Page 57 - IFR Opportunities in Russian capital markets

CHAPTER03
ifrintelligence reports/Opportunities in: Russian Capital Markets
Analysts were surprised by the first day's results, which showed the volume of OTC deals on the RTS was nearly US$1bn, compared to US$1.7bn on the formal exchange that day, which shows that a much more robust and vibrant market exists in Russia's second and third-tier stocks than was previously known.
Trading volumes
In January 2007, MICEX reported that total volume of trading in all markets of the MICEX Group in 2006 was to RUB52trn (US$1.9trn), twice as much as the RUB26.5trn (US$932.2bn) of share transactions in 2005.
At the same time the average daily volume on MICEX was RUB210bn (US$7.8bn), up from a few million dollars in the mid-1990s. Trading in stocks accounted for 39.2% of the total volumes in 2006 (up from just under a quarter in 2005), or RUB14.9trn (US$550bn), while the average daily volumes for trading in just shares was up to RUB82.5bn (US$3.1bn), just under four times more than in 2005.
Some of this growth was simply due to the fact that a lot of companies listed their shares: since the beginning of 2006, the number of securities traded on MICEX grew by 44%, while the number of issuers whose securities are admitted to exchange-based trading grew by 40%. Details of the expansion of trading on MICEX are given in Table 3.12.
The volumes are now big enough to make MICEX one of the 20 biggest exchanges in the world. Stephen Jennings, CEO of the Renaissance Capital Group, said in January that Russia is the best developing market in the world. He believes that despite current problems Moscow will eventually become Europe's second largest financial centre.
London is the financial capital of Europe, Jennings said. But Moscow will surge ahead of Frankfurt, Paris and Milan in all segments of the financial market. "We cannot now imagine the scale of change," he said, "as the process will last not five or even 10 years, but 15–20 years."
Table 3.12: Growth in trading of the individual segments on MICEX, 2006 (%)
Corporate securities market 320 Foreign exchange unit 150 Government securities market 160 Derivatives market 480
Source: MICEX
There are still many problems with the equity capital market infrastructure, but MICEX President, Alexander Potemkin, listed among the major achievements of 2006 the following:
0 The launch of trading in Gazprom shares on MICEX following the removal of the ring-fence in January 2006, Rosneft's IPO in July which is traded on MICEX, the start of trading in mortgage securities;
0 The development of collective investments, the doubling of the number of individual investors working on MICEX;
0 Raising the liquidity of the exchange-based currency market by improving the parameters of traded instruments and optimising the tariff policy;
0 Organising the service of the Bank of Russia's lending operations (collateral crediting) and the launch of a new segment of the government securities market: government savings bonds;
0 The launch of interest-bearing futures on the exchange-based derivatives market;
0 The beginning of the work of The National Clearing Center within the MICEX Group, which
organises settlements and clearing for transactions in the MICEX orderly markets.
(For more on new products being offered by the exchanges see Chapter 12.)
The OTC market
Analysts were given an insight into the nature of Russia's stock market when the RTS started to publish OTC trading statistics in March 2007.
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