CHAIRMAN’S STATEMENT
Dear Shareholders,
The consolidation of Russia’s financial infrastructure reached a milestone with the merger of the country’s two major exchange groups into a single, integrated holding as 2011 came to a close. Other equally important processes included the merger of MICEX’s Settlement Chamber and National Depository Center and the integration of MICEX Stock Exchange into MICEX Group.
In another milestone, Moscow Exchange has successfully completed its own initial public offering. The IPO, however, is only a stepping stone for the unified exchange. The maturation of the Exchange into a full-fledged public company is a major step in the longterm strategy for the development of the Russian capital markets and the establishment of Moscow as a national and indeed international financial center.
Developing of Russia’s capital markets necessitates reforms throughout the entire infrastructure. As part of these efforts, legal frameworks have been developed and federal laws on regulated trading, clearing and the central depository have been adopted. These regulations now need to be implemented in practice, which is a task primarily for the business community and less so for the government.
Moscow Exchange is shifting its equities market to T+2 trading, a post-trading settlement cycle which is more familiar to international investors.
National Settlement Depository, Moscow Exchange’s depository, is building new relationships between the central depository and registers.
National Clearing Centre, the central counterparty for Moscow Exchange’s markets, has all the resources to provide services for the OTC derivatives market, meeting Russia’s commitments to the G20.
Moscow Exchange continues to expand its product lines, as well the product lines of its central counterparty and central depository. Our business models and policies for working with brokerage companies are regularly revised and updated.
We will continue to improve access to the market for international investors in order to encourage larger investment inflows.
We are dedicated to continuous improvement, which we see as key to the success of international financial centers. I am confident the Exchange’s management will accomplish its goals, working together with market participants, shareholders and regulators.
Sergei Shvetsov,
Chairman of the Supervisory Board
CHIEF EXECUTIVE OFFICER’S STATEMENT
Dear Shareholders, Colleagues and Partners,
2012 marked the first full year for Moscow Exchange as a merged company, and during that year we achieved impressive results.
With the management teams combined and focused on a successful integration, in 2012 we posted the strongest financial results in the history of both exchanges, despite challenging external conditions.
Our strong financial performance enabled the Supervisory Board to recommend to the Annual General Meeting of Shareholders dividend payments in excess of RUB 2.9 bln, or 35.4% of 2012 consolidated net profit under IFRS. This also represents a new record.
The Exchange’s strong financial performance serves as an endorsement of our strategy: the merger of MICEX and RTS cleared the way for consolidation of the trading and posttrade infrastructure and created a well-diversified business. This diversified business generated steady growth in revenue and net income despite that the Russian markets were not spared by the global trend of lower equities trading volumes.
The merger also enabled implementation of critical projects for Russia’s financial market infrastructure, its participants and investors. In 2012, Moscow Exchange subsidiary National Settlement Depository obtained the status of central securities depository and clearing was centralized across all our markets with the National Clearing Center. Additionally, the groundwork was laid for a number of key 2013 initiatives including the switch to a mode for settling equity trades with partial pre-funding and introduction of repo transactions with the central counterparty.
Moscow Exchange’s future is tied to development of the Russian financial market. In cooperation with the investment community and regulators, we strive to ensure the market’s further dynamic development and enhance its attractiveness to all stakeholders. Working together, I am confident that we will achieve our ambitious goals
Alexander Afanasiev,
Chief Executive Officer
NTRODUCTION

HISTORY OF THE EXCHANGE

Moscow Exchange’s modern history dates back more than 20 years. Moscow Interbank Currency Exchange, known as MICEX, was established early in 1992. That marked the emergence of a money market in Russia. MICEX gave financial institutions, businesses, the government and indeed ordinary citizens an understandable tool to determine the fair exchange rate for the national currency. MICEX trading results quickly became the basis for exchange rate calculations — both for transactions between private companies and in determining the Central Bank of Russia’s official exchange rates.
Russian Trading System, or RTS, was established in 1995 as a trading platform for stock trading by professional market participants. The exchange proved to be reliable and efficient, and the RTS Index became the most important gauge of the Russian stock market for years to come.
Both trading floors constantly developed their business by offering an increasingly broad range of products and services to customers. A public bond trading system was established at MICEX, transforming the exchange into the main floor for trading in Russian public debt. This platform later evolved to become Russia’s leading floor for trading in corporate fixed income instruments, providing domestic companies with an effective tool for raising debt and triggering a genuine boom on the corporate bond market. In addition, MICEX opened the markets up to retail investors. RTS, in turn, emphasized development of the derivatives market. It was able to position itself as the leader in this segment and RTS Index futures became the most liquid contract on the Russian market.
The merger of MICEX and RTS into Moscow Exchange, completed in December 2011, gave fresh impetus to the development of the Russian exchange infrastructure. Most recently Moscow Exchange subsidiary National Settlement Depository was granted status as Russia’s central securities depository (CSD), global investors gained access to the market via Euroclear, the settlement cycle for the Securities market is transitioning to T+2 with partial pre-funding of trades and the Chinese yuan began trading on the FX market. Moscow Exchange completed its own IPO on February 15, 2013, valuing the company at RUB 126.9 billion (approximately USD 4.2 billion).

LEADERSHIPIN A GLOBALIZED MARKET

Today, Moscow Exchange is Russia’s main trading floor and one of the fastest-growing exchange groups globally.

Moscow Exchange’s equities segment ranked No. 18 globally by market capitalization of the companies traded and No. 1 in CEE and the CIS.

Moscow Exchange’s equities segment ranked No. 18 globally by market capitalization of the companies traded and No. 1 in CEE and the CIS.

Moscow Exchange operates Russia’s largest public trading markets for equity, bonds, derivatives, foreign exchange and money market products as well as Russia’s Central Securities Depository (CSD) and the country’s largest clearing service provider, National Clearing Centre. It also provides information services relating to the Russian securities market as well as software solutions and other technology services to its members.
Exchanges are largely tasked with market-making, listing and arranging for the placement of securities to enable issuers to raise capital. Exchanges, together with regulators, set standards for reporting and disclosure of issuers’ operations, thus protecting the interests of investors.
The core business of exchanges is to generate commission and fee income from transactions by professional market participants and their customers with different financial instruments, as well as income from securities listing, sale of market data and IT solutions.
Clearing and settlement as well as depository services are typically provided by independent companies specializing in these business lines. Increasingly we are witnessing a trend toward consolidation of this post-trade infrastructure with marketmakers into vertically integrated groups providing a full range of trading and post-trade services. This enables exchange groups to diversify their sources of revenue to include clearing, settlement, discounting rights and securities custody.
Moscow Exchange accounted for 26% of the turnover on the domestic FX market and 95% of the money market (repo transactions).
For instance, the NYSE and Euronext merger in 2006 resulted in the creation of the world’s largest exchange group by capitalization of traded instruments; the group also operates the full range of services required for investors. The trend toward larger exchange organizations gathered pace in 2007 with the consolidation of OMX by NASDAQ and the LSE’s purchase of Borsa Italiana.
Moscow Exchange was formed in December 2011 as a result of a merger between Russia’s two main exchange groups. The merger brought together MICEX Group, the oldest domestic exchange and operator of the leading securities, foreign exchange and money market platform in Russia, and the RTS Group, at the time the operator of Russia’s leading derivatives market. This combination created a vertically integrated public trading market across most major asset classes.
According to the World Federation of Exchanges (WFE), as of December 31, 2012 Moscow Exchange’s equities segment ranked No. 18 globally by market capitalization of the companies traded and No. 1 in CEE and the CIS.
On the secondary bond market, Moscow Exchange is among the top ten largest trading floors, and it is also in the top ten in derivatives trading.
There are no recognized rankings for FX and money markets, because in global practice these market segments are largely classified as OTC. On the Russian local market, as of the end of 2012, Moscow Exchange accounted for 26% of the turnover on the domestic FX market and 95% of the money market (repo transactions).
MAIN
EVENTS IN
2012
MAIN
EVENTS IN
2012
30 January
European Bank for Reconstruction and Development (EBRD) and Russian Direct Investment Fund (RDIF) purchased
6.29% and 1.25% of Moscow Exchange respectively
13 February
Full access to FX market granted to all market participants
13 February
Start of sale-and-purchase and repo transactions with OFZs and Russian sovereign Eurobonds issued on the Main Market
27 March
Moscow Exchange and National League of Asset Managers began publishing pension accrual indexes
30 March
BRICS exchanges (Brazil, Russia, India, China and South Africa) began cross-listing derivatives
5 April
Moscow Exchange and the City of Moscow’s Department for Science, Industrial Policy and Entrepreneurship signed cooperation agreement for Innovations and Investments market
16 April
Launched of IPOboard information and trading system, a platform for raising capital by innovative non-public companies
28 April
Trading of long swaps initiated on the FX market
6 June
Russian investors gain access to futures on BRICS indexes via Moscow Exchange’s futures market
29 June
Options for EUR/RUR exchange rate futures introduced on the futures market
27 July
Quotations and index information available to Google Finance users
3 September
Additional commissions for HFTs introduced on Securities and FX markets
17 September
Integration completed of individual derivatives markets into the unified Derivatives market
17 September
Board of Directors approved IT strategy through 2015
19 October
Launch of point of presence in Equinix’s London-based data processing center
6 November
Federal Service on Financial Markets assigned central securities depository status to National Settlement Depository (NSD)
3 December
Clearing fully centralized on National Clearing Center (NCC)
FINANCIALRESULTS
Evgeny Fetisov,
Chief Financial Officer
Moscow Exchange demonstrated excellent performance in 2012: total trading volume across all markets was RUB 369.7 trillion, representing a 24% increase from the combined results of MICEX and RTS in 2011. The aggregate trading volume on the FX, Money and Derivatives markets increased as a result of higher market activity and the emergence of new products and technologies. Trading volumes for equities decreased in line with global trends.
Despite challenging market conditions, we achieved strong revenue and profit growth, which served as an endorsement of our diversified business model. In particular, in 2012 the liquidity squeeze in the financial system triggered a drop in commission income from equities trading, which was offset by an increase in income on the Money market due to the same liquidity squeeze as well as growth in interest rates. That enabled a 45% increase in the income from available funds placement on the market. As a result, Moscow Exchange was one of the few global exchange groups to post net profit growth (of 22%) in 2012. We can also take pride in our increase in EBITDA profitability, to 63.7%.
In 2012, we completed the merger of the two exchanges, consolidated their reporting, and created a single management team. These efforts set the stage for Moscow Exchange’s initial public offering in early 2013, which raised approximately RUB 15 billion. Our status as a public company will require us to have an extremely responsible attitude toward investor relations and disclosure of financial and other material information. An important step in this direction was made early in 2013 when the Supervisory Board adopted a new dividend policy that specifies the minimum dividend payments based on consolidated net profit under IFRS for the next three years.
In 2013, one of our key goals remains increasing the share of revenue derived from commission income. We are also focused on enhancing business efficiency and cost savings.

