Profile of the MICEX Group

The MICEX Group is the largest exchange in Russia, the CIS, Central and Eastern Europe

The MICEX Group is an integrated exchange, which organizes electronic trading, clearing and settlements for trades and provides depository and information services. The Group includes the MICEX, the MICEX Stock Exchange, the National Mercantile Exchange, the MICEX Settlement House, the National Depository Centre, the National Clearing Centre, regional (provincial) exchange centres and settlement centres as well as some other organizations. They serve over 1700 participants in the on-exchange market — leading Russian banks and brokerages located in Moscow and other large financial and industrial centres of Russia. The mission of the Exchange is the development of market mechanisms of determining the exchange rate of Russia’s national currency and securing the effective investment turnover of capitals in the country’s economy on the basis up-to-date exchange and information technologies.

The Group's history began in the early 1990s, when, in the course of market reforms, a number of Russia's leading banks and the Bank of Russia established the Moscow Interbank Currency Exchange (MICEX). The MICEX’s primary goal was organizing trading in foreign currencies. Since the very first days of the existence of the on-exchange currency market, the exchange rate of the US dollar determined on the MICEX has been one of the main indicators of the success of economic reforms in Russia.

At present, the MICEX Group operates several key segments of the financial market: the currency market (since 1992), the government bonds market (since 1993), the derivatives market (since 1996), the share market (since 1997), the market for corporate and regional bonds (since 1999) and the money market (since 2004). Having implemented a state-of-the-art electronic trading and depository system the MICEX Group became a universal association of financial organizations which serves as a basis for an up-to-date multifunctional system of trading, clearing and settlements in all segments of the orderly financial market of Russia. The main goal of the MICEX Group is promoting the creation of market mechanisms of fixing the representative exchange rate of the Russian ruble, contributing to the growth of the capitalization of Russian companies-issuers and attracting investments to the country's economy. Over the past years, the MICEX Group has built the infrastructure of the national financial market, based on the most advanced exchange and information technologies.

The MICEX holds a worthy place among the world’s leading exchanges. By the total trading volume (in 2007: 107 trillion rubles or 4.2 trillion US dollars, the daily average volume of trades: 431 billion rubles or 17 billion US dollars), the MICEX is the largest exchange in Russia, the CIS and Central and Eastern Europe. Growth of the volume of on-exchange trading in securities enabled the MICEX Group to join the list of the world’s 20 top stock exchanges (ranking 17th). The MICEX Stock Exchange is the center of formation of liquidity for Russian assets. It is the main stock exchange for international investments in leading Russian companies.

The MICEX: main lines of business

The currency market
Trading in foreign exchange is held in the MICEX System of Electronic Trading (SELT). In the framework of SELT, regional currency exchanges participate in a unified trading session (UTS). Since 1992, the RF Central Bank has set the official exchange rate of the Russian ruble, taking into account the results of trading in foreign exchange on the MICEX. Daily trading is held in the US dollar, the Euro, the Ukrainian hrivna, the Kazakhstan tenge, the Belorussian ruble as well as in currency swaps. In 2007, the total volume of on-exchange transactions in foreign currencies amounted to 38 trillion rubles or 1.5 trillion US dollars (about 36% of the MICEX Group's total on-exchange turnover). At present, the MICEX currency market has an effective system of risk management which guarantees the timely performance of obligations by all traders. One of the elements of this system is the "payment vs. payment" rule, according to which the MICEX effects settlements with a trader only after the trader has performed his obligations. The most traded currencies are the US dollar and the Euro. In 2007 clearing and settlement functions in the on-exchange currency market were transferred to the National Clearing Center (NCC), an affiliated company of the MICEX Group. The Group launched a Unified Trading Session of inter-bank currency exchanges (UTS), using centralized clearing, in which the NCC acts as counterparty for all transactions concluded in the UTS and effects centralized clearing. In its turn, the MICEX performs the functions of organizer of trading in the UTS as well as technological functions. Members of the MICEX Currency Market Section are about 600 credit institutions. As a member of the National Foreign Exchange Association (NFEA), the MICEX participates in the implementation of the Standards of Work in the Internal Currency and Money Markets.

