04.17.2012
By Terry Flanagan

Russian Exchange Looks West

Brics member Micex-RTS has laid out a series of initiatives intended to attract international interest in the burgeoning Russian market.

“We are pleased with the interest in the Russian market demonstrated by U.S-based market participants,” said Ruben Aganbegyan, chief executive officer of Micex-RTS.

Micex, or the Moscow Interbank Currency Exchange, and RTS, or the Russian Trading System, made the move to merge last year in the hopes that it will position Moscow as an international financial center in the coming years. The company laments that for years, it was competing internally, when it should have been competing on a global scale.

“We were focused on each other and losing out on international competition,” said Aganbegyan.

The merger closed late last year, and the companies continue to integrate and consolidate their infrastructures. It’s a process that is expected to take several years to complete.

While most of the exchange mergers announced in recent years have been heavily focused on the cost synergies that would be created by their combination, the Micex-RTS merger was one that was a natural fit on the business side as well. Micex is heavily equities focused, and was in the top 20 global equities exchanges in the world, while RTS was a top 10 global derivatives exchange. This level of operational synergy is also present in the still pending Tokyo Stock Exchange and Osaka Securities Exchange deal, who are also equities and derivatives centric, respectively.

In contrast, some mergers, such as the one between NYSE Euronext and Deutsche Borse, were often touted as providing big cost savings for the parties. In the case of NYSE-DB it was upwards of $3 billion annually.

Since each of the Brics exchanges are in various levels of growth on a global scale, there is much to be learned from the experiences of the more established members. According to Aganbegyan, there is a continual discussion between itself and Brazil, in which it is learning about how the Latin America exchange has garnered such international interest.

“Brazil has successfully pushed and attracted international capital,” said Aganbegyan. “We are looking to learn from that. We share stories and experiences with each other.”

The Brics exchange alliance consists of trading venues from Brazil, Russian, India, China and South Africa. The five exchanges first announced the formation of the alliance on October 12, 2011, at a World Federation of Exchanges’ conference in Johannesburg, South Africa.

Through an initiative called Bricsmart, the exchanges will cross-list futures on Brazil’s Bovespa Index, Russia’s Micex Index, the BSE India Sensitive Index, Hong Kong’s Hang Seng Index, the Hang Seng China Enterprises Index and South Africa’s JSE Top40 Index. Traders engaged in arbitrage will be able to buy and sell futures based on the same index on multiple venues, boosting liquidity. While trading of the products have thus far been light, the exchanges expect liquidity to grow over time.

The next stage of the Brics alliance will consist of each exchange jointly developing new products for cross-listing on each exchange.

It becomes more important for the emerging markets to band together, as some observers predict a slowdown.

“The growing global growth and malaise will mute export activity and temper demand for commodities, creating significant risks for emerging market investors,” said Alberto Ades, co-head of global economics research and head of emerging markets fixed income strategy at Bank of America Merrill Lynch.

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