KEY FINANCIALS

Securities market. Fee & commission income from the securities market decreased 26% y-o-y to RUB 3.08 billion. Total trading volume in 2012 was RUB 24.1 trillion, down 21% y-o-y.The 41% decline in equity volumes was offset by trading in bonds that was up 19% y-o-y. Total capitalization of the Exchange’s equity market amounted to RUB 25.21 trillion at the end of 2012 (USD 816.9 billion).The decline in equity trading volumes was largely driven by the negative backdrop for equity markets globally.
Diverse sources of revenues undergird our cycle-resistant business model.
Foreign Exchange Market. Fee & commission income from the FX market increased by 28% YoY to RUB 2.08 bln. Trading volumes on the FX market totaled RUB 117 trn, up 35% YoY. Growth on the FX Market was driven by both favorable market conditions for this segment and as well improvements adopted by the Exchange.
Money Market. Fee & commission income from the money market increased by 108% YoY to RUB 2.01 bln. Total trading volume on the money market including repo transactions and lending market amounted to RUB 178.7 trn (with the repo volume reaching RUB 169.3 trn), an increase of 45% YoY. The growth was due to the Central Bank of Russia’s implementation of monetary policy and economic stimulus via the Exchange.
Leading the way in derivatives

The fast-growing and high-margin Derivatives market occupies a top-10 position in global rankings.
Derivatives Market. Fee & commission income from the derivatives market increased by 56% YoY to RUB 1.25 bln. The trading volume exceeded 1 billion contracts representing RUB 50 trn, down 3% YoY. Open interest reached RUB 270 trn by YE 2012, up 24% YoY. During 2012 trading volume in some specific instruments increased significantly: volume of USD/RUB FX futures was up 91% YoY, OFZ futures were up 191% YoY.
Depository services and settlements. Fee & commission income from depository and settlement services increased 8% to RUB 1.92 bln.
Other Revenues. Other revenues increased by 56% YoY to RUB 1.11 bln. The biggest contributors to this line are revenues from the sale of IT services (RUB 528.15 mln, up 149% YoY) and revenues from the sale of market data (RUB 404.00 mln, up 45%).
Interest Income. Interest income increased by 45% YoY to RUB 10.03 bln. This was primarily due to an increase in funds available for investments (RUB 285.86 bln as of YE 2012, up 6% YoY) and a more favorable interest rate environment.
Investment portfolio structure as of 31.12.2012

Cash and Cash Equivalents. The Exchange cash position at YE 2012 totaled RUB 31.62 bln. The Exchange had no debt as of year-end 2012.
Expenses. Operating expenses in 2012 increased by 23% YoY to RUB 9.42 bln, driven mainly by growth in personnel expenses. Significant savings came from lower spending on professional services (RUB 826 mln, a decrease of 26% YoY), rent and office maintenance as well as advertising and marketing costs (RUB 492 mln and RUB 273 mln, respectively, down 3% YoY for both costs lines).
Capital expenditures for the FY 2012 totaled RUB 1.81 bln, most of which related to renovation costs of a new office building for the National Clearing Centre and National Settlement Depository on Spartakovskaya Square, which totaled RUB 1.22 bln.
Key financials (RUB million)
INDICATOR 2012 2011 Growth
Operating Income 21 546,97 16 948,03 27%
Fee and Commission Income 11 406,82 9 950,98 15%
Interest and Other Finance Income 10 033,26 6 920,06 45%
Other operating income 106,89 76,99 39%
Operating profit 12 124,57 9 258,45 31%
Net profit 8 200,33 6 696,76 22%
Basic earnings per share, in RUB 3,86 3,14 23%
 
EBITDA 13 719,28 10 363,58 32%
EBITDA margin 63,7% 61,1%


2011 results take into account consolidation of RTS Group financial statements
beginning June 29, 2011.
OPERATING PERFORMANCE
Andrey Shemetov,
Deputy Chief Executive Officer
In 2012, Moscow Exchange finalized a series of projects that are critical for the Russian financial market and that we expect will attract more investors to our markets. These include centralizing clearing with the National Clearing Center, transfer of government securities to the Stock Exchange, the National Settlement Depository being granted status as the central securities depository, providing access to the FX market to all categories of participants; launch of a London point of presence for international investors and establishment of the first repository in Russia. All of these projects were implemented with close cooperation and support from market participants and regulators.
Our performance in 2012 showed that we have in place a balanced, crisis-proof business model: if revenue declines in one market segment it rises in another one. In 2012, we observed reduction in trading volumes on the Derivatives and Securities markets, but at the same time the FX and Money markets boomed. Irrespective of the market environment, revenues and profit at the Exchange rise steadily thanks to our unique combination of FX and Money markets, Securities market and Derivatives market.
Our focus is now on expanding the number of instruments traded and products offered, as well as growing our customer base.
Opportunities to increase market share include repatriating trading of Russian securities from international exchanges and bringing a portion of the OTC market back onto the Exchange.
In 2013, we have a series of critical projects underway that aim to further consolidate our service offering and disseminate best practices of individual business units across all our markets. Since January 2013, we have opened fully-fledged access for nonbanking financial institutions to the FX market and introduced the T+2 settlement regime with partial pre-funding of trades. During the year, we intend to centralize clearing of derivatives transactions; make the repository fully operational; implement the operating mode with securitization of transactions by security pooling; and grow the commodity market ‘range’ significantly. This is all intended to open up new opportunities for our customers and partners and to make working with the Moscow Exchange as convenient and efficient as possible.
FX AND MONEY
MARKET
Igor Marich,
Managing Director,
FX & Money Markets
In recent years a number of trends in the development of global currency markets have come to the fore. First, a market that was traditionally dominated by the interbank over the counter (OTC) market has seen new types of participants play a more active role, including investment funds, corporations and other institutional investors. The second trend we note is an increase in the number and type of transactions executed with a central counterparty. With these trends in mind, currency markets globally are increasingly targeting on-exchange technology coupled with the use of a central counterparty.
Moscow Exchange is uniquely positioned for this new reality. Over the last few years we have developed on-exchange trading with the central counterparty. Currency trading technologies of this type are not available through other exchange floors – not just in Russia but in fact internationally as well. We are at the forefront of changes occurring in global markets.
Our results for 2012 amounted to an endorsement of our strategy. FX trading volumes on the Exchange rose 30% versus 2011, largely because early in the year we were able to fully offer the technologies that provide direct access to the FX market to different categories of participants including international market players, corporate customers and individuals. These new customers already account for more than 20% of the turnover on the FX spot market. In the short term, among our key aims are to continue working to expand the range of traded instruments and engaging different customer groups to encourage them to trade on the Exchange.
In terms of the money market, we are moving in largely the same direction though we are in the early stages of development. We have begun developing the repo market with the central counterparty. Over time we will create an on-exchange money market, providing market participants with the ability to efficiently manage liquidity. This is significant not only for banks: we see that corporations are also ready to actively participate in managing their liquidity including by placing free cash flow on the market. The money market of Moscow Exchange gathers all participants in one place and offers them the most efficient tool to raise and place capital, a transparent platform based on the use of exchange technologies and central counterparty arrangements. This will enable all market participants to engage with other participants and mitigate their risks.

