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Edited Transcript of MOEX.MZ earnings conference call or presentation 15-May-20 1:00pm GMT

Q1 2020 Moskovskaya Birzha MMVB-RTS PAO Earnings Call (IFRS)

Moscow May 18, 2020 (Thomson StreetEvents) -- Edited Transcript of Moskovskaya Birzha MMVB-RTS PAO earnings conference call or presentation Friday, May 15, 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

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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 Pavlov-Rusinov

Goldman Sachs Group Inc., Research Division - Research Analyst

* Elena Tsareva

BCS Financial Group, Research Division - Senior Banking Analyst

* Mikhail Shlemov

VTB Capital, Research Division - Equities Analyst

* Robert Bonte-Friedheim

* Sergey Garamita

Raiffeisen CENTROBANK AG, Research Division - 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 today's Moscow Exchange First Quarter 2020 IFRS Results. (Operator Instructions)

I must advise you that this conference is being recorded today on the 15th of May, 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 First Quarter 2020 IFRS Results conference call. As usual, after the prepared remarks, we will have a Q&A session. Today, we have on the call our CFO, Maxim 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 the statements to reflect events occurring after the date of the call prior to the next conference call. By now, you should have received our press release containing the results for the first quarter of 2020. Our management presentation is available on the company's website in the Investor Relations section.

I will now hand the call over to Max Lapin. 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 [3]

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

On Slide 12, delivering on strategic initiatives in the first quarter. Let me start with a reminder that Moscow Exchange had an AGM on the 28th of April. The meeting took place in absentia for the first time in light of the pandemic. Shareholders voted to pay a dividend of RUB 7.93 per share for 2019, in line with the recommendation of the Supervisory Board. The dividend was calculated in line with the new dividend policy and is based on the transparent FCFE formula. It represents 89% of the company's IFRS net profit for 2019 and comes naturally in line with the historical track record.

The new composition of the Supervisory Board now includes 8 independent members out of 12. Oleg Viyugin continues to be the Board's Chairman.

As you know, many banks have decided not to pay dividends this year. Their goal is to build a capital backlog that absorbs potential credit losses resulting from the coronavirus crisis. On one hand, MOEX is not exactly a bank. On the other hand, we built this requirement and buffers across our 3 major legal entities before hand. Our stress test confirm compliance with regulatory requirements, even in the worst-case scenario, which assumes expansion of client balances well above the highest of March this year. We have a clearly defined toolbox to manage capital adequacy if needed. Therefore, our dividend payout address some tariff, reasoning and justification.

Now let us talk about the delivery on strategic initiatives. First, the exchange added to this product range. We observed continuous expansion in the ETFs. A new Russian-law ETF tracking global tech stocks began trading in the equities market. Today, we have 37 ETFs trading on our platform with a combined net asset value of more than RUB 50 billion.

On the derivative market, deliverable futures on Yandex Shares,they were launched, followed by weekly options on futures on Gazprom and Sberbank shares. Short-term bonds issued by National Bank of Kazakhstan gained admission to the inter-dealer repo section of the Money Market, highlighting a growing integration with our neighboring economies.

Second, we continue to work on new services. MOEX published its in growth Sustainability Report for 2019. The report was prepared in accordance with GRI Core Reporting Standards. I hope some of you will find this report useful and its content a valuable addition to your investment process.

National Settlement Depository started publishing data on foreign ownership of OFZs on a daily basis. NSD expects the service to be helpful to analysts and experts responsible for analysis of the position of international investors in the ruble-denominated Russian sovereign debt market.

MOEX developed a new analytical product called the retail investor's portfolio that shows the top 10 most popular stocks held by retail investors. The analysis is based on the personnel -- the personalized, okay, aggregate data on current position to retail investors in most liquid assets.

