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Thus we have created an environment where market makers can set thin bid- offer spreads, and therefore provide better prices for investors and traders,” says Goryunov. “We determine whether a participant on our platform qualifies as a liquidity provider. Market makers on our platform are not compelled
to place orders with large spreads to prevent their spreads from being affected by a large number of trades in a short period of time, due to HFT activity.”
The fact that most of the trading is small orders of typically around $1,000 means that the fine-grain nature of these small trades also gives the market makers a more visible view of prices and allows them to offer deals with narrower spreads to boost the volumes of the trading: everyone's a winner.
“It’s a way for SPB Exchange to ensure deep liquidity, as well as push market players to compete on price rather than on speed,” says Goryunov. The liquidity pool has been further enhanced by tying up with almost all the leading banks and brokerages working in Russia:
SPB Exchange is partners with 46 leading brokerages, including all the top names, and 13 of Russia’s largest banks that between them have millions of customers. Most of these have been investing heavily into fintech solutions that include stock investments and none more than Tinkoff Bank, Russia’s only purely online bank. Its investment arm, Tinkoff Investments, is the biggest player in Russia’s retail equity business.
“We have developed fintech solutions that provide new services to our customers that are part of our focus on creating liquidity,” says Goryunov.
The attitude of banks to the stock market has also changed as interest rates come down. In the past they saw the capital market as a competitor that was trying to steal their deposits – most banks’ main source of funding – but now the leading banks see stock investments as a new source of revenues.
There is no stopping the outflows now interest rates are falling, but equity
2011 capital market revolution
It is hard to overestimate the size of the revolution that was Russia’s 2011 capital market reforms. Goryunov was head of RTS at the time and intimately involved in the merger with MICEX to unite Russia’s two biggest platforms, which were then hooked directly into the international capital market system by tying up with Clearstream. At the stroke of a pen the new system allowed international investors to buy and sell Russian stocks and bonds directly from their terminals in London and New York.
The whole structure of the market was transformed: the two main exchanges – the ruble-denominated Moscow Interbank Currency Exchange (MICEX) and the dollar-denominated Russia Trading System (RTS) – were merged and
a central depository (CSD) was set up in the form of the National Depository Company (NDC) to clear and settle the trades. That was then linked to the international markets via ClearStream to do the international settlement
and clearing of trades. These changes opened Russia’s capital markets to the global pool of capital and brought in an extra $20bn very rapidly, mostly into the local Russian Ministry of Finance rouble-denominated OFZ treasury bond market that became an important new source of funding for the Russian budget.
It also radically changed the shape of the market. The leading brokerages, household names that made buckets of money facilitating international investments into Russia’s booming and crashing stock market, were almost all killed off.
About half of investments into Russia’s equities are from foreign investors who had opened brokerage accounts with the likes of Renaissance Capital, Troika Dialog, Aton, UFG Capital and others, to transact their investments. In what turned out to be his swansong speech at Renaissance Capital’s annual investment summit that year, owner Stephen Jennings said that the reforms were going to create a “barbell” in the market: big state-owned banks at one fat end and small niche players at the other end. Everything in the middle would suffer or die.
Jennings was right, except he assumed that RenCap would be one of the survivors. It wasn't. A one-time investment banking powerhouse, its business has atrophied dramatically and today it concentrates mostly on its African business. Troika Dialog was sold to Sberbank and forms the core of what
is now Sberbank CIB, the retail giant’s investment banking arm. Deutsche Bank’s investment bank business was sold lock, stock and barrel to the state- owned VTB in 2008 to create VTB Capital (VTBC), its investment banking arm. The state banks survived because they have access to billions in cash of the biggest state-owned companies that also need the capital markets.
Exchange activity
Stock Market
SPB Exchange
Moscow Exchange
Trading volume 2020
$167.29bn
$64bn
Change
999,94%
34.70%
July volume
$31.38bn
$27.08bn
Daily average July volume
$1.43bn
$1.23bn
Change
111.81%
31.10%
Source: Seeking Alpha
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