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Edited Transcript of MOEX.MZ earnings conference call or presentation 6-Mar-20 1:00pm GMT

Q4 & FY 2019 Moskovskaya Birzha MMVB-RTS PAO Earnings Call (IFRS)

Moscow Mar 7, 2020 (Thomson StreetEvents) -- Edited Transcript of Moskovskaya Birzha MMVB-RTS PAO earnings conference call or presentation Friday, March 6, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anton Terentiev

Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR

* Maxim Vyacheslavovich Lapin

Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board

* Yury Olegovich Denisov

Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board

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Conference Call Participants

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* Andrew Keeley

Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst

* Andrey Klapko

Gazprombank (Joint Stock Company), Research Division - Senior Banking Analyst

* Andrey Mikhailov

Sova Capital Limited, Research Division - Research Analyst

* Andrey Pavlov-Rusinov

Goldman Sachs Group Inc., Research Division - Research Analyst

* Elena Tsareva

BCS Financial Group, Research Division - Senior Banking Analyst

* Robert Bonte-Friedheim

* Sergey Garamita

Raiffeisen CENTROBANK AG, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the MOEX Fourth Quarter and Full Year 2019 IFRS Results. (Operator Instructions) I must advise you that this conference is being recorded today on the sixth of March 2020.

I would now like to hand the conference over to your first speaker today, Anton Terentiev. Please go ahead, sir.

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [2]

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Thank you. Good afternoon, everyone, and welcome to Moscow Exchange's Full Year and Fourth Quarter 2019 IFRS Results Conference Call. As usual, after the prepared remarks, we will have a Q&A session. Today we'll have on the call our CEO, Yury Denisov; and CFO, Max Lapin.

Before we start, I would like to remind you that certain statements in this presentation and during the question-and-answer session may relate to future events and expectations and, as such, constitute forward-looking statements. Actual results may differ materially from those projections. The company does not intend to update these statements to reflect events occurring as of the end of the call prior to the next conference call.

By now, you should have received our press release containing the results for the full year and fourth quarter 2019. Our management presentation is available on the company's website in the Investor Relations section.

I will now hand the call over to Yury Denisov, CEO. Yury, please go ahead.

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [3]

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Thank you. Good afternoon, ladies and gentlemen. I would like to start with a brief overview of our key achievements in the year 2019.

First, fees and commissions income hit a record high on the back of 11% year-on-year growth, which came just in line with the 5-year CAGR. It nicely fits our strategic goal of maintaining the development momentum which we adopted last October. It also highlights the robust -- robustness of our diversified and vertically integrated business model. Thus far, in 2020, we are absorbing even stronger business volumes.

Second, this fee and commission growth was delivered in a cost-efficient manner as OpEx increased by less than 7% or 8% if we adjust for pass-through grain market expenses. This again, shows our goal to maintain positive operating jaws between fee and costs. The exchange is growing in a cost-efficient way.

In my first year as a CEO, a key focus was on upgrades in risk management and streamlining decision-making. We have adopted the stabilization 2 project that aims to digitalize key internal processes. We are also investing time and efforts in compliance and ESG. I believe the company has become more reliable and resilience as a result.

I am also proud we have delivered a continuation of our established dividend story. We introduced [a formal] based policy that produced a payout ratio of 89%. Moscow Exchange is distributing to shareholders that much for the third straight year. I think -- I thank the Supervisory Board for the great recommendation.

I have also decided to abstain from nominations for the Supervisory Board in 2020, giving way for an independent director to step in, which we expect will bring the total number of independent directors to at least 7 out of 12.

My focus as a CEO will remain on making Moscow Exchange an even stronger and more sustainable company.

I will now hand the call over to Max Lapin, our CFO. Max, please go ahead.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [4]

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Thank you, Yury. And thank you all for joining us today to discuss Moscow Exchange financial results.

Moving on to Slide 2. Delivery on strategic initiatives in the fourth quarter 2019 and 2020 year-to-date. Let's start with the overview of strategic deliverables in the start of the fourth quarter.

First, the exchange expanded its product range. We observed continuous expansion Russian-law ETF offering. Today, we have 20 Russian-law ETFs trading on our platform compared to just 2 at the beginning of 2019.

The Sustainability Sector launched in November helps issuers fund green and social projects that qualify under ICMA Green Bond Principles. The first 5 Russian green bonds trade already. Then we added 6 inaugural structured bonds registered under the Russian Law. Prior to that, such bonds existed under [14] (inaudible) this product is especially relevant in the context of growing retail participation. It provides exposure to a variety of strategies across asset classes but also contains downside protection, facilitating transition from deposits to securities.

Etalon Group listed its DRs on the exchange, bringing the total number of DRs in foreign-domiciled stocks of defacto Russian businesses to 11. We are close to bringing all of our London listed manage back home, so to say.

On the Derivatives Market, 2 new cash-settled futures began trading. Cash-settled futures on natural gas track the CME's group Henry Hub Natural Gas Futures. Another one follows USD denominated RUSFAR.

Second, we continue to work on new services. The Federal Treasury can now play funds through GCC repo auctions, an enhanced liquidity available in the money market. The new system facilitates in the exchange of financial messages between banks and corporations (inaudible). We'll call it Transit 2.0. Slavneft was the first corporate on board. It interacted with Sberbank and Credit Bank of Moscow.

Request for Stream, RFS, is a new OTC service products market participant that facilitates large block trading. RFS enables the liquidity paper to send request for quotes for a number of liquidity providers. It's particularly relevant in corporates.

In precious metals, we have launched a new trading link that connects local gold traders to London. Third, we continue to develop the client base and partnerships. The number of unique retail clients approached 4.3 million. 1 million new comers have joined us in the third quarter. Just on number of individual investment accounts, IIAs, has reached 1.9 million, up threefold from 0.6 at the beginning of the year.

The number of corporate issuers in the Money Market continues to grow. In the fourth quarter, 102 corporates, including 30 newcomers, placed 212 bond issues, raising more than RUB 1 trillion. We also welcomed KASE's transfers to our ASTS+ plus platform. MOEX signed MoU with China Foreign Exchange Trade System to support liquidity in the renminbi ruble pair. Finally, Highland Gold Mining became the first gold producer to join our precious metals market.

Let us move over to the back of the [thematics] slide, Slide 3, increased corporate activity on the primary bond market.

We have been saying that a lower key rate in Russia has translated into high economic activity and find a reflection in some of our markets. This is exactly what has been happening in the primary bond.

In financial year 2019, the number of corporate issues nearly doubled year-on-year, while the number of corporate issuers nearly tripled. The amount of debt capital raised is up a respectable 36% year-on-year. We have also followed through with the initiative to transfer corporate bonds, the T+1 trading mode, expanding the number of securities to 241. In 2019, we enjoyed a higher retail participation in the primary market as it climbed to 18% of the value of corporate and bank bonds.

