Russia's two major exchanges groups, MICEX and RTS, are to merge following the signing of an agreement today by Ruben Aganbegyan, president of MICEX, and Roman Goryunov, CEO of RTS, as well as representatives from major shareholders. The deal, which is subject to regulatory and shareholder approval, expected in August 2011, should result in post-trade reforms that will make Russia more attractive to international investors.
MICEX, whose equity market turnover for May 2011 was €25.6 billion, giving it an 84.5% market share of Russian equity trading, according to Thomson Reuters Equity market share reporter, is buying a controlling share of RTS in a part-cash, part-paper deal. A non-binding agreement was signed on 2 February 2011.
RTS, which commands the larger share of derivatives trading in Russia, is valued at R34.5 billion (US$1.23 billion) while MICEX is priced at R103.5 billion ($3.69 billion) under the terms of deal. RTS offers 38 futures and 13 options contracts on its FORTS platform. Trading volume on RTS Index futures grew from less than US$10 billion in December 2008 to US$54 billion in December 2010.
A joint exchange management team has been formed with MICEX's Aganbegyan acting as CEO of the joint exchange, responsible for the development of strategy and adapting the exchanges' merged infrastructure to support the establishment of Moscow as an international financial centre. Goryunov will fill the position of the first deputy CEO in charge of developing the markets of the joint exchange. In addition, an overarching integration committee will coordinate the activities required to transform the two exchanges into a vertically integrated holding company offering trading, clearing, settlement, depository and technology services in Russia, Ukraine and Kazakhstan.
A key area of rationalisation will be the combined exchanges' post-trade operations. RTS owns the RTS Clearing Centre and RTS Settlement Chamber post-trade processing facilities and has a 97.76% stake in the Depository Clearing Company. MICEX has its own MICEX Clearing System and National Settlement Depository created from the consolidation of the MICEX Settlement House and the National Depository Centre in November 2010.
International buy- and sell-side firms hope to realise efficiencies from accessing a combined market using a common trading platform and collateral system. Currently RTS is denominated in US dollars and settles trades in T+4 days whilst MICEX uses the ruble and requires T+0 settlement.
The T+0 settlement model involves stock being deposited prior to a trade taking place. This can be a barrier to investment for firms that are used to longer settlement cycles in other markets and is blamed for low liquidity levels. Overseas investors have said that the merger could provide an opportunity for a change in the settlement cycle for the most liquid portion of the market.
The merger is understood to have the backing of the Russian state, as part of a larger development to create an international finance hub in Moscow. A task force chaired by Alexander Voloshin, the former head of staff for president Vladimir Putin, and twice chairman of metals giant Norilsk Nickel, is currently charged with framing the required physical and regulatory infrastructure.
Regulatory changes to bring Moscow in line with international market standards have already been introduced this year; on 24 June a 30% tax on foreign investors income earned from equity sales was repealed, while a law banning insider trading was passed in late January.