Third, we'll continue to develop client-based partnership. As of May 15, the number of unique retail clients reached 5 million. Over 1 million new clients have joined since the beginning of the year. Just the number of individual investment accounts, IIAs, has surpassed 2.2 million. The number of corporate issuers in the market continues to grow as well. In the first quarter, 53 corporates, including 10 newcomers placed 143 bond issues, raising a total of RUB 588 billion.

MOEX launched an educational program for corporates called Capital Raising Academy in collaboration with Skolkovo business school. It targets managers and owners of growing private companies that are looking to raise capital on the Russian market.

Next slide, Slide 3. Business continuity during the pandemic. Moscow Exchange has successfully adapted operation to the pandemic and limitations stemming from it. Importantly, our response was earlier when all necessary equipment was still available for purchase. Today, around 90% of MOEX employees are working from home. Physical presence on site of the remaining 10% is required to ensure business continuity. These employees rotate in non-overlapping shifts, minimizing the infection risk. Those who visit the office practice social distancing, wear protective gear, use personal cars or taxis instead of public transportation and when needed, have food delivered. We disinfect premises before the ensuing shift takes over. In other words, expansive precautions are in place. By the end of March, growth in chains of social interactions sustained a 14-day seasoning period. Therefore we de facto isolated operations from uncontrollable spread of the virus at our airport that earlier. Since no (inaudible) essential commercial infrastructure, all continuity requirements are taken extremely seriously. On the business level, we are not planning to reduce trading hours or restrict short selling, unlike some other exchanges. Our risk management systems are working normally, continuously reviewing the risk parameters that adjust in response to volatility.

Our collateral requirements across the majority of instruments are higher in comparison to the pre-pandemic era, however, we have started to scale them back where appropriate.

In case of acute intraday volatility, discrete actions kick up. Bid/ask limit orders accumulate over 3 10-minute sessions with simultaneous execution as the time expires. There are no deliberate trading suspension. Additional measures are in place to ensure the stability and availability of IT systems, as well as cybersecurity.

Business continuity projects, Stabilization 2.0 and Stabilization 3.0 are being implemented at full speed.

Now on Page 4 to the summary of first quarter financials. Operating income grew 16.6% year-on-year, and fee income increased 29.3% year-on-year, contributing to higher F&C share. NII stood virtually flat adding 2.1% year-on-year. Although core NII predictably decreased 15.8% at the back of the subsiding interest day rates globally.

Operating expenses amounted to RUB 3.7 billion, decreasing by 1.6% year-on-year. The recurring cost-to-income ratio decreased by 5.6 percentage points year-on-year. Adjusted EBITDA expanded by 26.5% year-on-year for a margin -- to a margin of 76%. Adjusted net income surged by 31% year-on-year. Adjustment in the form of other operating expenses nearly exclusively result from the change of IFRS 9 provisions. 90% of this IFRS 9 change are attributable to FVTOCI bond portfolio. There are 3 influencing factors: first, term to maturity; second, the issuers credit trading; and third, the level of Russia's CDS, credit default swaps. The letter, the CDS factor, was the main one. It's a purely technical non-cash provision. And in April, since CDS spreads declined, we started to unwind this portfolio-related charges.

Page 5 on the fee income. Overall, fees and commission income growth of 29.3% year-on-year came as a result of growth across every business line except the Money Market, which is driven by the product mix, repo terms and aggregate size of the position by market participants, not by volatility.

Another major business line driven by the position (inaudible) of volatility is Depository & Settlement Services. Growing contributors in absolute terms were equity, derivatives, FX markets and again depository and settlement. The mix became even better or diversified. And the share of Money Market, our largest FMC contributor decreased by 7 percentage points year-on-year. Our countercyclical model features a balanced combination of volatility-linked and position-linked business lines, performing equally well in varying conditions. Overall, we have the best quarterly fees and commissions growth rate in 4 years since first quarter 2016. And top 3 quarterly growth rate in the company's history as a public company, Money Markets flagships.