Slide 4, retail investment in 2019, ongoing growth. We have recently been getting a lot of questions on the value of retail investments into Russian securities. Today, we are showing some findings based on NAUFOR data. As you see, the value of retail ownership colors, which is a main and growth figure. It spills across all investment vehicles, brokerage IIAs, asset management IIAs, manager accounts and brokerage accounts. The latter contain the biggest chunk of funds. So we show corresponding allocation by asset class as a proxy.

Retail Holdings in Russian equities make up about 1.5% market cap, which is not much. However, inflows are already high enough to absorb international industrial outflows, a process we observed in 2019. Retail investors are helping to stabilize the market and make its structure healthier. Additionally, we estimate that retail ownership of Russian equities with local institutions be 4-5x that of direct retail. Most of these institutions manage retail money. Continuous conversion from deposits into brokerage and asset management products will further increase the role of local players.

Next slide, #5. At Moscow Exchange, we continue the established dividend story. We know that sustainability and predictability of our dividend story are crucial for investors. This year, we have planned the newly adopted formula-based approach for the first time.

On the right-hand side, you can see the bridge from reported financials to the resulting dividend recommendation. Adjustments are for M&A outlays, [for cash, entrepreneur], other possible deals and the change in group's regulatory capital. The payout ratio is in line with recent years and the GPS is almost at the historical high. This concludes our thematic part.

Next, Slide 6. Fourth quarter 2019 summary of financials. Let's discuss the financials.

Operating income grew 11.5% year-on-year, and fee income increased 12.8% year-on-year, contributing to a higher fees and commission share. NII rose 9.3% year-on-year, although core NII decreased 3.2% on the back of subside in interest rates.

Operating expenses amounted to RUB 4 billion, adding 3.4% year-on-year. The cost-to-income ratio decreased by 2.8 percentage points year-on-year. Adjusted EBITDA surged by 15.7% year-on-year from March to a margin of 72.2%.

Adjusted net income expanded 13.4% year-on-year.

Next slide. Fees and commission income, it's strong and sustainable growth. On to our favorite slide that shows the robustness of the country's cyclical business model. Full year 2019 fee growth fits the trend perfectly. This again, came in a cost-efficient way as the cost, the fee income ratio, excluding D&A and provision to client. The growth gap between fees and OpEx continues to be in the positive.

Next slide on diversified fee and commission income. Fee and commission growth of 12.8% year-on-year feeds off every business line except the FX market. The leading contributors in absolute terms were bond, equities and Derivatives Market as well as Depository & Settlement Services. The mix remains well diversified.

Money market. Both fee income and trading bonds from the Money Market were approximately flat year-on-year. The share of high value-added CCP repo, including GCC, reached all-time high of 88%. The discrepancy between year-on-year performance of fees and volumes is due to the UCP-linked fee rate revision and IFRS adjustments.

The recent trends in Money Market shown on Slide 10. The overall on exchange repo terms are virtually stable, while GCC repo terms expanded by 30% quarter-on-quarter, open interest recovered at the end of the fourth quarter and it's quite comparable to December 2018 values after the slump in August 2019. We have recently introduced a third standout on corporate tariffs to ramp up activity. This means that growth in the effective fee is currently unlikely.

Slide 11. Fees and commissions from Depository & Settlement are at 12.7% year-on-year. This growth was mainly driven by safekeeping fees, although other components also performed well.

Average assets on deposit NSD grew 15.5% year-on-year across all clusters, but more so in equities and government bonds.

ForEx market on Slide 12. ForEx market fees continues to decline due to the competition with OTC. This 13.3% year-on-year reduction came on the back of 16.3% year-on-year construction in trading volumes driven by spot market. The number of active clients reached 1 point -- 147,000 at the end of the fourth quarter, which is almost 2.5x year-on-year. On the average, daily trading bonds of corporate was RUB 4.2 billion in 2019, a twofold expansion year-on-year. We also observed increasing popularity of the euro-dollar payer.

Fourth quarter spot volumes, they served 63% year-on-year and swaps more than doubled.

IT services, listing and other fee income, Slide 13. Income from IT services, listing and other fees saw a substantial increase of 20% year-on-year. Listing fees surged 133% year-on-year due to the tariff model update, coupled with a large number of registered users issues. Their sales of software and technical services grew 66.7% year-on-year with the help of the tariff unification and KASE's payments for the software delivery.

Other fee income continues to decline because of the diminished contribution from the Grain Market.

Slide 14, Derivatives Market. Fee income from derivatives increased 20.7% year-on-year. Trading bonds of foreign exchange contracts were down 17.8% year-on-year.

Open interest expanded by almost 35% year-on-year.

The effective fee increase was driven by the improvement of the product mix towards commodity derivatives, expiration of the market, increased in options' UCP linked fee revision and IFRS adjustments. On the fixed income market, fee income from the bond markets improved by 54.6% year-on-year on the back of 33.8% year-on-year increase in trading volumes. We observed an increase both in primary and secondary market activity. The contribution from government and long-term corporate bond placements supported fee growth.

Equities market. Fee income from the equities market grew 46.7% year-on-year, following a similar interest in trading volumes. A record high equity index levels supported trading volumes. Volatility almost doubled year-on-year. Velocity of trading volumes increased by 5 percentage points year-on-year, contributing to volume growth.

Moscow Exchange market share versus the LSE in trading of dual-listed stocks improved by 8 percentage points year-on-year, up to 72%.

Slide 17. Interest and finance income in the fourth quarter. Net interest and finance income rose by 9.3% year-on-year, mainly due to realized investment portfolio reevaluation. Excluding this effect, the core NII was actually down 3.2% year-on-year. The effective yield declined by 0.1 percentage point, reflecting the ongoing monetary easing and the evolution of currency mix and platforms. Average funds available for investment expanded 16.9% year-on-year.

On to operating expenses in fourth quarter '19, excluding provisions. Operating expenses in the fourth quarter grew by 3.4% year-on-year. Personnel expenses added 3.5% on the back of 4.7% headcount interest mitigated by 3.8% bonus provision reduction in the fourth quarter.

D&A and IT maintenance was up by almost 10% year-on-year, largely explained by one-off amortization of obsolete software. Beyond that, the D&A line has started to moderate.

Remaining admin expenses declined 4.3% year-on-year due to partial reallocation of rent and office maintenance to D&A under IFRS 16. We also achieved some G&A savings.

And the final slide, Slide 19. CapEx and OpEx in '19 and '20. The total OpEx growth for the year amounted to 6.8%, which is 1.2 percentage point lower than the minimum of the guided range.

Personnel costs made the largest contribution with 9 points of gain year-on-year, mainly due to salary revisions, coupled with headcount growth.

Our OpEx guidance range for 2020 is 6.5%-9.5%, which should help preserve the positive operating jaws between fees and OpEx in 2020.

CapEx for the year came at RUB 2.2 billion, within the guidance range of RUB 2 billion-RUB 2.5 billion. We set the same guidance range for CapEx in 2020.

