13 Bolshoy Kislovskiy Perulok
Telephone: (+7 495) 363 32 32
Web site: https://www.moex.com/en/
Founded: 2011 as MICEX RTS
Sales: $640 million (2017 est.)
Stock Exchanges: Moscow Exchange
Ticker Symbol: MOEX
NAICS: 523210 Securities and Commodities Exchanges
Based in Moscow, Russia, the Moscow Exchange MICEX-RTS PJSC and its group of companies provide access to the Russian financial markets. The Moscow Exchange, often referred to as MOEX, facilitates trading in stocks, bonds, derivatives, currencies, money market instruments, and gold and oil futures. Russia's central securities depository, the National Settlement Depository, and market maker, the National Clearing Centre, are also group operations. Additionally, the Moscow Exchange is at the forefront of the effort to modernize the infrastructure of Russia's financial markets and promote Moscow as an international financial center. The Moscow Exchange is a public company trading on its own platform.
Even before the dissolution of the Soviet Union in late 1991, Russia took preliminary steps to implement a market-based economic system. An effort to revive the Moscow Commodity Exchange began in the spring of 1990. The exchange had been established in 1798 but shut down in 1929 by the country's Communist government. In the fall of 1990 the Chicago Board of Trade and the Chicago Mercantile Exchange agreed to work with the developers of the new Moscow Commodity Exchange, which in January 1991 began trading in physical commodities, including metals, crude oil, and agricultural products. The following year exchange officials visited the New York Mercantile Exchange to learn the fundamentals of operating a commodity futures exchange. In the summer of 1992, 30 brokerage firms that had been members of the Moscow Commodity Exchange pooled their resources to form a new clearinghouse called the Moscow Exchange and thus weed out the less reputable brokerages. In October 1992 they began trading in currency futures in U.S. dollars with $10 contracts that closed in 90 days. The following month brought $1,000 contracts that closed in two-, four-, and six-month intervals. By the summer of 1995, the number of brokers on the exchange had increased to 89, and daily trading volumes reached $60 million and on occasion exceeded the country's largest current spot market, the Moscow Interbank Currency Exchange (MICEX), which had been founded a few years earlier.
That proved to be the high-water mark for the Moscow Exchange, however. In August 1995 some of Russia's largest banks were unable to meet their obligations. With the subsequent collapse of trading on the interbank market, banks reneged on their payments to the Moscow Exchange. In turn, brokers and their clients suffered serious losses. The Moscow Exchange was never able to recover from the banking crisis, and it shut down in 1996.
A generation later the Moscow Exchange name would be revived, applied to the combination of MICEX and the Russian Trading System (RTS). The older of the two was MICEX, established in January 1992 by Russia's Central Bank and the country's largest commercial banks as a way to bring some order to the economic chaos that followed the collapse of the Soviet Union. To dispose of state-owned property, the government dispensed to each Russian a share in the national wealth in the form of a voucher worth 10,000 rubles that could be exchanged for shares in newly privatized companies. In this way, it was hoped, severe concentration of wealth would be avoided. Unfamiliar with investing, or simply desperate for funds, most Russians sold their vouchers for the equivalent of pennies on the dollar (kopeks on the ruble), helping to create vast wealth disparity in the country. For those with means, a stock market was a necessity. MICEX quickly became Russia's leading stock exchange, surpassing the slightly older Moscow Stock Exchange. In May 1993 MICEX also became involved in the short-term government bond market.
RTS was established in 1995 as a rival stock market, created by consolidating several regional trading floors. In July of that year, RTS launched the Classica trading platform, based on the U.S. stock exchange Nasdaq's trading and settlement software. In September 1995 the dollar-based RTS Index was introduced.
The latter half of the 1990s saw several developments at MICEX. To handle the settlement of securities sales, MICEX and the Central Bank established the National Depository Centre in January 1997. In September of that year, the exchange introduced the MICEX equity index, a new benchmark that included the exchange's five most liquid stocks. In 1999 MICEX launched an online stock-trading platform, providing private investors with access to the exchange. That year MICEX also added a corporate bond market.
Vladimir Putin was elected president of Russia in 2000, and over the next several years the Russian economy boomed, primarily because of Russia's large supply of oil and high energy prices. Beneath the surface, however, problems simmered. Newsweek International's Owen Matthews reported in an August 2008 article, “Under Vladimir Putin, it seemed, no Kremlin ploy could shake world confidence in Russian markets. The 2004 jailing of tycoon Mikhail Khodorkovsky on politically motivated charges sent the market into a swoon, but recovery was swift as oil prices rose.” In 2005 Bill Browder, founder of Hermitage Capital Management, the largest foreign-portfolio investor in Russia, had his visa revoked for criticizing the secret books of Kremlin-controlled companies. At least temporarily, high oil prices covered all sins. Browder's Russian lawyer and auditor, Sergei Magnitsky, who uncovered the corruption that Browder railed against, was imprisoned in 2008 and died in custody a year later. Browder lobbied the United States Congress to punish Russia, resulting in the Magnitsky Act, which was signed into law in 2012 and imposed severe sanctions on Russian officials implicated in human rights violations.
The Russian stock market that had proved so resilient finally reached a tipping point in the summer of 2008 when British partners involved in TNK-BP, a joint venture between the British oil company BP plc and Russia's Tyumen Oil Company, left the country after enduring several months of threats and harassment from the Russian government. Investor confidence was shaken regarding foreigners' ability to do legitimate business in Russia. The stock market reacted, and shares in Russian companies tumbled in value.
