Page 38 - bne_October 2021_20211004

38 I Cover story bne October 2021
investments are now pulling in money that was not previously in the banking system at all: typically, Russians keep some of their savings at home in cash, usually in dollars, for emergencies – the so-called “mattress money.” “Last year the volume of money that went into stocks was greater than the amount of money withdrawn from bank deposits,” says Goryunov. “That means not only are the people changing the way they
“SPB Exchange utilises a B2B2C model,” says Goryunov. “Main clients of most banks come to us including all the
major financial institutions that service retail investors. SPB Exchange’s direct customers are brokerages working with retail investors. SPB Exchange is focusing on targeting brokerages that cater to retail investors, including the industry’s top names such as Tinkoff Investments, and demand for their services is
have been building the system and it has been a lengthy process, but now we are realising the potential of all the work we have put in.”
The exchange plans to IPO in the
near future, according to local press reports, and will come to market with dramatically improving results. It
makes two thirds of its money from fees associated with clearing and settlement and then another quarter from stock market business fees, but part of the business model is to keep the cost of fees down and make a profit on the volumes. Total revenue increased 4.6x in 2020, driven by growth in SPB Exchange’s customer base and trading volumes. Similar dynamics will continue this year, with revenue expanding 4.5x in 1Q 2021 year on year vs 1Q 2020, the exchange said when reporting its first results.
SPB Exchange also makes a little money from its subsidiary company that provides depository brokerage activities, Best Efforts Bank.
That is another reason for tapping the retail pool, and as Russian retail investors switch out of bank deposits and into stocks SPB Exchange’s business has been flourishing.
SPB Exchange gets commission both from buyers and from sellers if the internal liquidity pool is chosen. However, if “smart order routing” is used, meaning the external liquidity pool is automatically chosen as the best-priced one, “SPB Exchange gets a smaller profit margin, taking the commission from either seller or buyer,” Goryunov says.
Even with “smart order routing” in place, over 77% of all trades were completed internally (without tapping into external liquidity pools like the Nasdaq) in the six months ended June 30, 2021.
Exchange is open 7:00am to 1:45 am Moscow time five days a week, providing longer trading hours than MOEX while US markets are closed, and covering its premarket and postmarket slots. In the medium term, SPB Exchange aims to extend its trading hours even further.
“Russia’s banks are rolling out more and more services as the banking business is being transformed, led by Tinkoff Invest, which is already bigger than Russia’s retail banking behemoth Sber”
invest their wealth, but stocks are also tapping into a new pool of money that has never been in the banking system.” Part of SPB Exchange’s success has been fuelled by the explosion of online business and in particular the use of fintech solutions by Russia, which has in many respects led the West in the use of financial services provided online.
Russia’s banks are rolling out more and more services as the banking business is being transformed, led by Tinkoff Invest, which is already bigger than Russia’s retail banking behemoth Sber (formerly known as Sberbank) that holds half of all the retail deposits in the entire country.
SPB Exchange results
Revenue
Operational Profit
EBT
Net Profit
FCF
Source: Seeking Alpha
www.bne.eu
growing. For the Russian market overall, net purchases of securities by retail investors reached RUB491bn ($6.7bn) in the first quarter, more than double the volume of net purchases for 2020, according to CBR data,” Goryunov adds.
IPO and results
Until 2020 SPB Exchange was
not making any profit, ploughing everything that came in since 2014 years back into development. But that has all changed now as the retail investor revolution gets underway.
“The past few years the revenue has been rising, but it has not happened overnight,” says Goryunov. “We
Indicators
2020
2019
360.40%
545.30%
163581.30%
21278.50%
1319.00%
13.70%
23%
-96.40%
-84.40%
-165.40%