This concludes the first part of our call. We are ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Elena Tsareva from BCS Global Markets.

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [2]

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Thank you for the presentation and congratulations on a strong fee and commission. I have several questions. I will start one by one. So first question is what -- was at the beginning of the call, about upgrading of risk management. Could you please elaborate a bit what exactly were the steps in risk policies and risk management, what was changed and improved? And maybe if you can just update on this green provision situation, what is going on? And whether do you expect any recoveries? Or just the status of this situation. This is my first question.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [3]

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Let me tackle, indeed, the grain provision and then on to risk management. The grain provision quarter-on-quarter declined just below 1 percentage point. So it's kind of negligible decline. But on the other hand, we have nowadays 12 legal cases outstanding. Out of those 12 legal cases, 4 fall under the criminal law, 8 under the civil law. Out of those 8, we are having 7 cases with the grain storage facilities restarted now to show in court with the insurance company, claiming the recovery. So more cases are underway. So we are working on to the recovery, moving in the legal procedures.

As for the risk management per se, what we have, 4 regulated entities with Moscow Exchange growth.

2 of those are regulated entities, which are exchanges, the Moscow Exchange and the commodity chain that we have. And then we have the clearing house and the deposit. Each of those have the risk appetite approaches, which we reviewed. Each of those have -- are being reviewed by the Central Bank. They had a part of checkup in the second half of the year by the central bank with recommendations on the risk management procedures which we are implementing. Some of those things fall on the contiguity of further automation of risk management policies and improving the quality of personnel and hiring new people. So why that is important? Because exchange has to be better predictable business and reliable for all parties. Therefore, the set of initiatives guided by the [CBR] fall into the range of what can we do technologically, that stabilization 2 project, in terms of compliance to make the exchange more robust and resilient business.

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [4]

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My second question, about OpEx guidance. So it feels this range is a bit wider than previous years. So it looks like a bit wide. Maybe you can just give more details, what you feel in -- like in the low band and what are the like negative risks to have like almost 10%, 9.5% growth of OpEx in 2020. Just what is the between?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [5]

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Well, thank you for the question on the range itself. But look, in terms of the 3 percentage point difference, it's the same as last year. It's just that both ranges are lower. And in terms of the -- why it represents, it reflects the uncertainty over timing over the marketplace project. As you know, essential legislation is still pending. Speaking of provisions of the guidance, we might narrow the range as the year progresses, just like the last year. A shift in the guidance is highly unlikely.

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [6]

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Understood. And just a bit like -- maybe like general just question, maybe just some ideas and thoughts. So like the first 2 months of the year were quite volatile and it's (inaudible) positively, Moscow Exchange in terms of higher trading volumes. And this all in the back, like what is going on in the global context with the C virus. But what may be -- just if you may discuss internally or maybe provide some -- just view some positive -- views and thoughts how actually C virus may affect Moscow Exchange business. Just the whole volatility will be supportive for something you expect also, just generally.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [7]

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Great question, but let me tackle it from 2 angles. First, the volumes in the first 2 months of this year were up almost in every market and seeing that. The volumes in the -- on equities and bond markets are naturally driven. They are not up because of the, let's say, the virus issue. With the equities market, you have seen a very substantial influx of retail investors, good growth in the index in the first 2 months and, therefore, the quality of the volumes within the equity section improve. Speaking of other markets, some of that growth will actually attribute to riding on the back of the good volumes in Bond and Equities Markets and their velocity.

But indeed, over the past couple of weeks, over the past, I would say, couple of 4 weeks, we've seen like additional volatility in ForEx Market and Derivatives Market, where people are obviously hedging their bets in all this virus situation. Therefore, I would split the explanation of the volumes in the beginning of the year between 2 factors, a natural growth and some increased volatility. Does it tackle your question correctly? Did you get the answer you wanted?

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [8]

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Yes, on one side, but maybe just in terms of expectations, if -- what is going now? What do you think? So it could be the same, like in terms of trends and effects, just if the whole situation is more like panic.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [9]

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Well, look, let's look at the past. Whenever the volatility is high in the market, we do get additional volumes. So the short-term impact of that is highly beneficial to our revenue. But honestly speaking, the risk appetite of the market participant is also limited. So one, that they exhaust the risk appetite, they might slow down the bonds or usually, this such type of volatility is like the shift of revenues between the periods. So we have high volatility nowadays, they might eat into their risk appetite and slow down the volatility trading like a month or 2 down the road, it's hard to tell. Longer term, I would like to draw your attention that -- well, to sum it up. Short-term volatility is good. Midterm, it's like, negates one another. High volatility becomes low volatility. But in longer term, we are actually benefiting from the volatility when the markets are going up. Let's say for the equity market, we had good equity market for, let's say, past 8 months, so that growth in the equity market supported increased velocity across a range of markets. One, because every trade in equity markets has, on the back of it, the trade in the currency market because a large share of trading is generated from their international participants. And then, hedging the bets with the Derivative Market. So for us, a good positive upward volatility on the base -- back of growing market is the best situation in the gap. Other types of volatility are also good, but they're just a good scenario.

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [10]

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I would just add that, remember, the variance change for Russian assets most. And Russian companies have largely been unaffected. And you can just see on the other line, looking to our underlying fundamentals, whether it's an exporter, then you can try the commodity price and all the side effects like Google weakening. But generally speaking, I mean, we're still tracking Russian companies, and they are largely unaffected.

And secondly, on your panic note, we have

More retail investors now participating in the market, and they provide some kind of a buffer compared to recent years. So I don't think that Russian market is an outlier in terms of its performance these days and partially, that's due to this support from retail.

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [11]

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And just maybe just a quick follow-up what you say about retail investors. So this is what the trend, you say, it was the main impact on volumes in the second -- first 2 months of the year. But like what we saw previously in the last several months of 2019, this was also the securities volumes growth, also was driven by healthy retail inflow?

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [12]

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So which period you're referring to, in particular?

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [13]

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Like maybe last 2, 3 months of the year when there were also securities markets, volume growth.

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [14]

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Well, we -- in markets where we have retail participation, I think the share of retail was a little bit higher than it usually normally is. Like in equities, I think it's slightly higher, doesn't mean that it stands there all the way. Because on average, the 10% stake. So indeed, in recent months, we've seen somewhat higher activity for retail investments.

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [15]

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So just interested, what could -- if it's just the strength of the last 2 months, what was -- what could be the factor of such a strong equity inflow? Because maybe the interest rates decline, we just see it for quite a long period of time. And just interesting why suddenly we have this shift of retail. Maybe if you see this factor, maybe there's nothing specific right now.

