MOEX Reports Strong Q2 Results: Net Profit up 5.2%, FX Volumes Rise 28% to $1.46 Trillion

Russia’s largest trading venue, Moscow Exchange Group (MOEX), announced stellar Q2 2014 results today as the company seeks to expand its presence in Russia and welcome more foreign market participants. For the headline performance metrics MOEX reported an operating profit of RUB 3.47 billion ($960 million) for Q2 2014– a 5.2% YoY increase. Earnings per share (EPS) rose 6.0% YoY to 1.58 Roubles. Total operating income rose 7.1% YoY to RUB 6.75 billion (USD $186 million).

MOEX paid a record high dividend of RUB 2.38 per share to shareholders and welcomed former Deputy Prime Minister, Alexey Kudrin as its new chairman of the Supervisory Board which has been reduced from 19 to 15 members in a move to enhance its efficiency.

The across-the-board improvement in all metrics was hailed as “the best quarterly numbers for Moscow Exchange to date” by the company’s CEO Alexander Afanasiev. Mr. Afanasiev added that MOEX has “demonstrated once again that our business model is capable of delivering strong results in any market environment”.

The recent sale by the Central Bank of Russia (CBR) of an 11.7% stake in Moscow Exchange has now allowed MOEX to reach a free-float of over 55.7% which helps to create an “even more balanced and diverse shareholder base” according to a statement by Mr. Afanasiev.

The company’s Chief Financial Officer (CFO), Evgeny Fetisov referred to equity market infrastructure upgrades completed in 2013 as “continuing to bear fruit, driving fees from equities up 20.7% year on year”.

According to Mr. Fetisov, the key growth drivers for Q2 were “FX market and post-trade services … each posting double-digit fee and commission income growth”.

Moscow Exchange also underlined its commitment to cutting its cost structure with administrative expenses 4.2% lower compared to Q2 2013. This contributed to a new record high EBITDA margin of 75.3%.

Asset classes in detail

Moscow Exchange announced growth in all its major product classes and divisions although some aspects of its business lost ground when compared to last year’s results. “Revenue growth for the quarter was driven by higher income from all our markets except for derivatives” according to a MOEX press-release.

Spot trading volumes declined by 1.6% YoY. On a quarter-on-quarter basis FX trading volume fell 1.9% from RUB 53.8 Trillion in Q1 2014 to RUB 52.8 Trillion in Q2 2014 - a 1.93% decrease. Total FX trading volume rose by 28% since Q2 2013.

Swap trading volumes spiked up 46.8% YoY driven by continued strong demand for Liquidity -management tools by market participants. The popularity of FX Swaps in Russia is rising rapidly as market participants become increasingly sophisticated in managing their FX exposure. Open interest rose 35.6% YoY to 11.4 million contracts at the end of 2Q14.

FX Futures comprised 40.8% of total Futures trading volume versus 35.8% in the same period last year "due to higher FX-rate Volatility " according to MOEX. Equity index futures volume as a proportion of total Futures volume declined from 53.7% to 49.3%. Options volume as a proportion of total Derivatives Market volume grew by 1.3%, from 7.5% to 8.8% year-on-year.

Analysis

MOEX results indicate that the trading venue is weathering the current lull in trading conditions around the world with extreme resolve. Although bond market volumes have fallen significantly by almost 45% since Q2 2013 alongside Money Market (-20.40%) and Derivatives (-25.20%) volumes, they have been replaced by significant increases in Equity (+16.50%), FX (+28%) and Depository/Settlement (+33.18%) flow. The fees and commissions MOEX generates have also remained stable with most asset classes increasing the amount of revenue they generate for the Moscow Exchange.

Both in terms of year-on-year and quarter-on-quarter perspectives, the Moscow Exchange has posted very positive performance metrics indicating that the merger which originally created MOEX (between Micex Group and RTS Group) in 2011 has been a success.

By posting its best results to date despite tough market conditions and ongoing geo-political tensions with the U.S. overshadowing Russia’s economy, MOEX is sending a clear message that it is now a diversified, multifaceted venue that can cope with rapidly changing market conditions.

MOEX has benefited from higher connectedness to other markets and with Russia’s financial services industry continuing to liberalize and welcome larger numbers of foreign market participants, Ruble liquidity demand is also on the rise.

One of the most intriguing developments is the announcement that MOEX has now become a Global Premier member of the FIX Trading Community. This development could be key over the coming months as the venue tries to expand its reach internationally and welcome foreign business in much larger quantities. FIX protocol would likely facilitate more trading activity for the venue because of the added flexibility the technology offers for traders.