Fee income from Money Market was down by 2.8% year-on-year. However, trading volumes actually increased by 20.3%. The discrepancy between the year-on-year performance of fees and volumes is due to shorter turn of GCC repos, you might see it from the next slide, by the way. IFRS adjustments and somewhat smaller size of the position and a lower effective fee on the credit market.

The share of high value-added CCP repos including GCC in the total interdealer repo reached an all-time high of 89% in the first quarter. That's really good news.

Page 7, let's look a little bit deeper into Money Markets recent trends. The average on-exchange repo terms increased by 18% quarter-on-quarter. On-exchange with the federal -- on-exchange repos with the federal treasury, our relatively new product process, supported the change. It's a longer-term product by nature, positively influencing the effect here. On the other hand, the GCC repo term contracted by 32% quarter-on-quarter is a negative. Aggregate position, also known as open interest, grew stable during the first quarter to approach the peak level of February 2019.

We recently introduced a 30% discount on corporate GCC tariffs to ramp up activity. The market immediately responded with 50% expansion in their respective positions. That said, the net effect is positive, yet somewhat diluted for the effective period.

On the previous page, I mentioned that GCC repo's term somewhat declined, and we attribute that to the overall volatility in the market, the market persistent led to shorter-term deals.

Next slide, Page 8, depositary and settlement. Fees and commissions from depositary and supplement added 17.5% year-on-year. Average assets on deposit of NSD grew by 12.7% year-on-year. Despite the recent market decline, equities on deposits were actually up 8.6% year-on-year. On the other hand, revaluation of bonds triggered by lower interest rates and the valuation driven increase in [euro bond trouble value] had a positive effect. The discrepancy between growth rates in F&C income and assets is the result of business lines beyond safekeeping. These smaller business lines do not exhibit a distinctive trend and produce varying impact on quarter-to-quarter.

Page 9 on equities. Fee income from the equities market surged by 169.6% year-on-year, following a similar interest in trade volume. The discrepancy between fees and volume dynamics was due to the tariff structure. It provides incentives for higher volume traded. Therefore, a number of clients generated sufficient volumes to get into a lower cost tariff brackets. In turn, volatility increased nearly tenfold year-on-year.

The larger operating volumes more than doubled year-on-year, largely contributing to the volume growth. We are also observing continuous growth of retail participation in equities market. MOEX market share versus the LSE in trading dual-listed stocks improved by 10 percentage points year-on-year to 75%, reaching an all-time high.

Derivatives markets. Fee income from derivatives increased 67.7% year-on-year. Trading volumes from our foreign exchange contract were up by 79% year-on-year on the back of elevated volatility, which is a major driver for this market. Open interest added 4.8% year-on-year. The discrepancy between volumes and fees is due to a shift in the mix in favor of less profitable ForEx and index derivatives, IFRS adjustments and a lower share of options.

ForEx market. Slide 11. ForEx market fees grew almost 23% year-on-year. Following the spike of volatility in the ForEx market, spot trading volumes added 44% year-on-year. Swap volumes contracted by 4% year-on-year, which is relatively unchanged. The ForEx market is also benefiting from higher volatility combined, to a lesser extent then, in the derivatives market. Higher share of spot trading is a primary explanation of perspective in the dynamic. The number of active clients approach 247,000 at the end of the first quarter. It's up nearly fourfold year-on-year. Both corporate and retail clients are contributing to that. MOEX first quarter 2020 market share versus onshore OTC added 2.7% quarter-on-quarter to reach 45.5% due to a higher demand for CCP services. The move was even more pronounced in the spot segment.

Slide 12. IT services, listing and other fee income, ITSLOFI. We have invented a nice name or rather an acronym for that. For the category that could have just been labeled as Other, let us now call it ITSLOFI. Its performance during the quarter was actually quite [high] with fees showing a substantial interest of 25.1% year-on-year. Listing fees and a focus on information services rose by 37% year-on-year, supported by contribution from audit of information use and ruble weakening. Sales of software and technical services were up by 6.7% year-on-year. Other fee and commission income surged by 53.2% because of the additional fees for recording individual clearing collateral on euro subscription from client balances. We introduced that in the beginning of the year.