The stock market
The MICEX Stock Exchange, Russia's leading stock exchange, is one of the organizations comprising the MICEX Group. It accounts for over 98% of the total volume of trading in stocks on all Russian stock exchanges and over 70% of the global on-exchange volume of trading in Russian securities (including GDRs and ADRs). The MICEX Stock Exchange organizes daily trading in securities of 760 Russian issuers, including stocks of 210 issuers. The latter include Gazprom, RAO UES, Sberbank, Norilsk Nickel, LUKoil, Rostelecom, Surgutneftegaz, Rosneft, VTB Bank, Tatneft and other companies. Their total capitalization is about 30 trillion rubles (about 1.2 trillion dollars). 640 organizations — professional participants in the securities market trade on the MICEX SE. Their clients are about 450 thousand investors, both legal entities and individuals. In 2007, the total value of trades in non-government securities (accounting for 41% of the Group’s total trade volume), including trades in stocks, bonds and repos, on the MICEX SE reached 44 trillion rubles (1.3 trillion dollars), trades in stocks accounting for 31 trillion rubles (1.2 trillion dollars). Trading is held electronically on the basis of an up-to-date trading system, connected to regional floors and remote terminals.

The MICEX Stock Exchange plays an important role in organizing IPO’s for Russian issuers. In 2007, 19 companies used the Exchange’s services to place their shares (IPO/SPO), including Sberbank, VTB Bank and some other companies, which together raised 662 billion rubles (26 billion dollars). By this indicator, the MICEX SE is among the world’s five largest exchanges. The MICEX Stock Exchange launched the Innovation and Growth Companies Sector (IGC Sector), created with support of the RF Information and Communications Ministry for the purpose of helping small and medium-sized companies to attract investments to the innovation and fast growing sector of the economy, providing appropriate environment for these companies’ IPO’s and promoting venture financing in the country. To improve the transparency of companies from the IGC Sector, the Exchange appointed listing agents, which are organizations helping high-tech companies to enter the Exchange. In 2007 debut IPO’s were made and trading was launched in the IGC Sector.

In 2007, the MICEX Index, Russia's main stock market indicator, grew by 11.5%. In 2007, significant qualitative changes took place in the family of the MICEX indices. The Exchange developed the model of the MICEX composite index; its composition was expanded to include 30 stocks representing the main sectors of Russia’s economy; the Exchange began to publish sector and capitalization-based indices. Today, the MICEX Index is used by management companies as the underlying asset for 33 Russian index funds. Their net asset value amounts to over 6.5 billion rubles. The stable growth of the market promotes the rapid expansion of the number of individual investors in the Russian stock market. In 2007, the number of individual investors trading on the MICEX SE doubled and reached 420 thousand people. The Exchange holds trading in shares of over 200 investment funds, thus encouraging the development of institutions of collective investing. To stimulate the growth of liquidity of trading in shares of investment funds, the MICEX Stock Exchange introduced the institute of "specialists". These are participants in trading which support purchase and sale quotations of these securities.

The MICEX Stock Exchange provides unique opportunities for the placement of and trading in corporate and regional bonds. Trading is held in bonds of over 510 Russian issuers, including corporate (450 companies), regional (35) and municipal bonds (25). In 2007, 188 companies placed their corporate bonds on the MICEX SE for the total amount of 458 billion rubles (19 billion dollars). The volume of secondary trading reached 12.5 trillion rubles (500 billion dollars). Quotations of bonds are reflected in the MICEX corporate bonds index (RCBI), calculated since 2003.

