMA for their clients (international investors) to trading on Moscow Exchange Equity & Bond market.
- September 2013 saw the launch of a closing auction on the equity market.
- Transition to the Т+2 settlement cycle increased the share of local shares in the total trading volume of Russian securities.
2. Central Counterparty
- In 2013, the Bank of Russia awarded the status of the qualified central counterparty to the NCC. The NCC Clearing Bank provides central counterparty services on all markets of Moscow Exchange Group: the Equity & Bond, Money, Derivatives, FX, Commodities and Standardised OTC Derivatives Markets. After the central counterparty was established, the risk of default on trades was reduced fundamentally on Exchange’s markets (now it is the central counterparty − i.e. a well-capitalised bank − that bears the risk rather than individual trading members).
3. Central Securities Depository
- In November 2012, Russia’s Federal Financial Market Service (FFMS) awarded the status of central securities depository of the Russian Federation to the NSD. By April 2013, all the accounts of Russian registrars had been fully transferred to the NSD.
- The central securities depository (CSD) now protects the rights of Russian securities holders at a fundamentally new level.
- The establishment of the CSD in Russia made it possible for international settlement depositories Euroclear and Clearstream to start providing settlement services for OFZ in the first quarter 2013 trading, and in January 2014 this extended to corporate bond trading. Moreover, from 1 July 2014 Euroclear and Clearstream were admitted to the equity market and began to provide settlement services in the third quarter of 2014.
«15 July 2015 marked sixth anniversary of the Innovation and Investment Market. During that period its total capitalisation increased more than tenfold to RUB 214,2 billion»
Chapter 4. Innovation and Investment Market of Moscow Exchange
1. General Information
Moscow Exchange established the Innovation and Investment Market (iIM), the exchange sector for high-tech companies, in 15 July 2009 together with RUSNANO.
The main goal of the iIM is to promote investment in primarily small- and medium-sized enterprises of the innovation sector of the Russian economy.
The iIM’s strategic objectives are defined by its Coordination Council comprising representatives from relevant ministries, departments, development institutions, the legislative branch and professional associations. The Chairman of the iIM Coordination Council is RUSNANO Executive Board Chairman Anatoly Chubais.
iIM Goals and Objectives
- Establish a transparent mechanism for encouraging investment in the high-tech sector of the Russian economy.
- Create an investment chain ranging from funding innovative companies at an early stage of development to preparing them for an IPO.
- Develop the concept of a public-private partnership.
Within the iIM there are three segments for companies which differ in development and capitalisation, as well as for different investor groups.
The segment called iIM-Prime is intended for issuers that meet heightened requirements as to a market capitalisation (at least RUB 6 bln); IFRS financial statements (to be approved by the largest audit firms); at least two independent directors; a free float of more than 10% and the investment memorandum produced in a prescribed form. Issuers of bonds must have a good credit rating and total nominal value of issued bonds totalling RUB 1 bln or more.
The iIM Sector is a segment for small and medium-sized innovative companies.
The IPO board is a platform where innovative private companies can raise capital on stages from early growth to pre-IPO.
The system of listing agents was established in order to improve the level and quality of transparency in iIM Sector companies. Listing agents should prepare companies for entry to the Exchange and control the disclosure of issuer information within one year of the company’s entry to the iIM Sector (for issuers whose capitalisation is below RUB10 billion). Listing agents should have a good business reputation and possess a proven track record raising finance on equity capital markets.
The main functions of listing agents:
- Prepare the documentation the issuer is required to submit to the Exchange (in accordance with the listing Rules of MICEX Stock Exchange)
- Prepare and sign the issuer’s investment memorandum
- Prepare an appraisal justifying the issuer’s share capitalisation
- Ensure the company has adequate information disclosure and verify its accuracy during the placement and maintenance of the securities on the iIM Sector
iIM offers innovative companies the opportunity to:
- Obtain the market value of assets
- Attract investors
- Improve transparency and increase company value
- Obtain tradable equities — currency for М&A transactions and pledges
- Lower debt funding rates.
2. Support for iIM Issuers
Areas of Issuer Support and Requirements for iIM Sector Issuers
iIM supports issuers in the following key areas:
- Provide a marketing programme to promote the securities of innovative companies and provide support in preparation for going public on the Exchange
- PR-support for IPOs and Investor Relations tools
- Set of measures to support secondary market liquidity
- Provide information and analytical support (include company news and financial performances in regular iIM Sector reviews; add comments by analysts and post reports and presentations on the iIM section of Moscow Exchange website).