During the quarter, additional fees produced from RUB 180 million of fees and commission income.

Slide 13, fixed income market. Fee income from the bond market improved by almost 22% year-on-year on the back of 36% increase in trading bonds year-on-year. We observed a supportive 64% year-on-year and 7.5% quarter-on-quarter increase on the secondary market. Primary placement were up by 14% year-on-year. The discrepancy between fees and the volume dynamic come from a lower share of primary market volumes. These volumes in turn contained a lower share of corporate placement. As one would expect the environment in Q1, [personnel condition for] primary placement. However, government needs to cover a wider budget deficit now, that is why we started to witness elevated volumes of OFZ placement. It's a positive factor going forward.

Slide 14. interest and finance income in the first quarter 2020. Net interest and finance income rose by 2.1% year-on-year. Excluding the effect of portfolio revaluation, core NII was predictably down 15.8% year-on-year. The negative factor of decline in interest rate largely offsets with the corresponding growth of USD and ruble client balance sheet. The effective yield remained virtually intact as ongoing monetary isn't a negative, meant the improvement of client funds currency mix are positive. A lot has happened on the back of decline of euro balances. However, average funds available for investment stood almost the same year-on-year because of the 2 effects offsetting each other. First, additional 20 basis points fee on the top of ECB rate introduced as of 1st of January 2020, made euro balances somewhat decline. A similar thing happened with Swiss francs, but it's far less visible.

Second, client fund increased as a total following the spike in market volatility of this (inaudible).

Page 15, operating expenses, excluding provisions. Operating expenses in the first quarter 2020 went down by 1.6% year-on-year. Bonus provision was reduced by 38% year-on-year. This mitigated personnel expenses growth in the first quarter amid a 4.4% headcount increase. D&A contraction of 8.8% year-on-year drove a 3% year-on-year decline in D&A and IT maintenance. Remaining administrative expenses declined 8% year-on-year due to savings on professional information services. The former line contained a grain pass-through expenses in first quarter 2019.

The virus protection costs were immaterial due to the early response. Because of the pandemic, business travel and number of other events were canceled or postponed, reducing associated costs. Savings incurred from such conditions will go to charitable organization that are combating coronavirus and its sequences. We earmarked and publicly announced that we will be dedicating RUB 100 million in such sponsorships.

Therefore, we narrow and lower our OpEx guidance for the financial year 2020 to 6.0% - 8.5%. CapEx for the quarter stood at RUB 0.6 billion coming in line with the full year guidance as we continue implementation of our strategic development project. We will maintain our guidance for CapEx at RUB 2.0 billion - RUB 2.5 billion.

This concludes my overview of an unusual yet very strong first quarter 2020. It produced a backdrop where our business model really stood out.

Now let us take your questions. Thank you.

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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 Robert Bonte from MLC.

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Robert Bonte-Friedheim, [2]

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I guess the question I have, and again, thanks for your very positive cost guidance. I'm just wondering on the again, the question I think I asked on the last conference call, I mean, how do we think about volumes for the whole year? I guess, you said -- you were saying that, long-term fee growth should be 10%. In the first quarter we have 29%. Is it time to raise your guidance for the year?

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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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Robert, I'll dissect your questions in several items. In regards to the volume factor, the first component of my answer. Usually, on the back of, let's say, extreme volatility that happens, what we observed historically in roughly similar cases of extreme volatility, there is a spike in the volume of trading, which slows down a little bit in succeeding subsequent months coming back to normal.

Usually, such extreme spikes of volatility are a net gain for the exchange. So yes indeed, there are some volumes that are being traded now through this volatility season that are consuming the risk appetite of market participant, that mean eliminating some future volumes. But net-net, result is positive.

