Strategic report

Main trends in the development of the sector

INDUSTRY OVERVIEW

Exchanges are organized platforms for trading financial instruments, including securities, currencies, commodities and derivatives. The bulk of the revenue of exchanges, as a rule, is made up of commissions charged from issuers for listing securities and from financial intermediaries directly involved in trading financial instruments, as well as fees for the sale of exchange information, technological solutions and services.

In many countries, depository, clearing and settlement services are provided by certain independent organizations, but recently there has been a growing trend towards unification of the largest exchange operators with vertical integration of most or all of these activities within a single group of companies. Vertically integrated exchanges receive additional income for settlement, clearing and depository services, as well as net interest income from the placement of client funds on the balance sheet of the exchange.

Oversight of exchange activities is usually carried out by the government body responsible for regulating the financial sector of the economy. In some cases, exchanges have quasi-government powers, acting through self-regulatory organizations (SROs).

Global Trends

The coronavirus pandemic (COVID-19) has made adjustments to the activities of world exchanges.

In the first half of 2020, the main efforts of the exchanges were aimed at ensuring sustainable operation. The measures they take include:

• reducing the likelihood of infection through contact, incl. closing of trading floors replaced with fully electronic trading (Abu Dhabi Stock Exchange, BOX, Cboe, CME, LME, NYSE, Nigerian Stock Exchange, Philippine Stock Exchange), transfer of employees to remote work;
• control of volatility (including using discrete auctions), sliding price limits and increasing requirements for collateral;
• constant communication with users and other stakeholders.

Volatility contributed not only to an increase in turnover, but also to an increase in the attractiveness of the exchange infrastructure as more stable and reliable. For example, the share of “lit” platforms on the European stock market increased, while the share of dark pools decreased.

To facilitate the activities of participants (issuers, trading participants, etc.) during the pandemic, regulators and exchanges introduced temporary concessions in terms of operating hours, communication with customers, reporting, corporate actions, etc. The introduction of some regulatory requirements was delayed, including separate Basel norms and “open access”. At the same time, a number of countries introduced temporary bans on short selling, including Austria, Belgium and Greece, India, Spain, Italy, UAE and France.

A number of exchanges have postponed the implementation of projects, for example, the Australian ASX postponed the launch of a new settlement and clearing system for the stock market at a later date.

Trend analysis shows that the pandemic has accelerated and exacerbated most of the pre-existing trends.

The influx of retail investors into the market has increased in many countries. For example, the share of retail customers in trading in the US market reached 25% on certain days, up from 10% on average in 2019. The increased activity of retail investors caused mixed reviews, including on the part of regulators, the issues of improving financial literacy came to the fore again.

Digital transformation has accelerated: exchanges and market participants are trying to move to the digital plane as quickly as possible. As a result, the topic of cybersecurity has become very relevant: during the pandemic, the financial sector was subjected to cyber attacks more often than other sectors of the economy. While such attacks have not yet led to significant failures or systemic problems, these risks are significant and regulators around the world are developing measures to mitigate them, including cooperating with each other.

The coronavirus pandemic has also boosted investments in sustainable development (ESG) by shifting public attention to non-financial sources of risk. For example, almost half of the investments in European ETFs in 2020 was accounted for ESG funds. The popularity of investments in sustainable development has stimulated the emergence of relevant indicators and, subsequently, futures for them. In addition, marketplaces are actively developing information products that promote sustainable development (ESG).

The exchanges continued to expand the list of instruments traded on the derivatives market: new currency derivatives were launched: for new interest rates, for securities, including volatility, actively managed ETFs with limited transparency, as well as new commodity assets, including non-traditional: air tickets, water, sports contracts.

The development of artificial intelligence technologies continues. These technologies are gradually spreading in robo-consulting, processing information contained in documents on websites, analyzing annual reports in order to verify compliance of issuers with listing rules.

Competitors

MOEX’s main competitors of the Exchange are London Stock Exchange (LSE), the New York Stock Exchange (NYSE), NASDAQ, EBS FX Platform (ICAP Group), CME Group, Deutsche Börse and the Hong Kong Stock Exchange (HKEx).

The London Stock Exchange (LSE) is both one of the largest financial global centers and the largest overseas venue for trading in global depositary receipts on shares of Russian companies. The LSE has a main market and a small business market.

The New York Stock Exchange (NYSE, owned by the Intercontinental Exchange – ICE) is one of the largest exchanges in the world, since 1996 it has been trading in global depositary receipts for shares of Russian companies.

NASDAQ is one of the largest global stock exchanges, and has traded in global depositary receipts on shares of Russian corporate issuers since 1999.

The CME is one of the largest global derivative exchanges with a wide offering of derivative instruments based on various asset classes, including equity indices, interest rates, FX, commodities and real estate. The CME is MOEX’s primary competitor in USD/RUB futures and options.

Deutsche Börse is one of the largest exchange groups in Europe and worldwide. Deutsche Börse is a vertically integrated holding comprising the Xetra trading system, the Clearstream settlement depository and the EUREX derivatives exchange. EUREX offers a trading venue for RDX futures and an index for depositary receipts on Russian blue chips calculated by Wiener Börse.

HKEx is one of the largest Asian exchanges. At present, the securities of one Russian company are traded on HKEx.

MOSCOW EXCHANGE IN THE GLOBAL CONTEXT