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36 I Cover story bne October 2021
investors, but after that trades can be settled on the US changes if needed.
“People can trade when they want to,” SPB Exchange’s founder and CEO Roman Goryunov told bne IntelliNews in an exclusive interview in July. “The time difference means that the US markets only open in the late afternoon in Russia, and people don't want to trade only at the end of the day.” SPB Exchange’s tech backbone processed 1.5mn transactions a day with a daily average turnover of over $1.6bn in 1H21, and has the capacity to support a volume increase.
Origins
The building of the SPB Exchange platform has been a long time
in the making. Founded in 1997,
SPB Exchange first focused on the derivatives market, but subsequently sold that business and shifted its focus to organising trading in international securities. By 2014, it became possible to purchase 55 shares of the S&P 500 on the exchange and since then, the number constantly increased to the 1,800-plus stocks available today.
“SPB Exchange system makes buying stocks listed in the US for a Russian national simple. The whole process of registering an account on a brokerage side can be done with a phone and takes only a few minutes, as it is
based on the government’s system for identifying individuals,” says Goryunov. “The difficulties a Russian passport holder needs to go through to register
a brokerage account based in the US, even a retail account [are] Byzantine,
to the point it is almost impossible,” adding the exchange now sees more than 25,000 accounts being opened daily. “It’s snowballing,” explains Goryunov simply.
And the growth potential is huge. At the moment, about 7.6% of Russia’s adult population has a brokerage account, but only 1.6% actively use this account – far less than in other countries like the US, China and most EU countries. Bank deposits still account for about half of all savings, and investment into Russian stocks has grown to 31% in recent years, with another 7% invested into
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government bonds and 3% into mutual funds (known as PIFs in Russian). But investment into foreign stocks is the fastest growing segment and already accounts for more than 13% of the average retail portfolio, says Goryunov.
The financial literacy of the Russian retail investors has grown fast. The CBR has long complained about the low level of the average Russians’ financial literacy that never really got past “bank deposit” as a wealth store. Goryunov says that things like social media have created a global trend that is driving individuals to actively play markets.
“It’s like the Robinhood phenomena. Direct retail investment is exploding around the world as people gain the tools to do it,” says Goryunov. “They invest into simple strategies linked to life around them. And the lockdown
into “business as usual” equities,” says Goryunov, exactly the same rotation that professional investors made – the biggest in history.
If anything, the oil shock and associated devaluation only heightened the demand for foreign stocks that
provide some protection from the volatility of the oil-price dependent ruble. 2020 will almost certainly go down in the annuals as the watershed year for retail investment.
The deep end of the liquidity pool
One of the big appeals of SPB Exchange is that Russian investors can buy and sell US listed blue chips when the US market is closed. Goryunov emphasises repeatedly that the goal of the exchange has been to create a large liquid pool to sustain trading so that if an investor wants to fix profits or add to position there is always
“SPB Exchange system makes buying stocks listed in the US for a Russian national simple.
The whole process of registering an account on a brokerage side can be done with a phone and takes only a few minutes”
catalysed that. They buy Apple as they use the phone, Zoom because that’s
how they talk to the family, and Tesla as they understand the Climate Crisis is a problem. They are buying into the real things that affect people’s daily lives. It's a simple and understandable strategy. You don’t need a huge body of knowledge for this.” The coronavirus (COVID-19) pandemic has pushed the business along, but maybe surprisingly when the shocks hit the Russian economy last summer it didn't lead to a big sell-off by Russians, who are showing themselves to be long-term investors, not day traders.
“In March 2020 there was no panic selling, no fire sale. People held on to their positions. And in November, when the crisis was “over”, some investors fixed profits from investment into
the crisis stocks (things like Netflix) and we saw a massive rotation back
a counterparty with whom to trade. That could be another Russian investor trading on SPB Exchange, or it could be buying from the US markets directly, depending on the price and the time of day.
The growing pool of retail investors solves the exchanges' main problems: despite being open until well into the night in Russia, it is still in the wrong time zone. The US markets open late in the afternoon Russian time and close when most people have already gone to bed.
At the same time, the Exchange has discouraged high frequency traders (HFT), so the market makers add to the pool of liquidity rather than drive up the prices.
“A significant contribution to the growth of SPB Exchange’s liquidity is made by high-frequency traders, who can only act as market makers that create liquidity.