Yevgenia Obukhova
The Exchange of the Future: Yuan, derivatives, digital
The Moscow Exchange is actively looking for ways to develop under new conditions. This year, the site has faced several serious challenges, and the departure of foreign players is only one of them. Non-resident investors played a significant role only in the stock market – here they accounted for half of the trading turnover. In other markets, the role of foreign money was much lower; so it is not surprising that the turnover of the stock and mutual fund markets declined the most in 2022, while other, larger market areas – the debt and currency markets – suffered much less or did not suffer at all.
But the business of the Moscow Exchange (Mosbirzha) is seriously influenced by other, internal factors. For example, the number of private investors continues to grow, now reaching 22 million. However, due to difficulties with real incomes and the uncertainty of the dynamics of the stock market itself, citizens are not yet ready to seriously increase the volume of investments – which means that in the foreseeable future they will not be able to completely replace the foreigners who left the stock market, and return turnover to the level of 2021.
On their part, in light of this strong uncertainty, Russian companies have practically stopped preparing new IPOs – although according to media reports, Whoosh Holding (the owner of the Russian scooter rental service “Whoosh”) has not yet abandoned its intention to raise 10 billion rubles by selling its shares on the Moscow Exchange by the end of 2022, and the IT company Positive Technologies attracted 1 billion rubles in an SPO at the end of September 2022. The SPO of Positive Technologies was focused mainly on retail investors: 10 thousand people purchased the company’s shares, increasing their total number of shareholders to 79.7 thousand – and in terms of the number of investors, the placement was the largest on the Moscow Exchange over the past 15 years.
However, these are one-time events that still do not solve the problem of the shortage of issuers on the Moscow Exchange. In general, as has been the case over the last decade and a half, Russian companies do not want to become public – and some have left the market. For example, Detsky Mir, one of the leaders of the Russian market in terms of free-float (60%), announced in November its intention to delist and move from public to private ownership. Such stories do not give confidence to private investors.
In these conditions, the Moscow Exchange continues to develop in those areas in which there is demand and prospects. Firstly, these are instruments related to “friendly” currencies – the turnover of yuan trading in 2022 has already exceeded the turnover of trading in the dollar (see chart), and the total volume of exchange trading in the currency pair Chinese yuan–Russian ruble for the first nine months of this year, according to Mosbirzha, increased 33 times compared to the same period last year and amounted to 23.8 trillion rubles. Obviously, in a situation where it is increasingly risky to hold accounts in the dollar, euro and other “unfriendly” currencies, the demand for the currencies of friendly countries will grow.
Based on this idea, the Moscow exchange is taking two approaches simultaneously. It is increasing the number both of currencies traded, and also, of instruments related to such currencies in other markets. So the exchange started from the end of October, launching trading in the pairs: “Kyrgyz som – Russian ruble” and “Tajik somoni – Russian ruble.” In November, currency swap contracts have become available, as well as delivery and settlement forwards in Chinese yuan (for a period of three days to one year).
“With the help of new instruments, bidders in the SPFI market and their clients will be able to hedge currency risk, as well as more effectively manage free yuan liquidity,” Mosbirzha explains. “In the future, it is planned to offer market participants interest and currency-interest swaps in Chinese yuan.”
Secondly, the exchange is developing other derivative instruments in order to offer investors, including private ones, more trading opportunities. Also in November, the Moscow Exchange launched “premium” options with execution in one and two weeks on the most liquid Russian shares (Gazprom, Sber, Lukoil, Yandex). Up to this point, investors in shares of Russian companies had access only to option contracts for deliverable futures.
Yuri Denisov, Chairman of the Board of the Moscow Exchange, noted that the new options give direct exposure to shares and do not have an intermediate link in the form of futures. “This greatly simplifies the perception and understanding of the new derivative tool,” said the head of the Moscow Exchange. “We expect that by the end of the year more than 300 thousand of our clients will use options,” added Dmitry Panchenko, Director of Tinkoff Investments, during the launch ceremony.
In order to give private investors the opportunity to bet on the movements of Western markets, the platform plans to expand the range of its derivatives of foreign indices and add futures for the DAX, Euro Stoxx, Nikkei 225, and Hang Seng indices. Trading in NASDAQ 100 futures already began on the Moscow Exchange in September 2022. The underlying asset of the new futures is the investment unit of the Invesco QQQ ETF Trust Unit Series fund.
Thirdly, the debt market will obviously continue to develop – it noticeably revived in the 3rd quarter of 2022, and may bring even more placements in the 4th quarter. “Since the cycle of decreasing interest rates has come to an end, corporate borrowers can switch to more active borrowing on the public market,” said Igor Galaktionov, an expert at BCS Express. He recalls that in the 3rd quarter, large companies with issues in yuan actively entered the market, and there is a high demand for such securities in the market. “For issuers who transfer export shipments to settlements in Chinese currency, this is a good opportunity to hedge currency risks and borrow relatively cheaply. In the fourth quarter, we may see more such issues, from which an independent segment of the Russian debt market is gradually forming,” the expert believes.
Indeed, if earlier only large issuers like Rosneft or Rusal decided to issue yuan bonds, for example Segezha Group is preparing to borrow in yuan in November; it will place bonds for 500 million yuan with a yield of 4.22% per annum. This will be the holding’s first issue in Chinese currency, and the coupon benchmark was lowered from 4.5%. Also, yuan issues will be placed by the EDB and Yuzhuralzoloto.
As for ruble placements, Galaktionov emphasizes that “debutants” now mainly come from the SME segment, and place small issues with double-digit coupons. “This trend has been going on for years. The fact that it was not interrupted in 2022 is encouraging. In the fourth quarter, there are chances to see more new interesting ruble securities,” says the expert of BCS Express, while also recalling that bond issues from SMEs are often associated with increased risks. Interestingly, among such issuers – previously mainly from the fields of leasing and microfinance – more and more companies of the real sector are appearing. For example, the “Provisions” group, a supplier of grain and sugar from the Altai Territory, entered the Mosbirzha with borrowings in November.
Finally, digital financial assets can become an important direction for the development of Mosbirzha. This autumn the organization has prepared a bill that will allow depositories to issue notes for digital financial assets (DFA). The Chairman of the Supervisory Board of the exchange, Sergey Shvetsov, said at the banking forum “Banks of Russia – XXI Century” that Mosbirzha can enter the DFA market in two formats: both as an issuer of notes for digital assets and as an issuer of the DFA themselves. The circulation of digital assets can open up a completely new market for Mosbirzha, the potential size of which is still unknown. Just one example: it is possible, if desired, to digitize the rights to shares of public joint-stock companies that are not traded on the stock exchange – but which have a wide base of shareholders accounted for in registers and not in depositories. This could bring a significant number of new enterprises to the exchange.
The second example is the placement on the traditional exchange of instruments tied to the price of crypto assets. For example, the international exchange ICE launched bitcoin futures as a tool for hedging or gaining access to bitcoins without dependence on the unregulated spot market of bitcoins (vulnerable wallets, crypto exchanges, etc.). It is entirely possible that the launch of similar futures on the Moscow Exchange could be a great success.