Requirements to iIM-Prime Issuers
|Issue-Grade Securities of Russian Issuers||DRs on Shares||Securities of Foreign Issuers|
|Securities have been/are being admitted to the Level 1 or Level 2 List||+||+||+||+||+**|
|Market Capitalisation of the Company: at least RUB 6 billion.||+||-||-||+**||+**|
|It is obligatory to meet one of the following criteria:
|The issuer and/or its bond issue has been assigned a credit rating by a rating agency***.||
Federal Law N 209-FZ dated 24 July 2007
Regulations N 646-PP of the Moscow Government dated 13 November 2012-
|Audited IFRS financiaDepartment of Science, Industrial Policy and Entrepreneurship of Moscowl statements are produced and disclosed||+||-||-||+||-|
|The issue volume is at least RUB 5 billion.||-||+||+||-||-|
|The issuer has an investment memorandum.||+*||+||+||-||+*|
* Criteria are not applied to shares with market cap above RUB 10 bln
** Calculated in RUB at the Bank of Russia’s exchange rate as at the admission date
*** At least A-(rus)/ B+ from Fitch Ratings CIS Ltd, ruA/ B+ from S&P International Services, Inc., A2.ru/B1 from Moody's Investors Service and A+ from Expert RA
Requirements to iIM Sector Issuers
|ies of Russian Issuers||DRs on Shares||Securities of Foreign Issuers|
|Market Capitalisation of the Company: at least RUB150 million.||+||-||-||+**||+**|
|The issuer and/or its bond issue has been assigned a credit rating by a rating agency***.||-||+||+||-||-|
|Audit ed IFRS financial statements are produced and disclosed||+||-||-||+||-|
|The share issue must be at least RUB1 billion (except for issuers whose shares are already included on the iIM Sector).||-||+||+||-||-|
|The issuer should conclude a contract with the Listing Agent for at least 1 year after the Bank of Russia includes the shares on the iIM Sector.||+*||-||-||+*||-|
|The issuer has an investment memorandum||+*||+||+||-||+*|
|The issuer should have a report from the Listing Agent that proves its market capitalisation.||+*||-||-||+*||-|
* Criteria are not applied to shares with market cap above RUB 10 bln
** Calculated in RUB at the Bank of Russia’s exchange rate as at the admission date
*** At least B3 (Moody’s), B– (Fitch, S&P), А (AK&M RA, Expert RA), А– (NRA), or BB– (RusRating).
3. Government support
Tax Incentives for Investors
According to Federal Law No. 396-FZ dated 29 December 2015 “On amendments to Part Two of the Tax Code of the Russian Federation”, the following types of income are not subject to personal and corporate income taxes: capital gains obtained by individuals and legal entities from the sale or other disposal of Russian high-tech (innovative) companies’ shares and bonds, and venture fund shares provided that such securities were in uninterrupted ownership or any other kinds of possession by a taxpayer for more than one year. This tax exemption is valid until 31 December 2022 (under the Tax Code).
The benefit thus covers securities of Russian companies admitted to trading on the MOEX iIM Sector whose market capitalisation is below RUB 10 bln.
|Individuals and legal entities investing in securities (shares, bonds of and closed-end venture mutual funds) of innovative companies qualified for the iIM Sector|
|Personal and corporate capital gains from the sale of securities traded in the iIM Sector is non-taxable|
Pre-IPO Financing of iIM Issuers
Pre-IPO Fund established by RVC and Da Vinci Capital
- In April 2015, Da Vinci Capital Group and RVC established a fund for investment in Russian high-tech companies with a view moving towards an IPO on the Moscow Exchange iIM Sector.
- The fund total value is RUB 5 bln. The investment period is 3.5 years.
- The average deal is expected to be worth RUB 300 mln.
Grants for preparing to listing
Grants are for small innovative businesses preparing to go public. Funding is awarded on a competitive basis as part of the programme called “Commercialisation”.
Where to apply
Loans against shares for iIM issuers
- Extended by Moscow Seed Fund.
- Loans for a special purpose are provided to iIM issuers against shares from the market. The rate is the Bank of Russia key rate multiplied by 1-1.5. The maximum amount is RUB 30 million.