KEY RESULTS OF
THE FX AND MONEY

FX MARKET

In 2012, trading volumes on the FX market totalled RUB 117 trillion, having increased by almost 34% year-on-year. Spot transaction trading volumes totalled RUB 61.5 trillion and swap transactions totalled RUB 55.4 trillion (an increase of 31.2% and 38.8% versus 2011 respectively).
The share of currency conversion operations by Russian banks executed on the exchange rose from an average of 21.6% in 2011 to an average of 26.1% in 2012. On-exchange transactions between Russian banks accounted for 30% of USD/RUB currency pair volumes and 55% of EUR/RUB volumes.
The FX and money market is a crucial part of the Russian financial market. It is used by the Russian Ministry of Finance and the Central Bank of Russia to implement currency, budget and monetary/credit policy. Moscow Exchange plays a systemically important role as the infrastructure company at the heart of the FX market.
The strong performance of the FX market was a result of a favourable market environment as well as a number of innovations implemented in 2012:
Customer access development. In 2012, Moscow Exchange provided fully functional customer access to trading participants, which allowed for an increase in market activity and an extension of the customer base. By the end of the year, more than 3,600 domestic and international brokers and sub-brokers as well as legal entities and individuals were counted as FX market customers. During the year, the volume of transactions executed by these customers totalled RUB 12.3 trillion, and their share in the total volume of spot transactions exceeded 22% in December 2012.
Trading access for non-credit institutions. In December 2012, the decision was made to open up trading access to non-credit institutions, specifically professional market participants. In January 2013, the leading brokers began operating on Moscow Exchange’s FX market.
Access for Eurasian Economic Community resident banks. As part of the Eurasian Economic Community (EEC) Integrated Currency Market project, development of a listing ‘roadmap’ was finalized and the technical plans for connecting the EEC resident banks to the currency market were completed by the close of 2012. This enabled the first foreign participant, Belorussian bank BPS-Sberbank, to begin entering into transactions on the FX market in February 2013.
Daily average volume of trade on FX market, 2003-2013, USD, bln

Launch of ‘long swap’ instruments. 2012 saw the launch of new instruments: ‘long swaps’ for the USD/RUB currency pair, with maturity in 1 week, 2 weeks, 1 month, 2 months, 3 months, 6 months, 9 months and 1 year. For prompt management of positions, it became possible to enter into forward ad hoc transactions with the valuation date of up to 1 year. In 2012, ‘long swap’ trading volumes totalled RUB 436 billion, and some 100 banks took part in transactions with them.
FX market structure in percentage terms, 2012

Tariff policy improvement. In 2012, work on unifying the approach to tariffs continued across all Moscow Exchange markets. Beginning in June new tariff plans for spot transactions were introduced. In September an additional service charge was introduced to take into account the less productive burden on the trading system represented by high-frequency traders (HFTs). In January 2013, a minimum service charge of RUB 1 per transaction was introduced.

GOALS AND PRIORITIES FOR FURTHER DEVELOPMENT

Development of the Chinese yuan/Russian ruble market. The project aims to bring Chinese yuan trading in line with the terms of Moscow Exchange’s most basic currency pairs: USD/RUB and EUR/RUB. Partial pre-funding of trades and the use of CNY as collateral are being introduced; new instruments and swap transactions are being created; trading hours are being extended; tariffs are being reduced for CNY/RUB trading.
Admission to the FX market via FORTS. FX market trading participants will be able to provide DMA trading access to their customers via the FORTS trading and clearing system and will also be able to enter into transactions using single margining with the derivatives market.
Admission of non-residents to clearing on the FX market. Implementation of the project will enable foreign companies to be directly admitted to the FX market as clearing participants. For this purpose, it will be necessary to separate the status of trading participant and clearing participant.
Number of clients and client daily volume, USD, bln

MONEY MARKET

The total trading volume on the money market, which includes repo transactions and the credit market, came to RUB 178,7 trillion. Repo transaction volumes totalled RUB 169.3 trillion, a 49% increase versus 2011.
During 2012, repo transactions with the central counterparty were instituted on Moscow Exchange’s money market. Trading under repo transactions with the central counterparty was launched in February 2013. Initially, it is possible to enter into repo transactions for 1 day; federal loan bonds will serve as security for the transactions.
In April 2012, Moscow Exchange introduced a new tariff model for repo transactions. Three tariff plans were created: Basic, Economy, and Leader. The new tariff model is intended to improve terms for the most active participants.
In July 2012, Russia’s Federal Treasury placed funds on deposit with lending institutions using services provided by Moscow Exchange. From the first placement (July 26, 2012) to the end of 2012, a total of RUB 638 billion was placed. By the end of 2012, more than 30 lending institutions were admitted to participate in transactions with the Federal Treasury.
REPO TRANSACTIONS

IN 2013, THE FOLLOWING PROJECTS ARE PLANNED FOR THE MONEY MARKET:

• Development of the market for repo transactions with the central counterparty and repo transactions with a pool of securities. The plan is to expand the list of securities with which participants can enter into repo transactions with the central counterparty and to include shares and corporate bonds into it. In addition, the plan is to enable the participants to enter into repo transactions for a term of more than one (1) day. Preparation work is also planned ahead of the launch of the repo project with the central counterparty with the securities pool.
On-exchange repo transactions account for more than 90% of repo deals in Russia.
• Stock exchange repo transactions with the Central Bank of Russia, with services of the National Settlement Depository. The launch of stock exchange repo transactions with the Central Bank of Russia, with the securities basket, is scheduled for 2013. The security management agent will be the National Settlement Depository. As concerns repo transactions with the securities basket, it will be possible to quickly replace the security, with reversal of paper to the trading floor.
• Foreign currency repo transactions. Creation of new trading modes for inter-dealer repo transactions in foreign currency will enable participants to enter into repo transactions with internal securities with foreign currency settlement.
Placement of Pension Fund money. It is planned to begin selection of bids for placement by the Russian Pension Fund of insurance premiums in bank deposits with lending institutions.
DERIVATIVES
MARKET
Roman Sulzhyk,
Managing Director,
Derivatives Market
Though the Russian derivatives market is relatively young, it already occupies a significant place in global rankings. Moscow Exchange’s market is among the top 10 leading floors in derivatives trading, and futures on the USD/RUB pair are ranked as one of the three most liquid currency contracts globally.
In 2012, we took an important step to cement our market position and to be able to move forward: we consolidated the RTS and MICEX derivatives markets, thus providing customers with a single point of access for futures and options in Russia.
Among our most critical projects completed in 2012 was the launch of a new technological platform, SPECTRA, which increased capacity by cutting the delay for each transaction multiple times. System performance improved from 2,000 to 30,000 bids per second and we estimate it will enable us to fully meet the needs of Moscow Exchange customers for the next few years without additionally scaling the IT platform capacity. We are now able to focus on developing customer products and creating a more efficient line of financial derivatives.
Global markets are currently experiencing a decrease in trading activity, and this is true of the standard futures market. At the same time, we also see a desire by regulatory authorities globally to move the market for OTC derivatives onto the clearing regime with a central counterparty.
This opens up new opportunities for exchange groups, and indeed we plan to take advantage of the trend. The launch of OTC derivatives clearing is one of the key initiatives planned for Moscow Exchange’s futures and options market in 2013. We expect interest in this product to be very high given how convenient it is and that it provides greater protection for trades.
The Exchange will also promote its traditional products on the futures and options market. In 2013, we are launching currency futures for the Ukrainian hryvnia (UAH) and Chinese yuan (CNY) and are introducing trading of calendar spreads.
In sum, Moscow Exchange’s Derivatives market already boasts a sizeable customer base and algorithmic traders are quite active on the market. On the one hand, we are working to expand this client base, including by attracting new international customers interested in hedging risks. We are confident that the development of our product line coupled with ongoing work with our customers will ensure a successful 2013.

KEY RESULTS
OF THE DERIVATIVES MARKET

Derivatives play a key role in modern finance. They allow market participants both to hedge positions on underlying assets and to build successful investment strategies. These investment strategies may be based on high-frequency trading or on the creation of structured products that have a fixed level of risk and guaranteed return on invested capital.
Trading volume on Moscow Exchange’s Derivatives market was RUB 50 trillion in 2012, or 1.06 billion contracts. 2012 saw volumes on derivatives trading fall all over the world. Trading volume on Moscow Exchange’s Derivatives market fell 10.85% in ruble term and 1.9% in terms of contracts versus 2011.
Trading volume in the commodities section of the Derivatives market totalled 22 million contracts in 2012, a 40% drop versus 2011; volumes in the stock section totalled 604 million contracts (20% reduction y-o-y) and in the money section 434 million contracts (64% increase y-o-y).

INSTRUMENTS AND INFRASTRUCTURE

In 2012, Moscow Exchange’s Derivatives market continued to expand its product offering. In February, trading in futures on UC RUSAL depositary receipts was launched. June saw the launch of trading in futures contracts on the equity market indexes of our BRICS partners – Brazil’s IBOVESPA, India’s Sensex, Hong Kong’s Hang Seng and South Africa’s FTSE/JSE Top40. In December, market participants were able to begin trading a basket of 10-year federal bonds (OFZs); this contract quickly became one of the most commonly traded instruments for portfolio managers.
In 2012, Moscow Exchange Group completed the centralization of its clearing business. Importantly, centralized clearing was introduced on the Derivatives market. This will likely provide a new impetus to the market’s development due to increased trading activity from international participants who are now able to raise their limits on the clearing organization.
To enhance liquidity, in September the bid increment and the cost of the bid increment was increased for futures contracts on the MICEX and RTS indexes. This increased the density of the order book and improved the immediate liquidity of these instruments.
Also, a new algorithm was introduced for the calculation of the variation margin for contracts quoted in USD points. The delivery mechanism of futures contracts for federal bonds (OFZs) was upgraded and implemented on Moscow Exchange’s stock market.
Open positions on
the Derivatives market by contract, 2012


CUSTOMER RELATIONS

2012 saw new efforts to attract corporate customers and regional banks to Moscow Exchange’s Derivatives market. Working together with brokerage firms and banks, Moscow Exchange held more than 15 workshops, conferences and other meetings aimed at engaging companies looking to manage risks through hedging.
Throughout the year Moscow Exchange continued to actively engage retail investors, conducting more than 20 workshops across Russia.
As a result, the number of active customer accounts on Moscow Exchange’s Derivatives market rose from 26,000 to 30,000. The number of participants in the popular “Best Private Investor” competition tripled from 1,500 to 4,500, a new record in the competition’s nineyear history. In 2012, Moscow Exchange also focused on attracting Western participants to the Russian derivatives market. Major companies began to scale up their transactions and leading international high-frequency trading firms entered the market, including as market makers.