Government securities and the money market
The MICEX is a national system of trading in government securities (GS), covering Russia's eight main regional financial centres. On the MICEX, market participants have access to a wide range of instruments of the GS market, which includes, besides GKO and OFZ, other government bonds and bonds of the Bank of Russia (OBR). Market participants can carry out the whole range of operations with bonds: from primary placement and secondary trading to repos (direct and reverse repos against the Bank of Russia and inter-dealer REPOs).

At present, over 280 authorized dealers trade in the GS market. In 2007, the total volume of trades in the GS market and the money market amounted to 23 trillion rubles (0.9 trillion dollars), including auctions and secondary trading in GKO/OFZ, repos and deposit/credit operations of the Bank of Russia. The proportion of this segment in the total volume of on-exchange trading grew to 22%. The MICEX government securities market gives the Bank of Russia broad opportunities to implement its money and credit policy, while offering market participants effective instruments helping to invest temporarily free funds and manage liquidity. The MICEX publishes indexes and indicators of the GS market yield and the curve of government bonds' zero-coupon yield.

The Bank of Russia uses the MICEX trading system to carry out deposit and credit operations involving credit organizations located in different regions of Russia. In 2007, the volume of deposit operations amounted to about 720 billion rubles (29 billion dollars), while the number of banks participating in this market exceeded 140. In 2006, the range of deposit operations of the Bank of Russia on the MICEX included "demand" deposit transactions. Besides, the Exchange organized the service of a new segment, credit operations of the Bank of Russia (collateral crediting). The MICEX organized the service of a new segment of the GS market, government savings bonds, intended for institutional investors.

The derivatives market and the commodity market
The MICEX is one of the main organizers of trading in the Russian derivatives market. It holds dominant positions in the market for currency futures. The MICEX's share in this segment of the derivatives market is about 95%. The Exchange organizes trading in US dollar futures and euro futures as well as EUR/USD futures. In 2007, the total volume of trades in the MICEX Derivatives Market Section amounted to about 2.2 trillion rubles (87 billion dollars), while open interest reached 5 billion dollars. The MICEX also organizes trading in futures on interest rates of the inter-bank money market (MosIBOR and MosPrimeRate), which are calculated by the National Foreign Exchange Association (NFEA) and are acknowledged by the International Swaps and Derivatives Association (ISDA) as the reference ruble interest rate. In 2007, implementing its strategy of development of the derivatives market, the MICEX Group launched trading in futures on the MICEX Index, which became the first instrument in the segment of stock derivatives. To ensure the performance of obligations for trades, the Exchange has implemented a reliable system of risk management. To cover risks, the Exchange has formed, at its own expense, a reserve fund of 250 million rubles and a guarantee fund of 250 million rubles to ensure clearing in the stock derivatives market. Market makers support bilateral quotations on the MICEX derivatives market has, which promotes growth of liquidity. The number of members of the derivatives market section is 190 organizations, while the number of participants in trading in the derivatives market of the MICEX Stock Market has reached 130 banks and financial companies. To further develop the derivatives market, the MICEX tries to widen the range of traded instruments by launching trading in options. Besides, the MICEX intends to widen the range of derivatives on stock assets, interest rate assets and currency assets and to improve the system of risk management by implementing the technology of portfolio margining based on SPAN (Standard Portfolio Analysis of Risk) methodology, which was developed by CME and is used by many leading exchanges and clearing organizations across the world.

Being an infrastructure component of the commodity market, the National Mercantile Exchange (NAMEX) participates in organizing and holding trading in the framework of state purchase and commodity interventions in the grain market. The NAMEX's strategic plans include the launch of derivative instruments on commodities, primarily, delivery futures on grain.

Settlements and clearing
Besides organizing trading, the MICEX Group provides professional participants with settlement and clearing services. Ensuring maximum possible guarantees of execution of trades is one of the Exchange's guiding principles. Settlements for trade are effected on the basis of the "delivery vs. payment" principle via non-bank credit organization The MICEX Settlement House (MICEX SH — settlement organization for monetary funds) and non-profit partnership The National Depository Centre (NDC — settlement depository). Since December 2007, joint-stock commercial bank The National Clearing Centre has performed the functions of clearing centre in the MICEX currency market. Clearing in the stock and the derivatives markets is currently performed by the MICEX.

