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 financial market in 2021 was dramatically transformed: the emerging post-COVID-19 trends, together with the current macroeconomic situation, had a strong impact on financial market participants, including global stock exchanges. The influx of individual investors in the stock market, the development of ESG themes and the growing interest in digital financial assets are trends that have taken on new forms in 2021.

Retail investment was already showing growth before the pandemic. However, it was COVID-19 that provided the necessary impetus that brought financial markets into the spotlight to improve people’s economic well-being. The simultaneous effects of low interest rates, remote working, the abolition of traditional entertainment, consolidation around social media, and broker activity (particularly low or zero commissions and the development of trading apps with game elements) catalysed the growth of retail investor activity. Although retail investors are investing smaller sums in markets than institutional investors, their influence is becoming more prominent. Banks and brokerages are writing about the growing role of the retail investor in financial markets.

More and more investors are considering the environmental and social impact of a company when deciding whether to invest in it.

ESG trends are setting a development vector for global stock exchanges not only from the perspective of an individual issuer, but also as a key financial market institution responsible for creating the necessary infrastructure to meet new sustainability interests and requirements.

The year 2021 saw continued improvement in ESG disclosure processes, an increase in the number of ESG instruments on exchanges, ESG-themed events, as well as the implementation of numerous exchange projects aimed at intensifying sustainability processes, including:

• achieving carbon neutrality (Deutsche Börse, JPX, LSE, SGX, WSE);
• launching ESG bonds (SZSE), ESG indices (Euronext / Borsa Italiana, SIX) and ESG derivatives (CME, Eurex, ICE, LME, NASDAQ, SGX);
• trading in CO2 emission allowances (ICE, etc) and carbon offsets (TSX);
• creation of new venues and platforms (FEX Global, Nasdaq ESG Data Hub, SGX);
• inorganic growth towards ESG (Deutsche Börse, ICE, NASDAQ, SIX).

Rising capitalisation of the cryptocurrency market, interest in non-fungible tokens (NFTs), and government CBDC (Central Bank Digital Currency) projects indicate a growing interest in digital assets.

The first cryptocurrency exchange (Coinbase) went public in April 2021. Its market capitalisation is comparable to that of the world’s largest traditional exchanges, highlighting the investment community’s belief in the future of digital assets.

Amid increased volatility, MOEX’s infrastructure in 2021 not only showed resilience, but also ramped up trading volumes and revenues, as it had the year before. Key strategic initiatives for exchanges include the desire to transform themselves into ‘technology providers’, embrace new asset classes and generate and commercialise pre-trade data and analytics. An essential part of exchange strategies is cybersecurity and the adoption of cloud technologies, which are already finding their way into the business models of major exchanges.

Competitors

MOEX’s main competitors in 2021 were SBP Exchange in Russia; and 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) abroad.

The London Stock Exchange (LSE) is both one of the world's, largest financial 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 on 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. It has been in competition with MOEX since 2000. A new phase of competition to attract Russian issuers began with the placement of Yandex in 2011.

The EBS currency platform is the world’s largest inter-dealer broker and one of the global market leaders in currency trading. Other developed and emerging market instruments, including commodity derivatives, bonds, stocks, depositary receipts and interest rate derivatives are traded on ICAP platforms in addition to FX instruments. EBS is the issuer’s main competitor in trading the USD/RUB and EUR/RUB currency pairs on the spot market.

The Chicago Mercantile Exchange, 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. CME offers matching, clearing with a central counterparty and settlement services. 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. RDX is an index for depository receipts an index for depositary receipts on Russian blue chips calculated by Wiener Börse.

HKEX is one of the largest Asian exchanges. Competition with MOEX began in 2010 with the listing of RUSAL shares.

SPB Exchange is the organiser of trading in foreign securities within the Russian jurisdiction. The competition began after the launch the launch of trading in foreign shares on MOEX in 2020.

MOSCOW EXCHANGE IN THE GLOBAL CONTEXT