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [16]

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I wish we have the crystal ball, but I don't think the trends have changed. Still, the lower the interest rates going down, it's still the online interfaces of banks, still banks cross-selling, it's all that's written on our retail slide, I think, is

These are long-term factors. But when prices go down, of course, some people capitalize on that opportunity to file in.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [17]

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In a nutshell, we think here -- have an impression here the change that retail investors in Russia are behaving in the smart way. So they are pretty keen and taking the momentum and catching the momentum. So they are quite opportunistic and less prone to sanction scares and other types of scares. That's why we've been mentioning retail investors are the type of investors that are supporting the market, making the structure more stable. The quality, so to say, of the order book improves in the retail investors being present in there.

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Operator [18]

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The next question comes from the line of Andrey Pavlov-Rusinov.

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Andrey Pavlov-Rusinov, Goldman Sachs Group Inc., Research Division - Research Analyst [19]

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Congratulations with the results. Pretty solid. So I've got couple of questions. Maybe I'll also ask them one by one. First of all, on the dynamics of the fields, there were couple of segments where the dynamics -- quarter-on-quarter dynamics was a little bit different from the usual trend and the usual mix effect so -- especially in the Derivatives and ForEx markets. Could you please maybe elaborate a little bit more on the sustainability of those effects.

And I understand the raising options, tariffs and derivatives probably stay with us for longer, but what about the ForEx tariff -- higher tariffs of smaller participants? Do you think this will also carry into this year or unlikely?

And finally, on the listing fees, there was also quite a strong quarter. And do you think this is sustainable?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [20]

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Great question. In products. I think we simply saw an elevated share of clients paying higher fees. But the breakdown of spot and swap volumes was nearly identical quarter-on-quarter side, didn't matter. What we took in terms of the measures throughout the year to support the market, let's say, which is in farm, order books, split lots for retail RFS [requeue], but also result in high effectiveness. So in a nutshell, we just saw a shift in the client mix in the ForEx order book. I wouldn't call that like sustainable. It looks like fluctuation.

In Derivatives, the marketing period for tariffs and options of the assets expired in the fourth quarter. So correspondingly, options are now twice as expensive as futures, so it's a sustainable part of the impact. Previously, the pricing gap was 1.5, now it's 2. Moreover, the trading itself has shifted to more expensive at the mining options from far off of the money.

On the other hand, in the Derivatives Market, we would also see that the non -- the commodity part of the Derivatives Market improved while the ForEx part of the Derivatives Market has declined somewhat. Therefore, this product mix also affected the effective fee of the ForEx market. That's in a nutshell.

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [21]

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Does that answer your question?

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Andrey Pavlov-Rusinov, Goldman Sachs Group Inc., Research Division - Research Analyst [22]

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Yes. And maybe on the listing fees as well, where there was quite a bit (inaudible) quarter.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [23]

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Yes. Yes, we're on the listing. The listing is -- on one hand we had on quarter-on-quarter, when you compare fourth quarter of this year of '19 to the previous '18, we had a listing requirement, so it helped. On the other hand, we had an elevated issue registration activity ahead of change in legislation. So it helped somewhat as well. So it might be like a schedule issue. A bit more a little bit more prepaid this year.

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Andrey Pavlov-Rusinov, Goldman Sachs Group Inc., Research Division - Research Analyst [24]

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So we might see a bit more muted activity earlier next year, I guess, right?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [25]

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Yes. In listing fees, it could be the case because, I mean, what's underlying this is that the CBR is delegating some of its functions down to the infrastructural organization on financial market. It takes some legislative changes, and time is needed for all adoptions to fall. So there might be some timing issues. And these listing fees, might be a little bit front-loaded.

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Andrey Pavlov-Rusinov, Goldman Sachs Group Inc., Research Division - Research Analyst [26]

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That's very helpful. My second question is about essentially your regulatory capital requirements. It was great to see on Slide 5 that you basically are also showing us what was the change in -- throughout 2019. But could you maybe a little bit -- a little bit more, what was driving this change last year? And also, if you have any idea of our outlook on what the regulatory capital needs will be throughout this year as well.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [27]

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Great question. Yes, let's talk about it in terms of target capital. We started talking about target capital in our strategy day back in October 3rd and we intend to cover it every quarter. The target capital spends now raised around RUB 81 billion. NCC has a regulatory core around 66, which is slightly down from the previous region of 68 because the euro balances and collateral declined. We will keep monitoring our -- the situation throughout the year. But it will -- the euro balance (inaudible) what it will affect. The NSD itself has RUB 9 billion regulatory capital due to higher business volumes and the trading engine has RUB 6 billion of regulated capital on the backs of operation expenditures growth. So in a nutshell, so what has been happening with the exchange regulatory capital over the past 2 years and that we are, currently, are submitted to all stress tests. We have successfully passed all of the stress tests by the regulation, and we are sufficiently and adequately capitalized as a group.

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Andrey Pavlov-Rusinov, Goldman Sachs Group Inc., Research Division - Research Analyst [28]

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So do I understand you correctly that it's unlikely that the regulatory capital increase will be much higher than what we've seen last year?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [29]

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Let's say, the changes in regulation are not that visible on the radar screen. The regulatory capital formula is linked to let's say risk position in the market, the operating expenditures and similar things. So the changes in the capital requirements will be mostly to the market factors rather than regulatory changes.

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Andrey Pavlov-Rusinov, Goldman Sachs Group Inc., Research Division - Research Analyst [30]

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That's very helpful. And just my final question, a bit more technical. On the -- in your OpEx growth, we've noticed that basically D&A expenses showed a little bit in the fourth quarter. And also there was quite different dynamics on the depreciation and amortization side, so the former was actually coming down over the last 2 quarters and latter increased. So can you explain what's happening there and what we should expect for this year as well?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [31]

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Well, with the D&A change, the D&A, excluding the amortization of some obsolete software stayed largely flat. They also have the IFRS 16 impact due to that we are renting some of the facilities with the office facilities. And therefore, we have to show a little bit higher D&A expenditures when you compare them fourth quarter over fourth quarter. So that means that in terms of regular business, the changes are not that substantial.

As for the G&A expenditures, we have been sitting, let's say, pretty tight in the fourth quarter, maybe not traveling that much for -- hence some [changes].

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [32]

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All right. I will now read a question from the webcast and interface. We have one question here coming from [Lee Tam] from JP Morgan Asset Management. The question reads as follows: can you provide more details about one item called other operating expenses from your P&L amounted to RUB 2.6 billion. Quite a big increase year-over-year. Why that's the case? And what's the outlook for this year?

So Lee, it's exactly the grain provisions we've been talking about throughout the year. And actually, if you decompose the figures, then in Q4 you'll actually see a release of provisions that are related to sugar. We covered that extensively during the previous call. So now, the provision has been released.

All right. Take the next question on the phone line.

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Operator [33]

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The next question comes from the line of Andrey Klapko Gazprom Bank.

