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Russia’s Capital Market: Today and Tomorrow

London, May 23 2006. Russia’s Capital Market: Today and Tomorrow. Alexei Rybnikov CEO MICEX Stock Exchange. Domestic Capital Market in Figures. In 2005 MICEX Stock Exchange’s share in the Russian stock market turnover reached more than 85%

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Russia’s Capital Market: Today and Tomorrow

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  1. London, May 23 2006 Russia’s Capital Market:Today and Tomorrow Alexei RybnikovCEOMICEX Stock Exchange

  2. Domestic Capital Market in Figures • In 2005 MICEX Stock Exchange’s share in the Russian stock market turnover reached more than 85% • Volume of transactions in 2005 reached 225,6 bln USD (+49,2% over 2004) • Volume of transactions in January-April 2006 reached 164,1 bln USD, which is 3 times more than in January-April 2005

  3. MICEX Stock Exchange Liquidity Growth (Average Daily Turnover)

  4. Cash Equities Market • 290 equities of 184 issuers traded • 50equities of 33 issuers listed, including RAO UES, LUKoil, Rostelecom and Sberbank • Cash equities turnover reached 141,8 bln USD in 2005 (+30,6% over 2004) • Cash equities turnover in January-April 2006 reached 120,4 bln USD, which is 3,7 times more than in January-April 2005 • MICEX Index is currently at 1143,76 (May 22, 2006): +13,1% from the beginning of 2006

  5. Equities Market Capitalization • Equities market capitalization grew 73% during 2005 to 258,6 bln USD • Equities market capitalization grew 2,6 times to 709,58 bln USD in January-April 2006 • The most capitalized companies are (as of 19 May 2006) • Gazprom – 249,24 bln USD • Lukoil – 66,76 bln USD • Surgutneftegaz – 58,23 bln USD

  6. MICEX Stock Exchange: Trading in Gazprom Stock

  7. Corporate and Regional Bond Market • 400 bonds of 276 issuers traded • 115 bonds of 65 issuers listed • Trading volume reached 83,8 bln USD in 2005, which is two times more than in 2004 • Trading volume reached44 bln USD in January-April 2006, which is 2 times more than in January-April 2005

  8. Corporate Bonds: Primary Market • In 2005 144 corporate bond issues were placed on MICEX SE for the total amount of 9,14 bln. USD • In January–April 2006 58 corporate bond issues were placed on MICEX SE for the total amount of 4,21 bln. USD • The biggest companies in 2005 by bond volume placement are: • Russian Railways —0,89bln. USD • VTB — 0,54bln. USD • Federal Grid Company of Unified Energy System—0,5 bln. USD

  9. Regional Bonds: Primary Market • In 2005 24 regional bond issues were placed on MICEX SE for the total amount of 3,17 bln. USD (including City of Moscow) • In January–April 2006 6 regional bond issues were placed on MICEX SE for the total amount of 1,19 bln. USD (including City of Moscow) • The biggest regions in 2005 by bond volume placement are: • City of Moscow — 0,67bln USD • Moscow Region – 0,43 bln. USD • Krasnoyarsk Territory– 0,11bln. USD

  10. Exchange Traded Funds • 74 exchange traded funds trade on MICEX SE • ETF trading volume reached 29,5 mln. USD in January-April 2006, which is 18 times more than in January-April 2005

  11. Trading Members and Clients

  12. MICEX Stock Exchange: Issuers at a Glance *including ETF and Eurobonds of RF

  13. 2005-06Projects • Launching MICEX Stock Exchange • Implementation of corporate governance standards • Market participants matter • MICEX SE Council • Stock Market Committee, IT Committee • Index Committee

  14. 2005-06 Projects (continued) • Modified Bond REPO • Ability to conclude a REPO deal without coverage control for the first leg of REPO transaction • Ability to conclude an intraday REPO deal with execution at the same settlement date • Extended REPO terms up to 180 calendar days and also out of coupon term • New fees • New rules for clearing and settlement • Mechanism of MarginCalls for REPO deals • Early execution of trades with settlement codes В01-В30 • Bilateral netting for trades with settlement codes В01-В30, REPO deals and Margin calls • Intraday clearing session • Development and promotion of MICEX Indexes • New stocks in MICEX Index as of 14/03/06 (Gazprom, MTS, Transneft) • Changes in MICEX Index methodology

