Stock exchange chief: ‘We try to borrow the best from global best practice’

Alexander Afanasyev. Source: Getty Images/Fotobank

Alexander Afanasyev. Source: Getty Images/Fotobank

Paradoxically, the rise in tensions in Russia’s relations with the United States and the European Union over the Ukrainian crisis has pushed the Russian stock market up. CEO of the Moscow stock exchange Alexander Afanasyev talks to RBTH about the influence recent events have had on the Russian securities market and the opportunities open to international investors in these new conditions.

RBTH: How has the number of foreign players on the Moscow Exchange changed as a result of the current challenging political situation?

Alexander Afanasiev: You would be surprised, but we are not seeing a decrease in the share that international investors make up in the volume of trading. In fact, the opposite is true. If at the end of 2013, foreign participants accounted for 40 percent of Russian equities trading, now the figure is 46 percent; for derivatives, the increase has been from 38 percent to 44 percent; in currency trading, from 10 percent to 14 percent.

That being said, some of those who are classified as foreign participants are registered in Cyprus – and as you know many large Russian fortunes are invested through offshore accounts in Cyprus. That is to say that, potentially, their activity could be considered to be a rise in domestic demand.

However, far from all Cyprus accounts are Russian in origin, their managers are not always Russian nationals and their choice of geography for their investment is very wide. At the moment, Russian assets are very cheap and this cannot but generate an interest among some investors.  

RBTH: In 2014, some major issuers that traded on foreign platforms decided to list on the Moscow Exchange, for instance Yandex. What other companies would you give as an example? What has been done to attract them to the Russian market?

A. A.: We have an extensive program for attracting new issuers. There are four groups of companies that we are interested in. The first are private Russian companies that seek to raise funds through a share or a bond placement on the exchange.

The second group are state companies undergoing privatization. For instance, in late 2013, the Moscow Exchange was the platform for the $1.3 billion IPO of state-owned Alrosa, one of the world’s leading diamond producers.

The third group are companies registered in foreign jurisdictions but which are in fact Russian. This includes the major Russian internet company Yandex, the successful retailer Lenta, the mining company Polymetal, and the electronic payment operator QIWI. These companies chose Moscow Exchange because they are interested in Russian investors and in the opportunity of being included into various country and regional stock indexes.

Finally, we are interested in high-tech venture companies, for whom the Moscow Exchange has set up a dedicated division, Innovation and Investment Market.

RBTH: Does it, in effect, mean that Russia is trying to set up its equivalent of the NASDAQ?

A. A.: We cannot include small venture companies in high-level quotation lists, but there is a class of investors that are interested in this type of companies. This market is so far rather small, it is, of course, no NASDAQ yet, but we have managed to create a certain association of venture funds, brokers, investment funds that are interested in this market.

RBTH: Over the past 18 months, the Moscow Exchange has conducted its own IPO, followed by an SPO. Now over 50 percent of your shares are in free float. What effect is such a high free float having on the work of the stock exchange?

A. A.: We conducted our IPO not because of a shortage of capital but because we wanted to use our own example to show that there is demand from investors for locally listed shares in companies with a good business model. Indeed, for a Russian company, Moscow Exchange has a very high free float, over 50 percent. We do not have a single large shareholder with a controlling stake and we have a very broad shareholder base.

A public offering changes a company’s life altogether: It implies different corporate governance requirements, a different level of transparency and reporting, and new motivation mechanisms for management and employees.

RBTH: This year, former Finance Minister Alexei Kudrin was elected chairman of the Supervisory Board of the Moscow Exchange. What innovations do you think the ex-minister will introduce to its operations?

A. A.: When Alexei Kudrin joined Moscow Exchange’s board, he brought with him outstanding expertise in terms of macroeconomic and financial markets knowledge. There was no need to bring him up to speed on the technical intricacies of the exchange’s operations: It turned out he was well familiar with them.

It goes without saying that Mr. Kudrin has extensive connections, which may be very useful for developing our business. It is very important to us that he is the most respected independent expert in Russia.

When we announced that Kudrin would speak at our conference in London in October, in a matter of three days so many people registered for the event that there was simply no room to accommodate them all.

Read more: Kudrin suggests five steps towards effective Russian economy amid sanctions

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