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Andrey Klapko, Gazprombank (Joint Stock Company), Research Division - Senior Banking Analyst [34]

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Congrats with the great results. Could you please update your best estimate towards marketplace implementation schedule? What are your expectations right now about the necessary legislative changes? So when it could be -- this project could kick in, according to your estimates?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [35]

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Well, good question. We are progressing normally on our side. The development team is in place. We are hiring a senior officer responsible for the electronic platform developing -- development from the industry itself. At the same time, as for the outlook for legislative changes, I would like to abstain from that, I cannot vouch for it. And we hope that legislation becomes available some time this year.

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Operator [36]

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The next question comes from the line of Sergey Garamita from Raiffeisen Bank.

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Sergey Garamita, Raiffeisen CENTROBANK AG, Research Division - Research Analyst [37]

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I have several questions. First one is linked to OpEx growth. So you clarified that is somewhat -- the range is somewhat linked to the marketplace cost. But does this guidance, in any way, include maybe a higher pass-through grain cost? Or is this guidance given, excluding these costs? And also on marketplace costs, is this, in some way, linked to the -- to the tariff or something? I mean, if the tariff is not approved, should we expect an increase in maybe in marketing for the marketplace, advertisement, et cetera? That's the first question.

The second question is on dividends. And actually, this...

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [38]

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Hello? Sorry, maybe -- this is the first one because otherwise, we'll just forget it.

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Sergey Garamita, Raiffeisen CENTROBANK AG, Research Division - Research Analyst [39]

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Okay, sure.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [40]

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So the cost range. The cost range we provide is net of passthrough cost of the grain itself. The grain market relaunch is only due after the new risk management system for this market and the new business model is approved. So far, it's under review. Therefore, you're not seeing the grain market volumes in our reporting. It's just not there. The only grain volume we have is serving the federal sales of grain assets (inaudible). Therefore, the range itself is a good estimate for the year to come, and it's net of grain. Even if grain appears, I think it would not be such a drastic change in the range itself. So that's definitely the first part of the cost on the grain.

As for the marketplace project, yes, we did include into that guidance the uncertainty about the speed of development of the marketplace projects. Roughly speaking, the IT development cost of the marketplace projects is mostly shown on Page 19. You see there, a fourth bullet point from the top that marketplace CapEx is pretty limited. There are CapEx in the majority of, let's say, expenditures for the marketplace. So the uncertainty in the range itself is mostly due to the marketing promo that might take -- that the project might incur once it goes live, that's the biggest uncertainty. The earliest it goes live, the higher the expenditures for them.

And so the next question you started asking before we had interrupted was on the dividend. Would you please?

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Sergey Garamita, Raiffeisen CENTROBANK AG, Research Division - Research Analyst [41]

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Yes, yes. Sure. You actually showed the split of this formula, including the regulatory capital changes, which was like 2 plus some -- 2 plus -- RUB 2.3 billion. And I just wanted to ask, wasn't this trading engine capital, which was added last year, wasn't it like RUB 5 billion in total? So didn't it, in any way affected this working capital delta in the formula?

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [42]

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To a minimal extent, I think we'll put the presentation soon on the website. I think the cash flow you're talking about, the trading engine, has grown to about RUB 6 billion from RUB 5 billion. And plus the other component was attributable to an increase in risk here at NSD. Risk to capital.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [43]

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So therefore, the box at Slide 5, that label of RUB 2.3 billion is mostly the addition of capital due to NSD's volumes. They have larger chunk of assets under custody. And the increasing amount of operations within the traded platform itself, that (inaudible) mentioned. But that's pretty limited, as you say.

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Sergey Garamita, Raiffeisen CENTROBANK AG, Research Division - Research Analyst [44]

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Okay. And so just to clarify, this RUB 1.4 billion provision for M&As, do we expect to have something of the similar kinds for 2020? As -- I mean, for the next year as well, when would be considering like dividends for this year so -- or not? So what are your plans? And as far as we can see, the dividend growth, if we exclude all these like regulatory capital changes, M&A provision and grain provision, the dividend for 2021 dividend increased to above RUB 10. So the logical question is, could you give some, I don't know, guidance and expectations or maybe regulatory capital changes or maybe provision. Should we see this M&A provision as some sustainable item going -- carrying on from year-to-year or not?

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [45]

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Sergey, well, look, hold on, we just got the dividend for 2019 approved yesterday. And today, you're talking about the dividend for next year. That's what I call long-term thinking. So let me not manage or set the expectations of 2020 dividend, which is payable due next year. But tackling the formula itself, the ground merger, so ground [demanation] not on the horizon. We are not expecting to be engaged in a really big merger or acquisition. In our case, if we see M&A opportunities, we have to keep some cash in the war chest since we will not be able to borrow when the payment is due given the regulatory constraints. There are 4 M&As that we are targeting, a rather small scale. And they are aimed at strengthening capabilities, in particular business units, where we are -- earlier, let's say, OTC capabilities or IT coding and selling of IT services capabilities as per the strategy. As per the strategy, we'd rather do targeted niche M&As on selecting our teams or buying pieces of platforms or technical solutions that could be fitting our diversified model. Therefore, grant mergers are not there on the horizon, which brings me to the formula. I would say that the key driver for the dividend year-on-year will always be the net income growth itself, which then transfers into the free cash flow to equity. The free cash flow to equity from net income bridge is relatively simple as G&A impacts. And then you have this -- so we call it working capital or regulatory working capital changes. They will always be there because of the growth of the business. When the business is growing, the working capital should also be allocated as per growth of the business. If the business is stable, then this change is not there. If the business is growing, this change is in there. Thus, our encouraging the future and per the modeling exercise to drive some working capital addition, which is roughly proportional to the size of the business of their positions or the open interest of the positions, collateral open or the volume of operations. It's kind of variable cost we have.

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Sergey Garamita, Raiffeisen CENTROBANK AG, Research Division - Research Analyst [46]

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Yes. And just linked to that, another question. Do we expect some additional, extra capital due to the risk of coronavirus effects, maybe increased volatility, et cetera? At least, do you see that coming? Or this RUB 2.3 billion regulatory capital change in the formula for last year is probably the maximum we could see at least for a couple of years?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [47]

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Well, with the coronavirus, we don't need an extra capital provision for that. With the coronavirus, what the exchange needs is a good contingency plan of operations. As per news, well, you've seen all of the news, let's say, LSE is talking about that, Deutsche Börse is talking about that, every exchange has a contingency plan, and it's not the capital. We need to maintain operations. And as for capital, we are adequately capitalized. For the coronavirus, I would rather recommend to keep your own capital with you.

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [48]

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All right. We have some more questions in the webcasting interface. I will read them before we continue on the phone.

It comes from Pawel Wieprzowski from Wood & Company. It read as follows: Good afternoon. Congratulations to the results. The 2 questions are: First, what do you think about corporate bond placements and IPOs in 2020? That's question number one.

So I would probably start answering it. And to me, I'm a believer in some economic effects that lower interest rates reduced. And we actually had a slide on that in the thematic back on corporate bond placements. And I see no reasons why it should not continue. So with corporate bond placements, I think as rates go down, we at least will have to see elevated refinancing activity.

