Monday, 20 April 2009

Russia's markets retain grasp on equities

Wall Street Journal Europe

Jason Corcoran in Moscow

April 15, 2009

Exchanges in Moscow have clawed back their lead in Russian equity trading over the London Stock Exchange, according to the chief executive of RTS Group.

The dollar-denominated RTS and the ruble-denominated Micex were both suspended more than 30 times since September. As a result, investors turned to trading Russian global depositary receipts in London.

Prior to the financial meltdown, Russian exchanges had 70% of the value of equities traded against London's 30%.

Following Russia's war with Georgia, a banking crisis, investor scandals and the accompanying erratic trading patterns that led to the temporary closures of the exchanges, the value of equities traded was divided almost evenly between Russian and London bourses. Overall daily volumes traded in Moscow also slumped to $2 billion from the $7 billion reached early in 2008.

RTS Chief Executive Roman Goryunov said March trading volumes indicated Moscow had won back territory ceded to London.

"Last month we saw the tendency had changed in Moscow's favor with 70% to 30%," he said.

A spokesman for Micex Group said its figures matched Mr. Goryunov's.

Mr. Goryunov said neither of the local exchanges had been suspended since the regulator introduced rules on March 1 that formalized when trading can be halted and allowed greater shifts in prices before a market is suspended. Along with higher oil prices and a stronger ruble, the new rules helped trading volumes to bounce back to pre-crisis highs.

"All of the problems last year caused the international investors to cease trading in Moscow in favor of London," Mr. Goryunov said. "The local investors who went quiet have become more active again and there are a large number of new investors to compensate for those who left."

Previously, trading in a stock was suspended until the next day if its price fell more than 10% and trading in the market as a whole was suspended if the benchmark index fell by the same amount.

Under the new rules, it takes a 15% deviation to stop trading for an hour and a change of 25% to halt trading for the day.

The increased participation in the market of Russia's Bank of Development and Foreign Economic Activity and state-controlled investment bank VTB Capital is also believed to have buoyed local trading.

VTB, which manages Russia's sovereign-wealth fund, became the biggest trader of dollars on the Micex exchange in Moscow last month after the state development bank increased swap operations. The combined value of trading on the RTS exchange and over-the-counter activity rose to $9.2 billion, up 41% from $6.5 billion in February.

The brokers that handled the greatest volume in March were Russia's Troika Dialog, followed by Germany's Deutsche Bank AG and local bank Renaissance Capital.

The RTS index was one of the world's best performers in March after falling more than 70% from September last year through to February. It climbed 27% to 690 points as of March 31 from 545 points at the end of the previous month. It closed at 807.61 on Tuesday.

Separately, RTS outlined plans to compete with its established rivals in Europe by launching an anonymous dark-pool system.

This would be the first attempt by a Russian market to launch a dark pool, following several similar moves by European firms. Dark pools allow traders to buy and sell equities anonymously, which can cut trading costs. The group will launch RTS Standard, a new equity market that enables members to trade the most liquid RTS stocks through an anonymous order book, "in the upcoming future," according to a statement Tuesday.

RTS Standard will be open until 11.50 p.m. Moscow time to allow customers to trade alongside the main U.S. and European markets.

Brokers ITG, Liquidnet and Nyfix offer dark pools for European stocks, while NYSE Euronext launched SmartPool, the first exchange-backed European dark pool, on February 2. U.S. dark pool Pipeline is set to launch its European system this month and the London Stock Exchange Group PLC plans to go live with its Baikal dark pool before the end of June.


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