Despite problems with the Russian economy, MICEX carried on. In 2009 it became the first Russian exchange to be admitted as a full member of the World Federation of Exchanges. Nevertheless, some basic aspects of MICEX were in need of improvement, including an upgrade in technology to attract international electronic traders. Furthermore, changes in Russian regulations and greater transparency were necessary to reassure foreigners that their investments were indeed safe.
Also in 2012 the Moscow Exchange's National Settlement Depository subsidiary was granted central securities depository status, thus allowing it to provide centralized record keeping for securities and a more reliable settlement structure for Russian equities. Some institutional investors had organizational mandates that prevented them from doing business on MOEX because of the exposure to counterparty risk created by the exchange's payment terms. Early the following year, MOEX changed its settlement protocols. Rather than a delivery-versus-payment basis, in which payments for securities were due at the time of delivery, buyers were now allowed two days to make payments on a trade, which helped them limit their counterparty risk.
In January 2013 MOEX announced that it planned to make an initial public offering (IPO) of stock. In addition to raising funds, the move would advance the goal of greater transparency and openness. Just as important was the decision to float the stock on the exchange's own platform, which MOEX hoped would encourage other Russian IPOs. The MOEX stock issue was well received, especially by international investors, and was subscribed twice over. The sale was completed in February 2013 with a raise of about $500 million, making it the largest IPO ever conducted in Moscow. Later in 2013 MOEX added gold and silver spot trading, and MOEX shares were added to the MSCI Russia Index, published by the U.S. investment research firm MSCI Inc. With a 30 percent stake, the Central Bank of Russia remained MOEX's largest shareholder, but as part of a privatization program, it planned to sell its remaining shares by January 1, 2016. That way the Central Bank would not hold a stake in an entity that it was also regulating. In the summer of 2014, 12 percent of the shares were sold in a private placement that was four times oversubscribed and raised about $500 million. As a result, the majority of MOEX shares were owned by the public for the first time.
MOEX was a rare bright spot on its own board, performing far better than other Russian stocks. With oil prices falling, the economy stalled at the same time that Russia annexed the Crimean Peninsula and Putin's government was accused of waging a proxy war in Ukraine. Many investors waited on the sidelines until the Ukraine situation was resolved, but the matter lingered, and MOEX suffered from some of the unintended consequences of the Crimea affair.
In April 2015 the Russian Central Bank changed gears. It announced that it would not sell its remaining shares in MOEX, contending that it was important to maintain close ties between the exchange and the regulator. Additionally, the bank decided to acquire an exchange in Saint Petersburg. The following year came reports that the Central Bank was discussing the purchase of the Russian state development bank VEB's stake in MOEX.
Despite the difficulties that came with running a stock exchange in a country saddled with economic sanctions, MOEX carried on. In 2016 the exchange opened a new data center. Later in the year, one week after the U.S. presidential elections in which Russia was accused of interfering, MOEX came under DDoS (distributed denial of service) attacks, as did major Russian banks. Soon, however, it was back to business as usual. A few days later MOEX hosted a forum in New York City to discuss current trends in the Russian economy and financial markets and the advantages of trading on the Moscow Exchange. It was followed one month later by a forum in London.
Western investors remained wary of doing business in Russia. In April 2018 the United States imposed new sanctions on Russia in response to the 2016 election interference, and the price of MOEX-listed stocks plummeted. While Westerners questioned the wisdom of investing in Russia, MOEX was forging ties with the Chinese. It signed memorandums of understanding with two of China's leading securities firms in December 2016 and with the Dalian Commodity Exchange in March 2017. A few months later MOEX signed a strategic cooperation agreement with the Shanghai Stock Exchange.
The sanctions against Russia redounded to the benefit of MOEX in at least one regard. In 2018 the fear of further sanctions prompted many Russian companies with dual listings to drop their affiliations with the London and New York exchanges in favor of a single listing on MOEX. By the summer of 2018 many of the foreign investors that had fled Russia returned to the exchange, and the ruble-based MOEX stock index regained most of the losses it had suffered after the latest round of sanctions. Nevertheless, the oil-based Russian economy and Putin-led government created an uncertain environment for MOEX.
MICEX-Finance LLC; MOEX Innovations LLC; Moscow Exchange International Ltd.; National Clearing Centre; National Settlement Depository.
Euronext N.V.; London Stock Exchange Group plc; New York Stock Exchange LLC.
Baker, Sophie. “Sanctions Slowing Investors' Interest in Russia.” Pensions & Investment, April 30, 2018, 2.
Farricker, Martin. “Futures, Options Head for Moscow.” American Metal Market, March 16, 1992, 2.
Frye, Timothy M. Brokers and Bureaucrats: Building Market Institutions in Russia. Ann Arbor: University of Michigan Press, 2000.
Goncharoff, Paul. “The Moscow Stock Exchange Has Seen Incredible Growth.” Russian Insider, October 17, 2016.
“Investing on the Edge; Russian Sanctions.” Economist, April 14, 2018, 66.
Matthews, Owen. “The Bulls Have Left Moscow.” Newsweek International, August 11, 2008.
Wilson, Michael. “Market Insider: Russia.” What Investment, August 2005, 55.