And as for IPOs, that's still no question. And we've been reiterating that message that we have a particular pipeline, and we have quite a number of names in the pipeline, but nobody has so far pulled the trigger. In current conditions of coronavirus, nobody will do an IPO, you know that. But when things settle down and if multiples are still high and rates are low, that might trigger some more activity, but that comes down to issuers.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [49]

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Well, add on to the bond story. If you will see the stats of overall corporate bonds out, overall corporate loans and credits outstanding, 28%-29% are in the form of bonds. That means that the change itself is servicing like 30% -- almost 30% of the corporate needs of their facilities, which is good. Therefore, when they incorporate themselves, expand in the shrinking interest rate environment, that's the opportunity for us, and that's exactly what Slide 3 shows. Given that there is still an easing in effect from interest rate this year, this might support additional primary bond placements this year.

As for IPOs, I would say the key factor in IPOs are the expectations of the companies going on IPO to get decent valuations. Therefore, it's a function of a multiple for sale. When multiples gets a little bit squeezed, the only benefit we observed in so far is increased dividend yields of the company, which is beneficial to existing shareholders.

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [50]

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The second question from Pawel is as follows. Should the ruble rate contract further, would you then consider introducing additional fees as you did for euro balances in early in January? Will you consider increasing the fee for euro balances so they can track further?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [51]

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Well, great question. Let me cover the biggest story about euro balances. With euro balances, let's say, in ruble equivalent, we had approximately RUB 400 billion of ruble equivalent in euro-denominated platform, that's a lot. It started to comprise a huge chunk of our collateral and making it a nuisance to serve. The existing requirement was that whenever we'll allocate those euros anywhere, even at negative percentage rates, we will gain a pass-through in reimbursement from the market participants. But still, it happened that we became a euro storage vehicle for many Russian professional market participants, which I would say sometimes against the nature of the National Clearing Centre at the major clearing bank. Therefore, we instituted a discouraging fee of 0.2% on the euros to encourage collateral handling for trading rather than storage of euros with us. That was the general logic with the euro balances. As you have seen, the euro balances approximately decreased by, let's say, 1/3, given the introduction of those fees. But the rest of the amount started to generate additional revenues for us, and we will book them as a fees and commission additional revenues next quarter.

Relating to rubles, rubles are generating positive interest rates and they are yielding positive interest rates on that. With euros, we have been in the negative yield territory, that's why we started to think about additional commission on euro clearing balances. With rubles, since the rate is positive, it's highly unlikely that we will contemplate or charging additional on that. That would be against the logic that our -- the collateral provided and the basis for trading.

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [52]

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And then we have a continuation on that question. Change in euro balances interest paid to clients. So we are not paying interest to clients on euros, and we're not planning to do so. And also, lower rates on dollar and ruble, what's the impact on NII for 2020?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [53]

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Yes, that's a good question on NII impact for 2020. Look, the NII that we book consists of 2 major parts. I would call the core NII, the -- basically, the coupons and interest rate we get on deposits and the realized portfolio gains. It's the core NII that we show in our slides that is easy to model. The core NII used to be in the range of, let's say, RUB 3.5 billion, RUB 4 billion historically over the past 2 years. Obviously, it's declining due to the decline in interest rate environment. Therefore, the expectation for this year would be like RUB 0.5 billion lower than the previous range. Let's say, the previous range was RUB 3.5 million-RUB 4 million. Now it's like RUB 0.5 billion lower.

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [54]

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Yes. Current run rate might be like RUB 3.2 billion, RUB 3.5 billion. But that's the current run rate. We don't know how the rates progress going forward.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [55]

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On the other hand, if you look on Page 17, the overall investment portfolio sources are up year-on-year and therefore arriving to magical triple 7 number, RUB 777 billion, there for the fourth quarter, which is supporting the overall amount of core NII.

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [56]

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Okay. We're ready to take the next question over the phone line.

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Operator [57]

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The next question comes from the line of Andrew Keeley from Sberbank.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [58]

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I mean, most of my questions have been answered. Just a couple of follow-ups. You mentioned just on, Maxim, about the euro, on the fee on euro collateral will, I think, from next quarter be booked in F&C income. What line would that be going in?

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [59]

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The understanding is it's to be something like other fees and commissions, but we'll see -- kind of -- that's not going to fall into the fee business. Which line in particular, I guess, it would be the fee income.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [60]

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The size of the potential revenue is relatively easy to get to. Multiply the ruble equivalent of euro balances by 0.2 percentage point, give or take. When you do the math, it's a relatively minor revenue stream. It's good, but it's relatively minor. So it doesn't deserve like to be a separate revenue stream. Therefore, it's highly likely we'll book it into, obviously, other fees. But we will definitely have, let's say, some kind of a mention or explanation on that.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [61]

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Okay. And just a follow-up on the marketplace and costs. So I'm just trying to understand the extent to which whether your costs come out towards the bottom end of your range or the top end of the range depends on the pace of kind of developments of your kind of marketplace ventures next year or this year in 2020. And with regard to the retail marketplace, I mean, is it basically a case of everything is kind of in place from your side? It's purely a case of kind of waiting for the required legislation to go through now. Is that the right way to think about things?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [62]

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Yes, yes and yes. The first yes means that the range is largely due to the marketplace uncertainty in terms of timing. And in terms of the composition, it's due to the retail marketplace, mostly, let's say, marketing promos and the speed of development on -- of the onboarding of clients. Because technologically, the largest chunk of expenditures for the development is capitalized. Therefore, OpEx is mostly, let's say, on the customer acquisition and -- or the launch of the platform. That's how the timing is affecting this guidance range.

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Operator [63]

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The next question comes from the line of Andrey Mikhailov from Sova Capital.

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Andrey Mikhailov, Sova Capital Limited, Research Division - Research Analyst [64]

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I have several questions. My first set of questions is on the software sale to KASE. Could you please comment whether this is sustainable? And maybe if you could give us a general status update on the deal with KASE.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [65]

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With KASE, it's simple. Over the several years, we are to arrive to 20% stock ownership with KASE, a minority share. We can't do more because of the regulatory constraint. Therefore, at 20% ownership, it stops. That's one hand side of the deal. On the other side of the deal, we are developing a platform for KASE on a step-by-step basis. Therefore, once the release is fully established and the system is operational and KASE is satisfied with how the IT platform works for them, we book revenue. Overall size of that deal, which the overall cash is like RUB 5 million -- or $5 million overall size of the deal and the extent of the range at several years. The size of the effect that you see in the slide is, I'd say, 1/5 of that. So it's roughly proportional. So it will also be repeated, but it's a factor of when the next release is available, operational and approved. There might be some fluctuations between the quarters, so it might pop up in one quarter or another, but I'm not promising for the timing. It depends. But overall, I would say that deal with KASE expands over several years. On one hand, it's increased ownership, on the other hand, technological sales.