  15. 2005-06 Projects (continued) • Market-makers and margin trading • Market-makers re-launched at MICEX Stock Exchange on November 10, 2005 • 13 Market-makers cover 16 bonds • IPO sector development • MICEX facilitated 3 IPOs for Russian companies in 2005: IPO of “PAVA”, “Lebedyansky”, and SPO for “Severstal-auto” • Total amount of 2005 IPOs was 288,5 mln USD • Gasprom stock trading started (January 2006) • International Financial Organizations sector development

  16. The Pipeline: New Equities REPO • New features: • Market price discounting for REPO transactions • Margin calls for REPO • Ability to conclude deals conclusion without coverage control for the first leg of REPO transaction • Increased term or REPO deals up to 180 days • New fees • Implementation started 22/05/06 (marketing period)

  17. The Pipeline: New Technologies • Extensive technological agenda: • PIX technology • Joint user testing • Remote workplaces • Fast warning system • User role (IT Committee)

  18. The Pipeline: Our Contribution to IPOs • Innovative and Growing Companies Sector development • Growth of number of issuers on MICEX SE • Growth of number of the stocks with better liquidity • Leads to development of wider IPO market • Market-makers and specialists institution creation • Creation of additional mechanism to support stock liquidity • Market stabilization for selected stocks • Additional benefits for IPOs on MICEX Stock Exchange • Marketing activity • Working with issuers and their financial advisors • Cooperation with the LSE (Co-marketing agreement)

  19. Introduction of Specialists • Specialist: • Stock exchange membernominated by the issuer can sign a contract with the Exchange to support market of low-liquidity issues and mutual funds • Specialists will have an exclusive right to announce and maintain quotes • Specialist vs market-maker: • Specialist is nominated by the issuer • Specialist can maintain quote for own and client account Market participants Specialists Market-makers

  20. Specialists (continued) Admitted stocks Liquid stocks «Specialist List» «Stocks of the specialists» • «Specialist List» include stocks that specialists can trade • Selection for the «List» is based on liquidity criteria: • Where Fi – criteria of liquidity: • Number of trade days; • Number of trades; • Volume of trades; • Number of the market participants involved in trading. • «Specialist List» is reviewed every 6 months • Specialist is obliged to support bid-ask quotes within the spread • Specialist has an exclusive right for making market, getting special fee rates and unique ability to promote securities

  21. Specialists (continued) • New admission and trading rules approved by FFSM • Preliminary list of securities quoted by specialists worked out: 76 stocks selected • Information sent to trading participants and issuers • Special web page created

  22. New Sector for Innovative and Growing Companies • Creation of Innovative and Growing Companies (IGC) Sector on MICEX Stock Exchange • Main criteria of the IGC Sector: • Less strict listing requirements (period of existence, shareholding structure,capitalization) • Additional requirements for investor rights protection (information transparency) • Where we are: • New admission and listing rules developed • Working with FFMS to change IGC sector regulation

  23. IGC Stock Selection Criteria: Easier Access and Investor Protection • Industry; technology details, market cap, growth rates • Investors protection mechanism: expert council; additional information disclosure for companies; listing agents; investor sophistication requirements

  24. The Pipeline: Derivatives at MICEX Stock Exchange • On the way to starting derivatives trading in 2006: • All necessary licences received • Range of instruments defined: MICEX Index futures and most liquid single stock futures, followed by bond yield derivatives • Clearing model in the works: goal is CCP • Pricing and services model in the works

  25. Global Concentration of Liquidity Intensifying • March 2006:NYSE+Archipelago • March 2006:Australian Stock Exchange (ASX)+futures stock exchange SFE Corp. • LSE continues to receive M&A offersfrom European, US and Australian companies • NASDAQ+LSE (25%+) • NASDAQ+Instinet • Euronext+NYSE or Deutsche Boerse? • Eastern and Central Europe case

  26. Where is Russia’s Capital Market Heading? • Russia big enough to deserve a domestic market • Currency control liberalization effect • Settlement infrastructure: what change do we need? • Taxation bumps

  27. Where is Russia’s Capital Market Heading? MICEX Stock Exchange mission: THE national exchange of Russia

  28. MICEXStock Exchange Among Peers

  29. Contacts • Address: • 13 B.Kislovsky per., Москва,125009 • Phone: • (095) 234-48-11 • Fax: • (095) 705-96-22 • E-mail: • info@micex.com • Web: • www.micex.ru

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