CIS markets plot their destiny

The trade news
Mon, 2011-08-01 07:58

With a new global exchange landscape beginning to emerge, bourses in the Commonwealth of Independent States (CIS) are seeking to establish a common trading infrastructure in order to boost trading and investment activity, says Maxim Volkov, managing director of regional and international development at the integrated RTS-MICEX exchange.

"Our ultimate goal is to unify markets in Russia, Belarus, Uzbekistan, Kazakhstan and Ukraine," says Volkov. "This will offer investors the chance to trade in the CIS using one connection, which will provide easy access for both local and international investors that want exposure."

Volkov’s current role is focused on identifying regional and international opportunities for the combined RTS Stock Exchange/MICEX Group, the two Russian exchanges that to merge in February 2011, as part of government’s plan to turn Moscow into an international financial centre. Before the combination, Volkov was director for corporate development at RTS, focusing on the expansion of the exchange into the CIS.

Equity markets in the CIS are still relatively young. Two of the largest, Ukraine and Kazakhstan – classified as frontier markets by index provider MSCI – have only been operational for two-and-a-half years and 18 months respectively.

In May 2008, the largest Ukrainian market participants signed a memorandum of understanding with the RTS Stock Exchange to create a new exchange in the form of a joint-stock company in Kiev. The exchange lists 182 stocks and now has around 200 trading members and 60 clearing members. RTS has a 43% stake in the Ukraine Exchange, with the remaining 57% held by market participants.

Volkov observes that within the short time the Ukraine Exchange has been operational, local retail participation has been slow – with only 0.02% of the country’s 47 million population taking the opportunity to invest in local stocks. But he expects this to grow rapidly.

He adds that the lack of currency hedging products means the Ukranian market is viewed as risky by foreign investors, but states that RTS-MICEX is looking into launching new products to address this issue.

RTS-MICEX is also looking to establish a partnership with the Kazakhstan Stock Exchange (KASE) as part of its CIS integration plan.

However, the Russian exchange will first unify trading of gold and futures on its market with the Ukraine Exchange and the Kazakhstan-based Eurasian Trading System, in which it owns a 61% stake.

"The legislative framework in the Ukraine and Kazakhstan is very similar to Russia – except for a few nuances, and both markets already run on RTS technology so this was the logical first step in our integration project," says Volkov. "These products are already internationally-recognised and popular in the region."

RTS is currently in negotiations with KASE, which has a market capitalisation of around US$54 billion, and the Ukraine Exchange on its plans for unifying stock trading, and is hoping to establish a letter of intent with markets in Belarus and Uzbekistan in the near future. Once completed, RTS-MICEX plans to create a common CIS index, which will consist of the most the liquid blue-chip securities across the five countries.

"The CIS integration plans will eliminate the need for investors to maintain individual connections to the five exchanges and will also enable the creation of new regional products with ease," says Volkov.

The CIS integration plan bears similarities to similar initiatives in south-east Asia and Latin America.

Mercado Integrado Latinoamericano, an integration project that allows brokers to route orders to the stock exchanges of Chile, Peru and Colombia via a FIX connection, went live in May 2011.

Trading technology SunGard was recently selected by the Association of Southeast Asian Nations to link Bursa Malaysia, the Philippine Stock Exchange, Singapore Exchange, the Stock Exchange of Thailand by Q1 2012. Vietnam’s Hanoi Stock Exchange and Ho Chi Minh Stock Exchange, and the Indonesia Stock Exchange are also due to join the project at a later date.

As well as being involved in the CIS integration project, Volkov is also part of the senior management team that has been appointed to handle RTS’s merger with MICEX.

Volkov says that the next steps in the merger will be to form the core of the integration team and decide on which technology platform and index to use. The RTS Index comprises 50 of the largest Russian stocks, which make up around 85% of the exchange’s market capitalisation, while the MICEX Index comprises the 30 largest Russian stocks traded on the exchange, consisting around 80% of market capitalisation.