RTS plans raft of new derivatives - Incisive Media

exchangesExchange of informationOleg Safanov, president of Russia’s largest exchange RTS, tells David Walker why the country’s mainstock and derivatives exchange remains a vibrant place for investors, speculators, public companiesand hedge funds alike...The Russian Trading System (RTS)can be truly considered to be in asweet spot.In the last nine months of 2006,the Russian GDP grew at 37.7%and, notwithstanding emergingmarkets jitters in the last week ofFebruary, and in March’s first week,which saw an 11% decline in thebenchmark RTS Index, the 12-yearold Russian stock market Safonovoversees continues to see a pipelineof public offerings satisfying investors’hunger for listings.One can see why – in the twoyears to 7 March 2007, the RTSindex, calculated on the basisof shares of the 50 most liquidcompanies, appreciated by149%, according to figures fromBloomberg, in an economy displaying6.4% GDP growth in 2005.Similarly, the capitalisation of theRussian stock market has grownfrom 43.0 at the end of 2000 to 837.0by mid-October 2006.Russia’s main exchange has fivesub-sections to its structure – theClassic Market, the T+0 market,RTS Board with a system of‘indicative quotation’, RTS START(similar to London’s Aim market),and FORTS for exchange-tradedderivatives. In total, RTS has morethan 1700 securities quoted.classic record“The Classic Market is the oldeststock market in Russia. Its pricesare given in US dollars and settlementoptions include both deliveryversus payment and free of payment.We are the only Russian stockdifferent systems on offerexchange where the trades are settledin foreign currency and Russianroubles,” Safonov explains.According to RTS’s website(www.rts.ru), the Classic Market has400 securities from 283 issuers.trading modelsThere are two trading models inthe RTS Classic Market. One isanonymous order-driven tradingwith the eight most liquid shares onthe market – namely RAO UES OfRussia, Gazprom, Norilsk Nickel,Lukoil, MTS, Rosneft, Rostelecomand Surgutneftegaz.In the order-driven trading settlementis conducted only on a DVPbasis in dollars and secured by theRTS Guarantee Fund.The second model is quote-driventrading based on the non-anonymousquotes.“The main advantage of thequote-driven trading model is theability to ‘improve the price’ bycalling the party that submitted aquote and agreeing to execute thetrade within the the spread,” theRTS notes.“Such an ability is important fortrading in less-liquid securities thatmight have large bid/ask spreads.Knowing the counterparty to thetrade is also important to managerisks associated with tradingwithout pre-funding of cash andsecurities. Plus, it helps parties tocome to an agreement involvingnon-standard settlement schemes.”flexible settlement“Settlement of trades executed onthe quote-driven market can be performedon the following conditions:“Delivery versus payment” or “prepaymentof pre-delivery,” RTS sayson its website.“The parties have anability to agree on the place, price,“We can see serious interest ofWestern participants in theRussian economy.”sergey nazarov, renaissance investment managementdate of the delivery and the settlementcurrency although more than90% of trades are settled DVP.”With RTS Board, there is asystem of indicative quotation that,in Safonov’s words, “makes it possiblefor companies whose sharesare not admitted to be traded onthe exchange to have an indicativeprice, so they can make an analysisand know what level of prices is setbe the OTC market.“After that, they may decide totrade their shares on-exchange andget them listed.”The fastest growing segmentof the Russian stock market is theTrading platform Order-driven Quote drivenInception 2005 1995Model Order-driven Quote-drivenTraded securities 8 blue chips All other stocks and bondsCurrency USD USDSettlement cycle T+4 From T+0 to T+30Clearing centre RTS Stock Exchange N/ARegistration of traded securities Depositary and Clearing Company Any depositary or registrarDelivery versus payment Mandatory OptionsSettlement firm JP Morgan Chase or RTS Settlement Chamber Any bankSettlement currency USD USD or RURsmall and mid-sized sector, a sectionthe RTS Board is very successfulat bringing into the stock market,Safonov adds.The T+0 market, Safonovexplains, “is targeted for individualinvestors and characterised by prefundingof cash and securities. Asan investment exchange, we arenow trying to promote the liquidityof the tier-two and three shares.”For hedge funds, on the equitiesside there are already 11 firmsoffering prime brokerage servicesacross Russian stocks.They are Alfa Bank, Alton LLC,UBS Securities, Citibank, MDMBank, Metropol, URALSIB, ProspectInvestment, Renaissance,Troika Dialog and UFG (acquiredby Deutsche Bank).“A number of Russian companiesis already coming into the stockexchange, or planning to, and therefore,we find that with the very goodindicators of economic growth andcontinuing appearance of companiesin the stock market, we can seeserious interest of Western participantsin the Russian economy as awhole,” Safonov says.macro healthRussia enjoys political stability, hesays, government budget surplusand a rapid paying-down of foreigndebt at the same time oil at $59 abarrel builds its foreign currencyreserves.Standard & Poor’s, Moody’s andFitch all rate Russia as a country ofinvestment grade.The attractions for both domesticand foreign investors of Russia sawtrading volume on Russian TradingSystem Group markets grow by215%, period on period, in the finalnine months of 2006.In the third quarter of 2006,RTS was also looking outwards, atopportunities for tenders in Turkeyand the possibility of creating atrading floor using IT systems inthe Ukraine. Looking further afield,RTS also signed an agreementwith Standard & Poor’s in 2006 topromote its indices globally, and toco-operate with S&P on calculationmethodology for five new sectorindices – based around oil and gas,telecoms, metals and mining, industrialsand consumer/retail.