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [66]

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And also, Andrey, your question resonates to a question we have in our webcasting interface from Samarth from Citi on how much of Q4 revenue gap on software can we attribute to KASE. So it's the entire RUB 100 million surprise that you see in that line is attributable to KASE and going forward, as Maxim said, we will be getting another exclusions upon delivery of software, but it will not be recurring every quarter, and there will be smaller scale.

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Andrey Mikhailov, Sova Capital Limited, Research Division - Research Analyst [67]

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My second question is on CapEx. You report the RUB 2.2 billion CapEx for 2019, while in this dividend waterfall slide, it's RUB 1.8 billion. Could you please outline the adjustments that you made in making -- when accounting for CapEx and your dividend base calculation?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [68]

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It's mostly IFRS 16 because IFRS 16 is noncash. The IFRS 16 -- well, what IFRS 16 does? It --well, we have to book it as CapEx, but it's not CapEx itself. Therefore, we net the CapEx out of that and write a smaller number. Well, its cash like cash, if you exclude the IFRS treatment CapEx due to IFRS 16.

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Operator [69]

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The next question comes from the line of Robert Bonte from Millennium.

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Robert Bonte-Friedheim, [70]

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I had 2 questions. The first one was, can you give us a bit of a sense how we should think about modeling your net interest income? And I guess, you always have thought about, I guess, net interest income plus FX gains or losses. So last year, 2018 -- 2019 was kind of relatively flat on 2018. How would you suggest that we model that with the higher balances, but lower rates for 2020? What's the range there? What that might be the outcome?

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [71]

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All right. So let me take that. First, you have to add the FX effects into the core NII, we've spoken about that. So the core NII will consist of interest income, interest expense and the effect from FX swaps, which fall into this FX line. If you take the 3 together, you'll get the core NII. And on this core NII, we just said that current run rate would be RUB 3.2 billion to RUB 3.5 billion, something like this. But going forward, we don't know what the rates might be. So it's going to be adjusted by the rate evolution. And then the cushions coming from the portfolio revaluation, on the previous call, I mentioned that whenever we have this easing environment, we usually have some revaluation gain. And we already have on our balance sheet accumulated gains -- accumulated revaluation gains in the comprehensive income. We might be realizing it to some extent going forward, too. So this is probably all I can tell on the NII at the moment.

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Robert Bonte-Friedheim, [72]

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Okay. My second question was just when I look at the trajectory of your fee income as a percent of operating income, so if we go back to 2015, it was 39%, then 45% the next year, 55% in '17, 60% in 2018, and 61% in 2019. And this year sort of in some conservative modeling, I get at to close to 69%. Is that -- or the high 60s, certainly. Is that reasonable that you feel as a percent of total income gets to sort of the close to 70% this year?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [73]

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For the fourth quarter last year, it was already 64%, 36% split. So our strategical target is to get the 70%, 30% split. But this year, what's happening, the interest rate environment is going down a little bit quicker. Therefore, it would naturally shift us to more predictable parts of, let's say, 70%, 30% mix. As for your modeling take at 69%, well, it depends on the rates. But given the range of scenarios I've seen, anything between, let's say, 65%, 35% and maybe the range you mentioned, 69%, 31% is viable this year. The key unpredictability falls into 2 categories. The future of the rates or the potential easing in by the Fed and the Russian CBR given our overall situation we have in the economy nowadays. Or on the other hand, or the kind of, let's say, the ratio of core NII to fee and commission would also -- would be really close to that strategic target. But given that we are realizing some gains on the portfolio revaluation when the interest rate environment is going down, the portfolio revaluation is going up, we might accept it a little bit. But let's say, a core NII to fees and commission, that would be close to the guidance -- to the range that you see.

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Robert Bonte-Friedheim, [74]

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Okay. Now on the fees as a percent of -- or on the fees as a percent of overall volumes, I guess, there are 2 lines that I'm interested in there. One is equity fees where it would seem for what you're saying that there are a lot of accounts that opened a lot of small tickets, now does that kind of mean that it's a bit of a mix shift to a little bit higher fee just a little bit? That the mix shifted a little bit upward this year and maybe throughout this year? And the second line that I have same question on is actually derivatives, where we saw, again, I think, January and February volumes are very high. Should we in the derivatives model flat fees? A little bit up fees? A little bit down fees based on the volume growth?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [75]

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Well, the -- that's a good question. The sensitivity of equity fees to the volatility is not that profound. So the tariff reform, there was no tariff reform in equities rising. Therefore, it's effective fee is relatively stable. Given the larger influx of the retail investors, we are still working with the market participants driven by the volume. They might have some volume discounts, but those are not huge. Therefore, in effect, in commissions, I wouldn't be expecting, let's say in the fee market, any substantial change.

As for the derivatives, the latest change in the derivative pricing happens with the Unified Collateral Pool 14, 15 months ago, with the UCP project completion and the tariff repricing, but that already is in the pricing. So therefore, derivatives are not changing. With the derivative, what's more important is the change in the mix of the derivatives themselves. The appreciation that we see, the derivative average yields, let's say average bulk yield used to be, let's say, 0.26 basis points in the fourth quarter 2018. Now it appreciates point -- let's say, 0.38 on above-average ratio. But that's predominantly due to higher share of commodity derivatives on one hand and diminished share of ForEx derivatives. On the other hand, we have removed the marketing discount we have in options. So other than that, mix effect and discontinuation of the marketing discounts on options, no other changes in the effective pricing itself.

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [76]

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So Robert, your assumption would imply, let's say, a sustainable shift in the market share in favor of retail, because that's how the structure and that's how the effective fees go up. But what our equity market colleagues are saying, that basically the market works in the following way, that whatever the ruble locals are putting into the order book, then it's mirrored by ruble from HFTs and then globals. So that's how it works. So the more rubles from retail are just generating more rubles from the other side. And the share, in the long run, let's say, in the 12 months horizon, has to be roughly the same. And hence, we can't commit to a trend in effective fee based on a higher volume of retail.

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Robert Bonte-Friedheim, [77]

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Got you. Okay. My last question is, so when I saw you recently, I think, sort of at the end of last year, I think that when we're talking about this year, I think it felt to me like the focus was on a fee CAGR of 10%. And again, the reading between the lines, it felt like that this would be a tough year in terms of fee growth, maybe below your average CAGR. But I think after these -- the first 2 months have been so strong. It sounds like, I mean, it sounds like, certainly, the first quarter will be way ahead of any kind of 10%. I have it in the -- actually closer to 20%. But even the full year, all of a sudden, it's now actually above the CAGR, even assuming a normalization of volumes. I mean, do you expect to revisit your guidance based on the volumes you're seeing? Or how would you suggest that we kind of think about the year and the momentum going forward?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [78]

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When we've been outlining the strategy back in October, we mentioned that our 5-year average expectation looking forward will be about the CAGR of 10% going forward. The growth might be distributed unevenly between the years. There might be good years and, let's say, worse years. And given the start of this year, yes, indeed, it's extremely robust. Therefore -- but the guidance for the year, we are originally not managing or establishing a strict guidance for the year, let's say, 10%. It's a derivation of the 5-year goal that we have.