The National Depository Centre (NDC), which is a part of the MICEX Group, is Russia’s largest depository by the value of assets held in custody. Considering its turnover, the NDC is the leading settlement depository for stocks. In 2007, the NDC’s turnover reached 60.5 trillion rubles, of which 26.4 trillion rubles was accounted for by trades in stocks. The value of securities registered in securities accounts with the NDC reached 4.3 trillion rubles (177 billion dollars) or, if stocks are included, 1.6 trillion rubles (37.2% of the consolidated portfolio of assets). This came as a result of diversification of the NDC’s services, growth of liquidity in the MICEX Group and the reduction of costs of custody of securities. The number of inventory operations performed by the NDC amounts to 2.5 million or the average of 210 thousand a month. The NDC continues to improve its reliability and its risk management system in order to conform to international standards. The NDC’s own capital has reached 1.34 billion rubles (by Russian accounting standards), while its limit of liability for each insured event is 50 million dollars. The NDC has confirmed the á+ rating assigned to the NDC by Thomas Murray agency. Being the national numbering agency for Russia, the NDC assigns international ISIN and CFI codes to securities, provides assistance in qualifying foreign issuers’ financial instruments as securities and performs the functions of substitutionary numbering agency for the CIS countries.

The MICEX Settlement House (the MICEX SH) provides settlement services in on-exchange markets. By the size of assets, the MICEX SH is among 30 largest Russian credit organizations. The capital of the MICEX SH is 1.1 billion rubles. In 2007, the daily average volume of payments made by participants in trading through the correspondent account of the MICEX SH with the Bank of Russia amounted to 219 billion rubles. The turnover of funds in trading accounts in settlements for clients’ transactions on the MICEX has reached 435 billion rubles a day. 400 Russian banks and about 300 financial companies have opened their accounts with the MICEX SH. To make access to settlement services more convenient for participants in the financial market and improve the effectiveness of settlements, the MICEX Group has opened branches of the MICEX SH in Rostov-on-Don and Vladivostok and prepares to open more branches in Novosibirsk, Yekaterinburg and Nizhny Novgorod.

The National Clearing Centre (NCC) was established as a member of the MICEX Group to implement the central counterparty model for all trades in on-exchange markets of the MICEX Group. The NCC holds the Bank of Russia's license to carry out banking operations. It is Russia's first organization specializing in clearing in on-exchange and OTC markets. This includes calculating obligations of participants in clearing, organizing their execution on the basis of the “delivery vs. payment” principle and controlling risks incurred by participants.

The founders of the National Clearing Centre are the MICEX and the NDC. The authorized capital of the NCC is 0.7 billion rubles. In 2007, the NCC launched clearing in the MICEX currency market. In future, the NCC intends to perform the functions of central counterparty in the repo market for government securities, the stock market and the derivatives market.

Technologies
The MICEX Group's electronic trading, clearing and depository systems satisfy the world's best standards of reliability, efficiency, protection and the continuity of business. These systems comprise the MICEX Group's soft- and hardware complex, which operates in the real-time mode. The telecommunication network of the complex is supported by leading providers of network services and covers the whole territory of Russia. The core of the MICEX's global trading network is two computing centres (the main one and the reserve one). The platform of the MICEX Group's trading and depository complex is based on Hewlett-Packard UNIX servers (over 100 servers). According to the results of the audit performed by Gartner Group, the availability ratio of the complex is 99.99. The MICEX trading complex registers up to 1 million orders and 500 000 trades a day. As the liquidity of the exchange-based market grows, the capacity of the trading complex is increased. Fiber-optic lines, satellite and other communication channels connect the Exchange with over 1700 remote workplaces in banks, broker companies and other financial institutions located in more than 100 Russian cities. Over 300 brokerages are connected to the MICEX trading complex, enabling to serve investors via remote terminals with the use of Internet technologies. More than half of on-exchange trades in securities are made via such broker systems. Up-to-date technological solutions developed with the participation of the MICEX enable broker companies to provide their clients with direct access to trading on the MICEX Stock Exchange. A number of international providers of trading solutions for broker companies and banks (GL Trade, ORC Software, ION Trading) have been able to connect their products to the trading system, which makes access to the MICEX markets much more convenient for foreign participants.