DEVELOPMENT PRIORITIES

One of the key goals for the derivatives market in 2013 is improving liquidity for all categories of instruments. Special marketing programs targeting both professional participants (“Clash of the Titans”) and end customers (“Active Customer”) were launched at the beginning of the year. These programs aimed to encourage active end customers and increase the turnover for major bids, thereby increasing the depth and density of the market.
In 2013, Moscow Exchange plans to expand the range of derivative instruments for currency pairs. Contracts for USD/JPY, USD/CNY, USD/UAH, and RUB/UAH will be introduced. Trading in futures contracts for the RUONIA rate (indicative weighted RUB deposit overnight rate of the Russian interbank market) and the basket of 15-year federal loan bonds will be introduced. The commodities contracts will be supplemented with futures on industrial metals, including aluminium and nickel.
Moscow Exchange plans to expand its range of services in 2013: professional market participants will be able to conduct settlements with OTC derivatives using the Exchange’s guarantees and infrastructure. Companies will also be able to provide currency as collateral for their transactions. The insurance pool of the Derivatives market will begin to accept federal bonds (OFZs) in addition to cash. The Exchange also plans to offer a new service to all customers for trading calendar spreads, which will enable customers to reduce the cost of funding of their transactions.
Trading volume and open positions
INDICATOR 2012 2011 % change
Turnover (billion of contracts) 1.06 1,08 -1.9
Turnover (RUB billions) 49.95 56 -10.85
Daily average volume of open
positions (million of contracts)
8.5 7,2 18
Daily average volume of open
positions (RUB millions)
322 305 5.31
SECURITIES
MARKET
Anna Kuznetsova
Managing Director,
Securities market
Moscow Exchange is among the largest trading platforms globally – we rank in the top 20 in trading of equities and in the top 10 in bonds – and thus we must be ready for international competition by offering clients new and modern products.
The Exchange took a number of important steps in this direction in 2012. In fixed income, we consolidated the government and corporate securities segments, which significantly expanded the pool of investors buying government bonds and eased market access for non-residents. In addition, we introduced new instruments including subordinated bonds and structured bonds.
In 2013, Moscow Exchange will implement another important project: the shift to the T+2 settlement system with partial prefunding of trades. This is a major step, both for domestic investors who will be able to develop more flexible strategies for managing their funds, and for international players who regard the T+ mode as more convenient and familiar.
We see significant growth potential for the Russian market by growing the international investor base. In light of the establishment of a central depositary and the launch of the T+2 settlement regime in 2012, Russia’s financial infrastructure is increasingly in line with what international institutional investors have come to expect. We also see potential in attracting issuers from outside Russia, primarily from the CIS, to Moscow Exchange’s markets, both in equities and bonds. We expect multinational corporations with a significant presence in Russia to borrow using the local debt market. Attracting foreign investors and issuers requires the Exchange, as an infrastructural organization, to work closely with regulators to create the most accessible and transparent conditions for market participants. We are continually engaged in such work.
Among the dominant trends on the global securities market is the increasing number of instruments on offer as well as growing sophistication of trading technologies. Investors and market participants are demanding a wider array of securities instruments and more freedom to manoeuvre when implementing their strategies.
The Exchange is making similar efforts to expand the domestic investor base. We see high growth potential in the equity market, where the presence of Russian institutional investment remains extremely small. The main obstacles are regulatory limitations on equities investing by pension funds and the sovereign wealth funds. We are confident that through close cooperation with market participants and regulators, we will be able to take the next step in the development of the Russian securities market.

KEY RESULTS OF
THE SECURITIES MARKET

NEW PROJECTS IN 2012

In 2012, the Securities market of Moscow Exchange implemented a number of initiatives to improve securities trading and tariff policy. These measures increased liquidity on the debt market, improved the reliability of the trading and clearing system and expanded operating options for market participants.
A major achievement of the year was the consolidation in February of trading on the secondary public securities market with trading on the securities market, eliminating the need for market participants to open a separate account with the National Settlement Depositary for trading on the public bond market. This caused the number of market participants with access to the OFZ market to double, from less than 300 accredited participants in the government securities market to almost 600 participants approved for trading on the securities market. As a result, secondary trading in OFZs surged 49%, and the number of trading participants on the public debt market increased by 20%. Beginning in December, initial placements of OFZs have taken place on the securities market concurrently with corporate bond placements.
The Securities market of Moscow Exchange is Russia’s principal trading platform for trading of stocks and bonds and the primary place of price discovery for Russian securities.
The debt market took another step forward with the introduction of Eurobond trading with settlement both in rubles and in foreign currencies. Consequently, the volume of secondary trading in Eurobonds on Moscow Exchange increased in comparison with previous years.
Trading volumes on the Securities market totaled RUB 24.1 trln in 2012, or 12% less than in 2011. The bond market grew 13.4% to RUB 12.5 trln in turnover, including a 18.4% increase in secondary trading to RUB 10.4 trln. Trading of mutual funds was up 2.7 times to RUB 96 bln. Equity trades totaled RUB 35.3 trln (USD 816.9 bln).
In 2012, new instruments appeared on the market, including subordinated and structured bonds. Trading in bonds that can be placed and circulated only among legal entities (subordinated bonds) has opened up new opportunities for issuers to use the securities market to raise funding.
In early 2012, Moscow Exchange introduced bond trading without suspension under coupon payment on bonds with registered issuance dates in 2012. The launch of non-stop bond trading during coupon payment periods has allowed the Exchange to increase the duration of trading in these securities.

TARIFF POLICY

Significant changes have taken place in Moscow Exchange’s tariff policy. To regulate trading participants’ activity, a subscription fee was introduced in January 2012, to be charged to trading participants if the service charge paid during a month amounts to less than RUB 20,000.
Stock market capitalization (RUB bln)

To unify tariffs on public and corporate bonds, tariffs on transactions with corporate bonds were reduced by 9% in February. A specialized fixed tariff plan for securities placement was introduced for major underwriters.
Also, a new tariff model was developed and took effect in January 2013 on the equity market. Instead of the earlier flat tariff plan for all market participants, a selection of tariff plans was offered. Additionally, the Exchange introduced rebates, repayments of a portion of the turnover fee (commercial and trade) on transactions concluded with one broker. All of these efforts were intended to encourage major market players to streamline their tariff plans and increase the volumes of transactions conducted on the Exchange.
The introduction of an additional fee for high-frequency trading strategies on Moscow Exchange’s Securities market in September 2012 has become an important tool for the regulation of HFTs. This measure has reduced the inefficient load on the Exchange’s trading system by 70% and motivated the improvement of high frequency trading algorithms.
Stock market trading volumes (RUB trln)

Leaders by trading volume at securities
market, RDR and PIF in 2012


TECHNOLOGY

In September 2012, Moscow Exchange introduced technology for book building, securities placement and exchange trading. This technology was developed to synchronize exchange technologies and business practices associated with OTC securities placement by enabling preliminary bid submission and the modification of such bids over a certain period of time.
This technology was applied successfully for the first time with the placement of Sberbank shares in September 2012. The book building technology was used for the placement of RUB 7 billion in St. Petersburg municipal bonds in December, and again for the placement of Moscow Exchange’s own shares in February 2013.
The Exchange’s post-trading auction technology was modified substantially in 2012 with the introduction of an option to carry forward uncompleted limit orders from the trading period as well as additional disclosures on the progress of auctions. These efforts not only boosted post-trading period trading volumes by 30%, but also provided a gauge of the market’s sensitivity to modifications in final-stage trading and prepared the market for the introduction of the closing auction, which is scheduled for 2013.
Another new technological solution launched in 2012 was the use of the Securities market’s functional options to deliver OFZs orders resulting from the conclusion of transactions on the Derivatives market. This vehicle is intended to streamline the Exchange’s workflow in conducting these transactions and to create more convenient conditions for trading participants.