This year, we had a good start in terms of the volatility and the velocity in the key markets, but I already mentioned that increased velocity due, let's say, to external -- increased volatility might lead to subside volatility in the months to come. So far, it's still early to tell. Let's leave to the, let's say, semi-annual report in August. Therefore, we won't be able to talk about the expectation. But usually, it happened that there have been good parts of the year and worse parts of the year.

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [79]

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So you are positively surprised by the volumes at the beginning of the year, and so we are. I can't say that we're foreseeing that in any way.

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Robert Bonte-Friedheim, [80]

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Fantastic. Thanks for taking the question. I look forward to, I guess, what's going to be a very positive first quarter conference call.

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [81]

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And I shall read out loud a couple of more questions from our webcasting interface that center around the electronic FX platform that we acquired. So first part of the question is, how are we going to be integrating it in MOEX infrastructure? What are potential synergies?

And the continuation is from Samarth from Citibank, Citi. Basically, can we elaborate more on this partnership? What's the rationale? Any further color on how and when this partnership will generate synergies? And how much of the RUB 1.4 billion M&A outlay this year is related to this acquisition?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [82]

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Good question. Let me handle it step by step. The ForEx platform, as per our strategy, we are going beyond the exchange. Going beyond the exchange means that we like to have a part in the OTC market. We have developed the OTC derivatives and OTC bonds largely by ourselves internally. As for OTC products, it proved to be easier to our GAAP ForEx staff for that market buying first the minority stake or, let's say, completing the transaction of the minority stake first and then given the already agreed conditions, arriving to 100% ownership later in the future. What the logic behind that deal, that OTC market, is competing with the on-exchange market. And they are competing in different parts of the cycle differently. When volatility is low, OTC wins, because in that case, OTC usually charges for the matching fee, but the clearing fee is absent from the OTC. Their guarantee of execution is at the risk of the market participants or engaging into the transaction. The on-exchange market benefits during high volatility times, that's why you've seen a good pickup in volumes in ForEx in the first 2 months or the ForEx is doing better. For us, therefore, the rationale of the deal, it's not like we are cannibalizing one line at the expense of the other, not at all. Those 2 are the buckets of 2 countercyclical parts of the model. Low volatility, we have better OTC. High volatility, better on-exchange. Therefore, for us, it's an expansion of business or I would liken it -- not that -- or the best comparison would be that if you had a retail chain that has been not building any new stores within the developed region, but it's like expansion into a new region, a new market at all. Therefore, the ForEx platform, it will be an additional interface that's not competing, right? So it's an expansion.

In terms of the outlay of M&A outlay, let's say, a large chunk of that is due to the deal, but we are not disclosing the amount or the pricing of the deal itself. The deal will be structured in stages. We will take on first a minority stake, and then we'll move on to beyond of, in terms of outlay, we booked a little bit more than minority stake in the beginning, but I'm not yet so far disclosing the number.

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [83]

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So that also refers to Pawel Wieprzowski's clarification question, like what should we -- shall we hear about the final price we're going to say on that? That is one of the small-scale acquisitions that we are considering. So I would say it's a small-scale deal. Well, as for the final price and all the pricing, unfortunately, we are bound by the terms of the agreement, and we cannot disclose that. But it's not big for us.

We are ready to continue on the phone line.

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Operator [84]

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The next question comes from the line of Sergey Garamita from Raiffeisen Bank.

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Sergey Garamita, Raiffeisen CENTROBANK AG, Research Division - Research Analyst [85]

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Yes, just a follow-up on this M&A -- on these M&A questions. So is this RUB 1.4 billion provision consists of both like KASE and [Tepro] and others? Or does it not include KASE because it's noncash? That's the question as far as...

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [86]

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It does. It does. That's a good question. Let's say, this M&A outlay is for -- is our best estimate at this point of year and first for the likely M&As payments going forward that we see. Therefore, it's like a war chest that I mentioned. It's a war chest for the potential payments for the M&A. I would like to again explain the logic why we need to have that war chest. As per regulation, we are limited in terms of taking on debt to finance acquisitions. It will hurt our regulatory capital ratios if we pay for the acquisition using the cap. Therefore, we have to have war chest in advance to pre-fund the potential acquisition payments. Therefore, this size of the war chest is the best estimate we have so far on the pipeline of deals we have in house.

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Sergey Garamita, Raiffeisen CENTROBANK AG, Research Division - Research Analyst [87]

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Yes. And do I understand it clear that the KASE deal is noncash? So it's just like providing services, probably booking some in Opex? So I don't know where, but it's not -- it shouldn't be included in like, in CapEx, in cash flow statement.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [88]

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The KASE deal is comprised of 2 separate legal constructs. One is the acquisition of shares and the other is sale of technological services. Therefore, acquisition of shares is in there, in that war chest. Therefore, cash is there, because the acquisition of shares is on the cash terms.

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Sergey Garamita, Raiffeisen CENTROBANK AG, Research Division - Research Analyst [89]

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Okay, got it. And this RUB 2 billion to RUB 2.5 billion guidance on CapEx, by the way, does this include some maybe extra CapEx like we see in cash flow statement, which you excluded in your dividend formula due to IFRS 16? Or you just -- or is it the increase from RUB 1.8 billion to, let's say, to RUB 2.5 billion? Or is it just diluted by these one-offs related to reporting standards, et cetera? Yes? And as I understand, this RUB 5 billion range, it's not related to M&As, right? I mean, the gap between RUB 2 billion to RUB 2.5 billion, it doesn't include M&As, right?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [90]

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It does not. The gap is not due to the M&A's uncertainty. The gap is due to the CapEx uncertainty. And the CapEx in itself is the reported CapEx.

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Operator [91]

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(Operator Instructions)

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [92]

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Let's wait for maybe 1 more minute if you have any follow-ups, and then wrap it up.

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Operator [93]

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(Operator Instructions) Dear speakers, there are no further questions at this time. Please continue.

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Yury Olegovich Denisov, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Chairman of the Executive Board, CEO & Member of the Supervisory Board [94]

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All right then, thank you very much, everybody, for asking a lot of detailed and insightful questions and hope to reconnect with all of you with our first quarter release.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [95]

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Well, everyone, I'd like to thank you all for asking the record amount of questions today and we have the record length of the call today. So I would like to recall all the names who asked the question. Thank you Elena, Andrey, Lee, Rob, Sergey and another Andrey and another Andrew and another Sergey and Pawel. Thank you for your questions and looking forward to the first quarter call 2 months down the road. See you. Bye.

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Operator [96]

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That does conclude our conference today. Thank you for participating. You may all disconnect. Have a nice day.