People in The Trade

The rush to Russia begins

Commodity powerhouse, FX hub, derivatives supermarket… much is anticipated from the Moscow Exchange – the name for the newly-merged MICEX and RTS markets. But Emmanuel Carjat, managing director of global trading infrastructure firm TMX Atrium, explains why connecting to the market isn’t as simple as just flicking a switch.

With new regulation affecting most types of market structure and asset classes globally, Carjat says many aspects of financial and telecommunications regulation are particularly unique in Russia, and firms wishing to connect should bear in mind that telcos are highly regulated and operate under different oversight by the government. In Europe, if a government agency wanted to tap into a network it would first have to ask a judge. In Russia, the requirement and capability to monitor is, as standard, built into the telecommunications fabric with the need to ask a judge coming later in the process.

Russian market structure regulation is also changing significantly, with a move from pre-settlement to T+3. The Moscow Exchange announced the move earlier this year and has stated T+3 clearing and settlement will be ready by November.

“As intended, this will drive more foreign participants to the market but for people already in the market, most will have to change the way they operate,” says Carjat.

But it is not only language, regulatory and connectivity issues with which foreign market participants need grapple. Carjat explains there is also the matter of local geography, which has implications for speed, disaster recovery and data centre access.

“Few realise just how spread out Moscow is, and presently the MICEX and RTS data sites and proposed new location are on opposite sides of the city,” says Carjat.

The plan is to uproot the MICEX data centre and join it with the more conveniently located RTS facility in the ‘M1’ data centre – a former government research and development location where space rockets were designed. In fact, many of those rocket scientists may have changed jobs, but they’ve ended up back at their former work place building algorithms and running back offices. MICEX will still be the platform of choice for cash equities and RTS for derivatives.

It is understood that the current location of the MICEX centre cannot presently accommodate co-location, only proximity, and industry chatter indicates it can currently take up to 60 days to establish a cross connection between the two data centres. Moving the cash engine to M1 will be a welcome advancement for many market participants who believe the new exchange may also be upgrading to a new matching engine.

“Unification at M1 brings participants the ability to bring clients closer and faster, and M1 fits the bill.”

TMX Atrium recently opened low latency connectivity into Moscow’s M1 district from Stockholm, providing access to key data centres to let participants trade the rapidly.

Carjat says the firm’s access point to M1 gives financial services participants a competitive advantage when trading Russian securities. From M1, TMX Atrium has connectivity back to its point of presence (POP) in Stockholm using a low latency path of 17.7ms.

TMX Atrium has also started to connect other Moscow data centre locations back to its Moscow POP. Clients already within the firm’s network can benefit from access to venues and clients actively connected to the Moscow market and Moscow-based venues and participants can access TMX Atrium’s entire trading community of multiple venues and brokers trading the global markets.

Carjat says clients had already started to connect through the link barely a day after launch, demonstrating the demand for access to Russia.

What type of solution houses need obviously depends on the type of strategies they intend to use in Russia.

“The long-only firm who won’t be trading too often can likely still get away with using a single broker, but for anything more complex requirements increase dramatically,” says Carjat. “As connections improve, prop trading firms are looking more closely at arbitrage opportunities between Moscow and the London Stock Exchange's International Order Book. This has the potential of dramatically changing liquidity in this compelling emerging market.”

The new unified exchange also has the potential of becoming a major commodity and FX player globally.

“Russia is one of a number of commodity-based economies around the world – most of which price their commodities in their own local currencies – and it is possible the Moscow Exchange could make a play for becoming a major centre for both commodity derivatives and currency," he adds.

Whatever the play, the world isn’t just waiting in anticipation to see what Russia does. It is jumping in as quickly as it can.

Bruce Love +44 (0)20 7397 3818