PLANS FOR 2013

The major project for 2013 will be the shift to the T+2 settlement regime with partial prefunding of trades and use of a central counterparty. Trading in OFZs and the 15 most liquid shares already began under this arrangement in March, and Moscow Exchange plans to use this model for settlements with all securities by the end of the year.
Securities market by customer category (2012)

Volume of secondary trading of bonds at Moscow Exchange, RUB, bln

INNOVATIONS
AND
INVESTMENTS

MARKET
Gennady Margolit,
Executive Director,
Innovations and Investments Market
The core mission of the innovations and investments market is to attract young, promising non-commodity companies to the public market. This objective is relatively new: the market for securities of innovative and high-tech companies in Russia is still in its infancy and remains extremely narrow. However, we hope that many of the companies entering our market now will become the Russian blue chips of the future.
To achieve this goal, we have partnered with everyone who deals with start-up innovative companies. Development institutes and venture funds invest in start-up companies, expand their businesses and prepare them for IPOs. We are built into this chain and work closely with our partners, so that these companies will come to Moscow Exchange when they are ready to raise capital on the open market.
The Innovations and Investments market’s Coordinating Board is a strategic body of Moscow Exchange’s Supervisory Board, which comprises representatives of relevant ministries and departments, legislative authorities and development institutions. The Coordinating Board communicates the opinions of financial market participants to governmental authorities in order to enhance the investment environment. This in turn enables us to better fulfil business objectives when entering the public market.
Preparing start-up companies for entry to the stock exchange is a complex task. A business must first grow and develop procedures for drafting financial statements and disclosures that are acceptable to the investment community. For this reason, the IPOboard – a platform for innovative companies at pre-public stages and a partner project of the Investments and Innovations market – was launched in April 2012. IPOboard is a joint project of Moscow Exchange Rusnano and Russian Venture Company; a number of other venture foundations and investment companies are also active participants in the project.
2012 Key Results

Total trading volumes:
RUB 12.45 bln

Aggregate market cap:
RUB 32.5 bln

New issuers:
10

Value of new issuance:
RUB 3.8 bln
The project consists of active marketing programs, including online presentations, for companies to reach out to potential investors. Also, the foundation has been laid for transactions with shares of currently non-public companies in auctions. More than 100 innovative companies were admitted to IPOboard in 2012 and more than 200 investors and 15 board assistants (accredited advisors) were registered.
Issuer’s type of business
LISTINGS
In 2012, secondary public offerings (SPOs) of Sberbank, Megafon and Abrau-Diurso as well as SPOs in the IIM of such companies as Levenguk, Rollman Group of Companies, Multisistema, European Broadcasting Company, SkyComputing, and VTORRESURSY were successfully conducted on Moscow Exchange. Trading began in securities of a foreign issuer with the placement of International Finance Corporation’s third bond issue of RUB 13 billion. A total of 1,755 securities of 694 issuers were listed as of December 31, 2012.
Moscow Exchange made a series of amendments to its Listing Rules in 2012 in order to create more attractive conditions for investors in securities market transactions and mitigate possible risks.
Listings are a core function of a securities exchange. In 2012, Moscow Exchange initiated the reform of its listing rules to make them more convenient for issuers and investors.
In particular, the Exchange is now entitled to deny an issuer’s delisting application at the discretion of the Securities Market Committee. If the Committee resolves to stop trading in an issuer’s shares, the Exchange sets a transition period of 14 days to three months, during which these securities continue to be traded. This allows investors and market players enough time to sell the securities at the market price.
To protect investors’ interests, Moscow Exchange introduced a sector for securities of companies with high investment risk in 2012. The Exchange includes securities in this sector on the basis of the recommendations of the Listing Committee or the Securities Market Committee. Securities included in the sector of high investment risk companies are highlighted in the trading system; transactions with such securities are carried out in special trading modes to enable investors to estimate the potential risk.
Moscow Exchange plans further listing reforms in 2013 to continue the progress made the previous year. The reforms are intended to align the Russian listing system with best international practices, establish criteria that take into account international experience and reflect the quality of securities, and ensure the stability of quotation lists to prevent frequent revisions of institutional investors’ portfolios.
New securities issuance
2011*
Number of Securities
Securities in Quotation List 2012*
Number of Securities
Securities in Quotation List
Equities (including RDRs) 310 114 419 120
Corporate bonds 539 276 487 290
On-exchange bonds 109 56 186 120
Federal, subfed. and muni bonds 100 54 93 57
International bonds 3 0 8 2
Mutual funds 365 41 397 40
Total 1426 541 1590 629

* As of January 1

THE MOST IMPORTANT ELEMENTS OF LISTING REFORM ARE:

• Simplification of the structure of the Listed Securities Register;
• The option of entering into IPO/SPO transactions in a quotation list of any level;
• Introduction of a requirement for the percentage of shares in the free float in order to unify the Exchange’s approaches to indexing and inclusion in quotation lists;
• More stringent corporate governance requirements (changes in directors’ independence criteria, requirements to the Board of Directors’ committees, etc.) in order to align corporate behaviour requirements with international standards;
• The requirement to maintain and file consolidated financial statements under IFRS.
The post-reform listing would be a two-tier system comprised of quotation lists (to be represented by quotation lists I and II) and securities not included in quotation lists (list level III).
Number of securities admitted to trading on MICEX Stock Exchange
(incl. in quotation lists)


COMMODITIES
MARKET
Mikhail Orlenko,
Executive Director,
Commodities Market
Until recently Moscow Exchange’s Commodities market had been limited to on-exchange grain trading by the Russian government as part of its interventions in executing grain market regulation, plus small volumes of trading in futures contracts for individual types of agricultural products.
The share of the Commodities market in the total exchange trading turnover is insignificant – as low as 0.5%. This compares to a global average of 20-30%. It is clear that the growth potential of this market segment is sizeable.
Moscow Exchange has a natural competitive advantage in the commodities market: proven exchange technologies and an extensive customer base.
We believe that current participants of Moscow Exchange’s Commodities market – agricultural manufacturers, grain traders, and financial market participants, both individuals and legal entities – would be interested in participating in Moscow Exchange’s Commodities market in order to diversify their investments and hedge against risks. To attract new investors to the commodities markets, we must expand the range of instruments available on the Exchange.
Moscow Exchange intends to address this objective in the near future. In 2013, we will launch a project to create a precious metals market. We plan to develop both the spot market and the market for precious metals supply futures. The goal is to start spot trading as early as in 3Q/4Q 2013.
Investors – particularly private ones – are very interested in this market segment. In 2012, individual clients were responsible for more trading volume in gold contracts on Moscow Exchange’s Derivatives market than financial institutions.
However, far from all investors are willing to trade in precious metals on the futures market. While the open positions for precious metals futures on the Derivatives market amount to approximately USD 400 million, banks currently hold metal accounts worth some USD 5-7 billion.
Investments via metals accounts are not suitable for all investors in the current market conditions. This is primarily due to the large spreads on transactions with them, which significantly limits the ability to regularly correct positions.
It is this gap that we intend to close by providing investors with a flexible and convenient exchange instrument for investments in the precious metals market.
On-exchange trades as a result of government intervention in the grain market,
RUB b;n


COMMODITIES MARKET
PERFORMANCE

Commodities are an important part of exchange trading in international markets, enabling both financial and real economy companies to hedge risks and invest capital. In addition, governmental authorities are able to use exchange instruments to regulate prices in important commodities using market methods.
The Commodities market is not currently a material contributor to Moscow Exchange’s overall revenue. Our primary objective at present is to support exchange trading as part of the government’s efforts for grain market regulation (by purchase and commodity interventions), and also to offer futures contracts for agricultural products for trading -- wheat, rice and rice cereals.
Grain trading for 2012 totalled 3.47 mln tons (RUB 22.1 bln).
The aggregate volume of trading on the National Commodity Exchange (NTB CJSC), a unit of Moscow Exchange, during government interventions in 2012 nearly tripled yearon- year to 3.47 million tons of grain worth RUB 22.1 billion. As a result, the Exchange’s income from interventions amounted to RUB 96.04 million in 2012.
In 2012, a new model for commodity interventions was developed to improve governmental regulation, enabling the Exchange to set grain purchase limits on different basis assets and participant categories. The transfer of the Commodities market to the trading and clearing platform of the Exchange’s Derivatives was finalized. The clearing services of the Commodities market were transferred to the National Clearing Center during the Group-wide clearing centralization.
In 2013, Moscow Exchange plans to intensify its work on the commodities markets. The key project of the year is the launch of spot trading in precious metals. This is expected to attract a great number of professional financial market players, as well as their customers, to the precious metals market.
Another critical project is the launch of spot trading in wheat. The preparations will be finalized in 2013, and trading is to begin as early as 2014.
On-exchange government interventions

DEPOSITORY
AND CLEARING ACTIVITIES
One of the most important events for the Russian financial market in 2012 was the National Settlement Depository (NSD), a Moscow Exchange subsidiary, being granted status as Russia’s Central Securities Depository (CSD).
This move required a great deal of preparatory work. In 2012 NSD introduced a new automated electronic cash settlement system that significantly increases the reliability and efficiency of its settlement system and facilitates development of new cash settlement products. As part of an upgrade of the risk management system, NSD improved and tested its backup office system, including a fail-safety check for exchanging market settlements, depository processes and cash settlements.
As part of the merger of MICEX and RTS, the integration of NSD with Depository Clearing Company and RTS Clearing House was completed in 2012. As a result, all cash settlements and securities settlements referring to exchanging markets are executed by NSD as of Autumn 2012.
A well-functioning depository is essential to protecting the rights of investors. Important milestones for the Russian market in 2012 were the introduction of a Central Securities Depository (CSD) and centralization of clearing with the DEPOSITORY National Clearing Center.
In 2012 a range of additional projects was also implemented. In October the introduction of a new NSD clearing system was completed. The system allows NSD’s clients to execute settlements in DVP-2 and DVP-3 modes. It is the first step towards organization of DVP settlements through cash accounts in foreign banks, which came online in 2013.
In late 2012 the technical, legal and regulatory aspects of the repository project were completed. The project officially began to collect information on off-exchange repo and currency swap transactions. The repository will provide regulators with reliable information on off-exchange transactions and allow them to establish effective close-out netting procedures.
Additionally in 2012, the business model, architecture and technology for the collateral management system were developed. Initially the collateral management system will be used together with NSD’s new clearing system for settlement of repo transactions of the Bank of Russia with a basket of securities; this mode became available to market participants in 2013 for a range of securities and allows Russian credit organizations to access new sources of liquidity through a more efficient system of collateral pool management.
In 2012 NSD began work on the Corporate Information Center, an initiative that will create a single source of information on issuers and securities, as well as corporate actions.
In 2012 NSD intensified its work with foreign investors and international settlement institutions. Obtaining status as CSD brought NSD into line with the United States rule 17f-7, acting as an endorsement of the settlement regime for the Russian market. Russian market liquidity will also improve given that foreign nominee accounts for international central depositories and international settlement systems can now be opened with Russia’s CSD. The first foreign nominee account was opened with Euroclear Bank in late 2012.

