The merger, which reflects the global trend of globalization and integration of the world’s exchanges, will create a single venue for trading stocks and derivatives in Russia. Currently, RTS has the biggest share in trading volume of Russian derivatives and is among the TOP 10 global derivatives exchanges, while MICEX makes up around 80% of equity volume traded in Central and Eastern Europe according to the data provider Thomson Reuters.
It is not only the product lines that are different, MICEX and RTS operate different platforms and trading cycles. Both exchanges have always been more complimentary than competitive and the main task that the companies now face is ensuring that both venues maintain their levels of success and continue to develop going forward.The key issue is synergy and consolidation of both teams’ expertise.
This is an opportunity to improve the market through joint resources and efforts, that is to build a fully-fledged single trading and clearing infrastructure for all products with a single entry point for the market participants, to create a reliable clearing center, which will meet the requirements of both local and international clients, to reduce costs and also improve the effectiveness of the exchange. The ultimate goal of the new exchange is to achieve the status of an internationally competitive market through improved efficiency of the market infrastructure, product diversity and liquidity.
The key advantage of the merger deal is that the consolidated platform will provide clients with access to an impressive range of instruments, creating a very comfortable environment for clients, issuers and financial intermediaries trading on the Russian market, both in terms of funding opportunities and technological solutions.
Another positive outcome is that this merger will allow both parties to focus their joint efforts on the priority task of competing for a higher place in the global financial market, as any pre-existing tension between the two local exchanges will have been eliminated. Within five years the integrated exchange strives to become one of the world’s top ten exchanges in terms of revenue and capitalization.
However, not only must the exchange be competitive, but the trading, legal and regulatory environments have to be competitive as well. The big challenge here is to ensure that the system has the appropriate level of regulation in place; it should neither be over-regulated nor under-regulated.
Russia has a number of important issues to consider here, such as the implementation of international standards in the disclosure of information, i.e. ensuring the disclosure requirements are in line with EU guidelines, as this will create a fair and accessible environment for all participants. An improved disclosure regime will enhance Russia’s credibility and improve investor protection. Other regulations in banking, securities trading and risk management also need to be in sync with international standards.
The integration processes in European markets underpin the necessity of creating a link between the two separate depositories of the exchanges. Currently, MICEX has the National Settlement Depositary (NSD), the biggest depository in Russia, and RTS has the Depositary Clearing Company (DCC). The merger opens the way for the creation of a single central securities depository (CSD) in Russia, which would eliminate risks in the existing registrars systems and simplify trading for cross-border investors.
The integrated exchange intends to address high priority issues, which among others, will undoubtedly include the issue of a cash-equity market and its settlement cycle. Together, MICEX and RTS will offer a new solution that will suit the interests of the majority of market players, meet global trading standards and simplify trading for cross-border investors.
The united Exchange plans to modernise its technology infrastructure and provide a seamless transition and uniform access to its participants. Both exchanges already provide access via internationally recognized FIX protocol and allow qualifying clients to host their HFT platforms at collocation facilities. Before the end of this year the management team will announce their technology migration and upgrade plans that will span over a period of a year and a half.
By 2013, the united Exchange will make its IPO to capitalize on the growth potential of the market infrastructure in Russia and CIS, and raise liquidity for the shareholders. The strategy of the united exchange will be focused towards becoming a leading global exchange, which will also elevate Moscow’s position as a regional financial centre.
Mikhail Sukhobok is Vice President of MICEX and responsible for the integration process