Regional infrastructure
The inter-regional exchange infrastructure, comprised of the MICEX and regional currency exchanges, emerged in the middle of the 1990s on the basis of a single platform. At present, the MICEX cooperates with regional currency and stock exchanges and regional settlement centres. After becoming the principal shareholder in the APICEX, the RCSE, the NNCSE and the URCEX, the MICEX used these exchanges as a basis to establish regional exchange centres The MICEX-Far East (Vladivostok), The MICEX-South (Rostov-on-Don), The MICEX-Volga Region (Nizhny Novgorod) and The MICEX-Urals (Yekaterinburg). The main goal of these regional subsidiaries of the MICEX is evolving into full-fledged front offices of the MICEX Group in their regions. The regional exchange centres emphasize interaction with regional issuers, participants in trading and investors. The MICEX Group continues to cooperate with the St. Petersburg Currency Exchange (St. Petersburg), the Samara Currency Interbank Exchange (Samara) and the Siberian Interbank Currency Exchange (Novosibirsk). Settlement centres of the orderly securities market are located in corresponding cities. Performing the functions of regional representatives of the MICEX Group, regional exchange centres, regional currency and stock exchanges and the Settlement Centre for the orderly securities market interact with regional participants in financial markets, ensure the implementation of new technologies and systems of timely settlements with participants in on-exchange trading and provide a wide range of information and consulting services.

International cooperation
Considering the ongoing globalization processes and Russia's expected ascension of the World Trade Organization, the MICEX Group makes efforts to integrate into the infrastructure of the world capital market and establish an international financial centre in Moscow. The number of foreign market participants trading on the MICEX's is steadily growing. The share of foreign investors' operations in the overall volume of stock trading on the MICEX SE has exceeded 30%. The MICEX interacts with such floors as the New York Stock Exchange (NYSE), the NASDAQ, the Chicago Mercantile Exchange (CME), the London Stock Exchange (LSE), the Deutsche Borse (DB), the Wiener Borse AG (WBAG), the OMX Group, the Hong Kong Exchange (HKEx), the Tokyo Stock Exchange, the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange and other exchanges. The MICEX has singed memoranda of cooperation with a number of these exchanges. The MICEX is an affiliated member of the World Federation of Exchanges, which is comprised of over 100 exchanges of the world. Together they account for 97% of the capitalization of the world stock market. Jointly with the International Association of Exchanges of the CIS Countries the MICEX Group is developing appropriate conditions for the formation of an integrated stock market of the CIS on the technological basis of national exchanges of the Commonwealth.

Information
The MICEX regards transparency as an important guiding principle. Traders and investors can watch the course of trading sessions on the MICEX web site, use up-to-date technologies of remote mobile access or use the services of leading Russian and international news agencies. At present, users receive exchange quotations in the real-time mode through dozens of thousands of terminals in Russia and abroad. Today, participants in trading use the MICEX’s information services to widen their client base. On their web sites they demonstrate the schemes of interaction between clients and brokers, which contain the MICEX’s quotation information. They also use the MICEX’s game server to teach individual investors the basics of trading in the stock market. The MICEX is actively involved in the work of the Association of the Distributors of Financial and economic information, aimed at improving the market of information services and products. The MICEX is a member of the Financial Information Services Division of Software & Information Industry Association. The MICEX publishes regular news releases and information and analytical bulletins. It also publishes monthly journal "Exchange Review". The MICEX has opened Russia's first museum of the history of the exchange business with documents illustrating the history of Russian exchanges and their work today.