FUTURE PLANS

One of the key challenges for NSD in 2013 is the development of an off-exchange transaction registration system as part of the repository. By Autumn 2013 NSD plans to significantly extend the list of derivative instruments for which information is being sent to the repository.
Following the launch of the Bank of Russia’s first repo operations with the basket of securities in early 2013, NSD plans to continue to improve new technology on the basis of the first experience of its utilization and provision of the opportunity to complete transactions through the on-exchange terminal apparatus.
The Remote Corporate Affairs initiative will be completed in 2013. The goal of the initiative is to prepare the legal framework for conducting corporate actions with electronic documentation.
In 2013 work will continue on establishing the Corporate Information Center. In 2013 NSD plans to increase cooperation with international newswires and to organize mutually beneficial communication. In addition, NSD plans to launch a service that will personally notify clients of corporate actions conducted with SWIFT formats.
CLEARING
In 2012 Moscow Exchange’s clearing function was consolidated on National Clearing Center (NCC). In addition to clearing for the FX market and Securities market, NCC now acts as central counterparty and clearing organization for all derivative contracts traded on Moscow Exchange, Moscow Energy Exchange and St. Petersburg Exchange. The aim of centralizing clearing is to boost trading efficiency, stimulate trading activity and reinforce investors’ confidence in the reliability of the Exchange through simplification of the clearing procedure and counterparty default risk mitigation.
The centralization of clearing on National Clearing Center is a major step forward in the development of Russia’s financial market infrastructure.

FUTURE PLANS

NCC development plans are aligned with Moscow Exchange’s strategic priorities. In particular, NCC is focusing on:

• Organization of trading and clearing with partial collateral depositing with Т+2 settlement for Moscow Exchange’s Securities market;
• Repo development projects with central counterparty and repo with securities pool;
• Precious metals transaction clearing;
• OTC derivative clearing;
• Establishing trade/clearing bridges;
• Creating a unified system for clearing across all markets.

A prerequisite for successful realization of these projects is the NCC being granted status as qualified central counterparty by the Bank of Russia, which is expected in 2013.
Centralizing clearing with NCC was an important step in bringing Russia’s financial market infrastructure in line with international best practices.
Fitch Ratings rated NCC BBB- with a Stable outlook, providing additional comfort to investors. On the national scale Fitch rated NCC АА+(rus) level with a Stable outlook.
In 2012 NCC obtained a Bank of Russia license for executing operations with precious metals, which lays the groundwork for developing a new market segment in precious metals clearing.
In 2012 NCC’s capital base grew by 35% to RUB 13.5 bln as of January 1, 2013, which meets the capital requirements of the European Association of CCP Clearing Houses (EACH).
In 2012 NCC continued to deepen cooperation with EACH as well as CCP12. NCC leverages its membership in EACH and CCP12 to bring Russia’s clearing activity in line with global best practices in the areas of clearing service development, risk and default management improvement, legislation development, as well as implementation of new standards and international regulatory recommendations.
INDEXES
AND MARKET DATA

MARKET DATA DISTRIBUTION

In 2012 Moscow Exchange restructured its real-time market data products linked to groups of financial instruments. This decreased the cost of market data for end-user customers. It is easier and less costly to subscribe to market data, because it is divided by instrument: equities, bonds, FX, futures and options.
An automated archived data system that clients can access was also created in 2012. Archived data is a popular product among HFTs, and the Exchange has seen strong growth in demand for this product. Automating archived data allowed the Exchange to honor these requests more promptly and accurately.
A strong family of indexes and an efficient market data distribution system are crucial to increasing transparency and improving the attractiveness of the Russian financial market.
Also in 2012 Moscow Exchange formed a data audit division to control how market date is used. Revenues from the sale of market data rose, the data market became more controllable and market participants gained equal access to data.

INDEXES

2012 saw an upgrade of Moscow Exchange’s stock indexes as part of the initiative to create a single family of indexes. The new format of equities index products will be more efficient for users who need both USD and RUB market gauges with unified settlement. In addition, the single family of indexes will be more recognizable and transparent for international users.
In 2012 the following changes to indexes were implemented:

• A standard system was adopted for calculating free float;

• Prices from transaction on the Securities market Main Trading Mode are now used to calculate the RTS Index during the main trading session;

• Of the revision dates for the MICEX Index and RTS Index were synchronized;

• The same basket of is now being used to calculate both MICEX Index and RTS Index.
On March 27, 2012 Moscow Exchange began publishing new market indicators: pension accrual indexes developed jointly by Moscow Exchange and the National League of Management Companies. The new indicators are designed for a broad range of pension market participants, including private management companies that form securities portfolios from pension accruals. Pension accrual indexes are meant to increase the transparency of Russian collective investment market through providing it with adequate earning yield.
In 2013 the Exchange plans to upgrade and unify the formula by which MICEX Index and RTS Index are calculated. After this reform is completed, the difference between the two indexes will be that MICEX Index is calculated in rubles while the RTS Index is calculated in US dollars.
Two additional indexes will also be introduced: a blue chip index of the 15 most liquid stocks and a broad market index that will include 100 stocks.
INFORMATION
TECHNOLOGY
Sergei Poliakoff,
Managing Director,
IT Systems Development
In preparing the new strategy, we conducted a thorough audit of our existing information systems. Special attention was paid to international comparisons, given that in recent years the global exchange market has seen a number of mergers between major players and the subsequent integration of exchange businesses. Our analysis led us to the conclusion that there is no single recipe or ‘best practice’; each situation required an individualized solution. Independent surveys conducted by global consultancies confirmed our findings. Consequently, after summing up the available global experience, we resolved to develop our own customized plan of action.
In general, the strategy can be reduced to a few basic provisions. First, we decided to support all promising technological developments and growth trajectories that were present at MICEX and RTS before their consolidation. We will improve the development and support processes for these solutions, but the entire Moscow Exchange will not be transferred to any existing IT platform.
At the same time, we have begun to develop a technological architecture based on a new set of principles. Because of recent technological breakthroughs and the improvement of IT systems, it is now much simpler and less expensive to integrate individual systems created on different platforms. In practice, this means that companies have begun to move away from mega-systems based on large, powerful platforms toward more flexible IT infrastructures.
This approach is built into Moscow Exchange’s IT strategy. The notion of ‘platform’ will become a thing of the past. Our new and flexible IT architecture will utilize a modular principle that enables it to employ all of the best practices available now and to add new functional modules in the future relatively painlessly, without the need to revamp the entire system. Moreover, the new IT architecture will provide greater freedom to maneuver: we will continue to focus on our own developments, but will engage external developers and suppliers of IT solutions if necessary.
In 2012, Moscow Exchange adopted a new strategy for the development of its IT infrastructure.

Our new IT architecture is based on the modular principle, with the concept of a single «platform» being retired.
The Exchange will become more transparent and accessible to both domestic participants and foreign customers and counterparties. We will expand our partnerships with global providers that connect the exchange to global financial systems.
Market participants will begin to experience the advantages of the new approach as early as 2013. The first step in the development of the new infrastructure will be the unification of the Exchange’s interfaces, which will enable our customers and counterparties to gain access to all Moscow Exchange markets via a single technological channel, which will also reduce the costs of our in-house IT systems.

INFORMATION TECHNOLOGY 2012 PERFORMANCE

The main goals of the Moscow Exchange’s IT business units are the reliable and continuous operation of trading and clearing systems and the improvement of productivity across all of Moscow Exchange’s markets. In 2012, the availability ratio of the Exchange’s trading and clearing systems was 99.98%.
Revenues from the sale of IT services enabling technical access, software licensing and placement of equipment in the Data Processing Centers (DPC) totaled RUB 430 million in 2012.
Information technology is the foundation of successful modern trading platforms and Moscow Exchange pays special attention to their development.

COMPUTING CAPACITIES CONCENTRATION

In the second half of 2012, Moscow Exchange finalized the transfer of the computing facilities for the Securities and FX markets to one of the most cutting-edge data centers in Russia, the M1 center on Varshavskoye Highway, which formerly served as a back-up computing center for Moscow Exchange. This enabled the Exchange to expand the options for placement of customers’ equipment at DPC (low latency сo-location) and introduce new optional tariffs for co-location of trading participants’ equipment.

TRADING PLATFORM

In 2012, Moscow Exchange completed the development of and launched the SPECTRA platform, a new trading and clearing system for the Derivatives market. This platform is based on a new modular architecture, has great development potential and corresponds to the best global standards.
The implementation of SPECTRA increased the productivity of the trading and clearing system of the Derivatives market to 30,000 transactions per second. It also enabled the Exchange to divide the trading and clearing mechanisms in line with international peers. The procedures for introducing the new functionality were simplified considerably by the implementation of the modular system architecture.

POINT OF PRESENCE IN EUROPE

Moscow Exchange’s point of presence is supported by cutting-edge technologies using FIX-solutions to trade and access market data. It provides access to all of Moscow Exchange’s markets while considerably reducing the operational and time costs of connection.
Additionally, in 2012 clients were offered a new option of accessing Moscow Exchange through SFTI and TMX Atrium, providers of international financial networks.
Beginning in 2012, market participants and service suppliers can make use of a new solution for accessing the Russian markets via Moscow Exchange’s point of presence in London via the biggest European DPC, which is operated by Equinix.

REALIZED PROJECTS

In 2012, a number of sophisticated functional tasks were completed as part of the development projects for Moscow Exchange’s markets, including the integration of a number of markets and the centralization of settlement systems, as well as the launch of new exchange products and trading modes.
Moreover, a new testing regime for the FX and Securities markets was developed and introduced, enabling trading participants and their customers to test their trading algorithms more efficiently.
‘Hot reservation’ technology for trading and clearing systems was implemented for the Securities and FX markets. An improved ‘warm’ reservation technology that ensures quick recovery of the trading and clearing systems was also implemented.

IT DEVELOPMENT OBJECTIVES AND PLANS FOR 2013

In 2013, Moscow Exchange will continue to develop a promising architecture for its trading and clearing systems as well as access interfaces.
PERSONNEL
POLICY
Ruslan Vesterovsky,
Human Resources Director
Moscow Exchange is in a unique position among Russian financial companies when it comes attracting talent and addressing its personnel objectives. Given that there is no other large exchange group in the country, there is no established, active market of exchange specialists. The Exchange may fill a few select positions with top Russian and foreign specialists, but our primary approach to personnel is quite different.
We look for talented university graduates to fill junior positions at Moscow Exchange and provide further training and career development options to them. This enables us to plan the flow of the trained specialists efficiently, reduce recruitment costs and adapt specialists to the company’s culture and goals.
Our search for talent starts in the classroom. Moscow Exchange cooperates with a pool of universities including Russia’s leading technical and economic higher education institutions. We have helped establish professional exchange departments and laboratories in several of them. Students take part in internships at the Exchange beginning in their second or third year and gain insight into the specifics of the exchange business.
Further career and professional development is available to Exchange employees through programs at Moscow Exchange’s Corporate University, where our leading specialists teach.
We believe that this approach to personnel management will secure a sustainable inflow of the necessary specialists in both the near and long term. I would also note that, in addition to HR objectives, our approach addresses the objectives of the Exchange’s social responsibility policy, such as improving financial awareness among the population and encouraging applied scientific developments in the financial market area.

PERSONNEL RELATIONS

The merger of MICEX and RTS necessitated the creation of a new corporate culture, while retaining the best achievements of each of the exchanges in this field. The company’s values, set out in late 2011, laid the foundations for Moscow Exchange’s single culture. In 2012, 98% of Moscow Exchange employees took part in the training session, “Our Values: From Personal Efficiency to Team Performance”.
In late 2011 and early 2012, we established the organizational structure of the consolidated exchange, which enabled us, together with PWC advisors, to assess and grade all positions in order to implement a modern personnel assessment and incentive system. We also introduced new regulations including the fundamental principles, approaches and rules of the management and administration of the grading system and the base salary system.
A team of professionals sharing common goals is a critical factor for success in the modern workplace. Moscow Exchange manages personnel in line with best international practices.
The Efficiency Management Process was the basis for the creation of transparent personnel policies and personnel management systems at the Exchange. It underwent drastic changes in late 2011, and in 2012 the first cycle of this system was completed and a cutting-edge holistic system for employee efficiency assessment was introduced.
In mid-2012, once the merger processes were finalized, we reviewed employees’ salaries to align compensations within the Group’s business units and to ensure their competitiveness relative to salaries in other financial sector companies. Major changes were introduced to the bonus system, which now accounts for delivery on individual and corporate key performance indicators (KPIs). An option program for the company’s top management was also introduced in 2012.
Our hope is that employees are constantly learning and growing professionally.
To reduce personnel turnover and maintain a pool of talented employees, it is crucial to provide opportunities for career development within the Exchange. With this in mind, Moscow Exchange strives to create favorable conditions for professional growth. In 2012, a training system was established using both in-house and external resources. Company leaders from all levels have completed Assessment Centers using the Odgers Berndston method and management training programs have been implemented. A broad range of internal trainings and remote education programs introduced in 2012 ensured the availability of training to each employee.
Much attention is paid to strengthening transparent and trustworthy relations between business units and employees of the company, as well as information transparency and accessibility at all levels. This is especially important for the development of Moscow Exchange’s business following the integration of the two trading platforms. The socially centered corporate portal launched in 2012 accumulates all information on the company and also serves as a forum for internal communications. All Group employees are informed of major corporate news and changes at the company on a daily basis; regular meetings also help maintain the constant dialogue between management and employees.
Moscow Exchange pays special attention to employees’ health. In addition to a benefits package that includes health insurance, the company began regularly measuring the illumination rate, microclimate, electro-magnetic fields and irradiations in 2012, and has briefed employees on occupational health and safety at workstations and conducted ‘five minute safety briefs’. The promotion of healthy lifestyles within the company is an essential component of a healthy working environment.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

IMPROVING FINANCIAL LITERACY

Moscow Exchange regards improving the financial literacy of the population as one of its objectives. For this purpose, we are in constant partnership with the Expert Group on Financial Education at FSFM and other organizations, and we act as organizers and partners of numerous events aimed at enhancing financial literacy. We enthusiastically support educational efforts in Russia’s regions. In 2012, we conducted the All-Russian Financial Awareness Conference as well as Financial Awareness Days in Russia’s Regions (Ulyanovsk, Samara and Arkhangelsk Regions). At the invitation of the local administration, similar events were held in the Krasnodar Region. Training workshops and trainings for young investors were also arranged in Rostov-on-Don, Vladivostok, Yekaterinburg, Samara, Stavropol, Krasnodar, Novosibirsk, St. Petersburg and Nizhny Novgorod.
As the institution at the heart of the Russian financial markets infrastructure, Moscow Exchange is committed to supporting programs to improve the public’s financial literacy and develop the local securities market. In addition, the Exchange is actively involved in charitable programs that channel funds to those in need, particularly children.
colleges and universities on an ongoing basis. In 2012, around 3,000 university students and schoolchildren visited our Museum of Exchange History. Lectures and workshops were held directly in financial companies, universities and schools. Representatives of the Exchange took part in the Financial Literacy Forum for Moscow Senior High School Students and were on the jury of the All-Russian Contest of Students’ Literacy Awareness Papers. Moscow Exchange has supported the Kustorka international youth camp of financial literacy in the Nizhny Novgorod Region for several years. Exchange employees visit the camp to deliver lectures, to hold workshops and facilitate business games.

PARTNERSHIP WITH HIGHER EDUCATIONAL INSTITUTIONS

Strategic partnerships with Russia’s leading technical and economic higher educational institutions are an important aspect of the Exchange’s CSR policy. The Higher Educational Institutions Cooperation Program provides targeted training of highly qualified personnel for the Exchange and the entire industry and facilitates the implementation of R&D projects in Economics and Technology.
In 2012, cooperation agreements in educational, scientific and consulting fields were signed with the Higher School of Economics, Plekhanov Russian Economic University, and the Russian National Economics and Public Service Academy of the Russian President. We conduct joint research and development on securities market development with these higher educational institutions and we cooperate on research and practical issues surrounding the creation of an International Financial Center. A major aspect of this cooperation is the development of practically oriented programs for training financial market specialists.
The Exchange maintains close ties with technical higher educational institutions through many years of partnership. We supervise the Mathematical Software Systems Department in the Moscow Engineering and Physical Institute, which educates specialists in Computer Technologies for Exchange and Banking Systems. In 2012, we signed a cooperation agreement with the Moscow Physical and Technical Institute and founded a joint laboratory, Moscow Exchange/PhysTech, to conduct scientific and applied projects. Students work actively on the Exchange’s objectives, conduct internships, and have the opportunity to implement their projects jointly with the Exchange’s employees. Some developments and innovations have already been introduced at the Exchange.
Moscow Exchange laid the foundation of its charitable giving policy in 2012 with the adoption of a corporate policy on charity. We are committed to ensuring that our social responsibility projects produce long-term results.

CHARITABLE GIVING

Support of orphans and children in need is a key element of Moscow Exchange’s CSR program. As part of our program of charitable giving to children, funds were donated in 2012 to projects of a number of charitable organizations, including:
Children’s Home Foundation: assistance in organizing Cheburashka’s Birthday, an annual charitable event that gathers more than 1,000 orphaned and disabled children;
Volunteers to Aid Orphan Children Foundation: assistance in holding a football tournament among orphanages;
Illustrated Books for Blind Children, a regional charitable non-governmental foundation: printing books for children with impaired vision;
Perspective, a Nizhny Novgorod regional non-governmental organization: repairs and purchases new equipment for children’s recovery;
Pilgrim, an inter-regional non-governmental organization of disabled persons: assistance in arranging for exchanges between Russian and German disabled youth;
Vera, a charitable foundation for hospices: assistance to children as part of the Assistance to Children charitable program.
Additionally, financial aid was provided to the Who If Not Me charitable foundation, the National Social Foundation, the Union of Charitable Organizations of Russia, and the Kurmysh Children’s Asylum (a state public institution). Funds were also allocated for urgent assistance to the victims of the flood in Krymsk.
MOSCOW EXCHANGE SHARESAND DIVIDEND POLICY
AS OF DECEMBER 31, 2012, THE NUMBER OF
SHARES OF MOSCOW EXCHANGE WAS
2 197 409 846
SHARES OF MOSCOW EXCHANGE HAVE BEEN TRADED ON THE EXCHANGE SINCE FEBRUARY 15, 2013. TICKER:MOEX THE TOTAL NUMBER OF PLACED ORDINARY REGISTERED SHARES IN OJSC MOSCOW EXCHANGE AFTER THE IPO WAS2 378 489 153
ON FEBRUARY 1, THE SUPERVISORY BOARD ADOPTED A NEW DIVIDEND POLICY THAT PROVIDES FOR DIVIDENDS OF
AT LEAST 30% OF THE IFRS NET PROFIT OF MOSCOW
EXCHANGE FOR 2012, AND AT LEAST 40% AND 50% FOR 2013 AND 2014 RESPECTIVELY.
On May 14, 2013,
the Supervisory Board resolved to recommend dividend payments for 2012 of
RUB 1.22
per
ordinary shareof OJSC Moscow Exchange to the Annual General Meeting of Shareholders.
THE RECOMMENDED DIVIDEND PAYMENT FOR 2012 IS
RUB 2,901,756,800 | OR 35.4%
OF THE IFRS CONSOLIDATED NET PROFIT FOR THE YEAR.
SELECTED
CONSOLIDATED
FINANCIAL DATA
Consolidated Income Statement
(in thousands of Russian rubles)
Year ended December 31, 2012 Year ended December 31, 2011
Fee and commission income 11 406 816 9 950 977
Interest and other finance income 10 033 260 6 920 062
Interest expense (42 600) (64 505)
Net (loss)/gain on financial assets available-for-sale (650 732) 267 454
Foreign exchange gains less losses 383 174 124 995
Other operating income 106 893 76 986
 
Operating Income 21 546 969 16 948 025
Administrative and other operating expenses (4 582 420) (4 091 889)
Personnel expenses (4 839 982) (3 597 691)
Operating Profit 12 124 567 9 258 445
Interest expense in respect of written
put option over own shares
(1 529 566) (734 545)
Share of profits of associates 59 179 54 395
Dividends received - 6 587
Profit before Tax 10 654 180 8 578 295
Income tax expense (2 453 851) (1 881 531)
Net Profit 8 200 329 6 696 764
 
Attributable to:
Equity holders of the parent 8 207 741 6 699 931
Non-controlling interest (7 412) (3 167)
     
Earnings per share
Basic earnings per share, rubles 3,86 3,14
Diluted earnings per share, rubles 3,85 3,14
     
The full version of Moscow Exchange Consolidated Financial Statements is available at www.moex.com in the Investor Relations section.
Consolidated Statement of Financial Position
(in thousands of Russian rubles)
Year ended December 31, 2012 Year ended December 31, 2011
ASSETS
Cash and cash equivalents 193 356 484 165 830 133
Financial assets at fair value though profit or loss 18 025 839 47 258 767
Due from financial institutions 13 726 867 22 246 437
Central counterparty financial assets 2 823 444 2 638 858
Investments avaliable-for-sale 56 674 522 29 830 443
Investments in associates 728 654 670 101
Investments held-to-maturity 529 842 692 266
Property and equipment 6 355 233 5 722 745
Intangible assets 19 463 776 19 970 281
Goodwill 16 066 094 16 072 302
Current tax prepayments 535 032 520 397
Deferred tax asset 103 178 246 983
 
Other assets 715 130 1 501 966
Non-current assets held for sale - -
Total assets 329 104 095 313 201 679
     
Year ended December 31, 2012 Year ended December 31, 2011
LIABILITIES
Balances of market participants 246 990 385 245 435 510
Written put option over own shares 23 318 767 21 789 201
Central counterparty financial liabilities 2 823 444 2 638 858
Distributions payable to holders of securities 4 436 856 2 680 832
Loans payable 20 2434 2 561 105
Deferred tax liability 3 884 784 4 230 362
Current tax payables 161 022 165 910
Liabilities to repurchase own shares - 2 738 315
Other liabilities 2 393 192 1 664 888
Total liabilities 284 028 693 283 904 981
     
Year ended December 31, 2012 Year ended December 31, 2011
EQUITY
Share сapital 2 416 918 2 416 918
Share premium 27 403 927 24 147 074
Treasury shares (2 860 714) (7 424 768)
Foreign currency translation reserve (10 321) 40 733
Investments revaluation reserve (1 951) (364 379)
Share-based payments 179 166 -
Written put option over own shares (21 054 656) (21 054 656)
Retained earnings 38 674 893 31 149 729
Total equity attributable to owners of the parent 44 747 262 28 910 651
Non-controlling interest 328 140 386 047
Total equity 45 075 402 29 296 698
Total liabilities and equity 329 104 095 313 201 679
Consolidated Statement of Cash Flows
(in thousands of Russian rubles)
Year ended December 31, 2012 Year ended December 31, 2011
CASH FLOWS FROM / (USED IN) OPERATING ACTIVITIES:
Profit before tax 10 654 180 8 578 295
Adjustments for:
Interest expense on written put option on own shares 1 529 566 734 545
Depreciation and amortization charge 1 535 533 1 050 744
Loss on disposal of investments available-for-sale 650 732 306 885
Fair value adjustment on financial assets at fair value through profit or loss (491 527) 803 079
Unrealized loss/(gain) on foreign exchange operations 316 009 (3 326)
Net change in interest accruals 259 880 (1 286 049)
Share-based payment expense 179 166 -
Net loss / (gain) on disposal of property and equipment and intangible assets 94 486 (12 573)
Share of profits of associates (59 179) (47 808)
Other provisions 51 504 (52 203)
Gain from revaluation of previously held equity interest in the acquiree - (558 613)
Year ended December 31, 2012 Year ended December 31, 2011
HANGES IN OPERATING ASSETS AND LIABILITIES:
Due from financial institutions 8 438 867 15 383 272
Financial assets at fair value through profit or loss 29 089 790 (15 084 609)
Central counterparty financial assets (184 586) 1 467 537
Other assets 774 583 (755 338)
Balances of market participants 5 542 001 22 763 321
Central counterparty financial liabilities 184 586 (1 467 537)
Distributions payable to holders of securities 1 756 024 (312 188)
Other liabilities 717 187 (1 235 341)
Cash flows from operating activities before taxation 61 038 802 30 272 093
Income tax paid (2 766 391) (2 283 866)
Cash flows from operating activities 58 272 411 27 988 227
Year ended December 31, 2012 Year ended December 31, 2011
CASH FLOWS FROM / (USED IN) INVESTING ACTIVITIES:
Purchase of investments available-for-sale (52 896 467) (49 152 980)
Proceeds from disposal of investments available-for-sale 25 330 207 27 980 493
Proceeds from redemption of investments held-to-maturity 582 245 839 241
Purchase of property and equipment and intangible assets (1 810 253) (588 585)
Proceeds from disposal of property and equipment and intangible assets 38 745 42 724
Purchase of investments in associates (2 214) (342 272)
Acquisition of subsidiaries, net of cash acquired - (1 465 002)
Purchase of investments held-to-maturity - (26 183)
Cash flows used in investing activities (28 757 737) (22 712 564)
Year ended December 31, 2012 Year ended December 31, 2011
CASH FLOWS FROM / (USED IN) FINANCING ACTIVITIES:
Sale of treasury shares 9 625 947 -
Acqusition of treasury shares (4 543 355) (4 686 453)
Loans (repaid) / received (2 487 172) 1 188 296
Dividends paid (682 856) (1 258 061)
Acquisition of non-controlling interest in subsidiaries (26 793) (11 325)
 
Сash flows from / (used in) financing activities 1 885 771 (4 767 543)
Effect of changes in foreign exchange rates on cash and cash equivalents (3 874 094) 4 859 441
Net increase/(decrease) in cash and cash equivalents 27 526 351 5 367 561
Cash and cash equivalents, beginning of period 165 830 133 160 462 572
Cash and cash equivalents, end of period 193 356 484 165 830 133
 
CONTACTS
Moscow Exchange

Telephone: +7 (495) 363-3232 | Fax: +7 (495) 705-9622

Legal address: Russia, Moscow, 13, Bolshoy Kislovskiy per,
Office at B.Kislovskiy: 125009 Moscow, 13, Bolshoy Kislovskiy per.
Office at Vozdvizhenka: 125009 Moscow, 4/7, build.1, Vozdvizhenka str.
Office in Great Britain: Moscow Exchange International Ltd 60 Cannon St,
London EC4N 6NP

Contacts
Media pr@moex.com
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London Office salesteam@moex.com
Market Participants info@moex.com
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