We -- second part of my answer is that we do not provide a guidance on the revenues specifically. I would say that we expect this year to be strong so that we will have still net-net effect from the first quarter volatility. You would have seen -- you already seen some data for the April volumes. So April volumes, even despite the nonworking days in Russia, were really strong on year-on-year comparison basis, especially. So April was good.

So that in that -- for the exchange, the volumes are doing strong and the revenues have been strong so far.

The third component of the question that we do produce the cost guidance. The cost guidance, in our case, is largely -- we are a fixed cost type of business. The true variable part of our cost component is largely due to the market maker's fees, but those are only, let's say, 5% of our overall expenses at most. So that means that the exchange can maintain the cost guidance, as we mentioned. We do expect volumes to be good for the totality of the year, let's say, year as a whole. Of course, some reduction in volumes, let's say, compared to April and March should be expected. That would be normal, and that was specifically a historical threshold. But it doesn't encourage us to revise or be extremely conservative in our OpEx guidance beyond what we mentioned. I hope this answers your questions, Robert.

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Robert Bonte-Friedheim, [4]

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Okay. I have two follow-on questions, if I may. One, can you give us an outlook on the Money Market funds for the volume seems to have been very high in both March and April?

And two, can you give us an update on the equity side about the number of the new retail accounts being created and their activity so far this year?

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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, what specifically a question in regards to the money market? Shall I comment anything?

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Robert Bonte-Friedheim, [6]

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No, just again, the trend has been very strong in March and April. Do you expect this to continue? Or do you think that's kind of to revert to historically lower levels?

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [7]

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Robert, are you talking about just fees or effective fees?

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Robert Bonte-Friedheim, [8]

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No, the balances, the size of the money market volumes.

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [9]

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The balance. Okay.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [10]

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Okay. I got it. So I would be -- see, there are a couple of things that we will anticipate in terms of macro in regard to Money Market going forward. We'll be expecting a larger repo transaction by sovereign entities. So we would be looking to larger -- because monetary policy has been sometimes transacted through us or ready for us, and Money Market are the vehicle for that. So there might be some good support for the repos in the Money Market going forward, macro-driven. On the other hand, we might see more demand for liquidity as well, additional issuances of government debt on the bond market as well. So that could also support the volumes.

So Money Market, it's not that it's volatility sensitive. Money Market is mostly position-driven. So therefore, the business model that in terms of volatility, was the derivatives market clearly responding to volatility and Money Market being relatively flattish with the monetary policy that might change the size of the Money Market itself.

And please guide me through your question for the equity market. Do you have a question on the equity market?

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Robert Bonte-Friedheim, [11]

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No. Just on the number of retail accounts opened so far this year and their activity as you observed it this year.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [12]

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Well, retail accounts this year is 1 million. It's about 1 million. So total is 5 million and IIA stand in the amount of 2.2 million. We might download the investor -- the regular investor presentation of this earnings presentation by investor presentation from the website, and you will see clearly a very good detailed slide, a set of slides on the overall accounts open and the amount of active accounts per section, the volumes of funded account as well. So that data is disclosed in a separate investor presentation.

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Operator [13]

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The next question comes from the line of Elena Tsareva from BCS GM.

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [14]

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Congratulations for the strong results. I have maybe two questions. One question is more about client balances, which performed quite strongly. And in April, despite volatility maybe spiked less, so we still have quite strong ruble balances above RUB 100 billion and also a pickup of FX balances. So maybe you can just provide a little bit more about like characteristic of this growth? And if it's possible to compare how balances behave now compared what it was like in 2014, when we also had some extremely high volatility. This will be my first question.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [15]

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A wonderful question, Elena. Look, I will dissect that across ruble balances and euro and dollar balances.

What we observed through the volatile quarter, ruble balances grew, and they grew naturally because settlements are done in ruble as well. Therefore ruble collateral, which is also used for settlement funds intro, that was -- that means that the amount of ruble balance that we have roughly coincides with the volume of trading that we have or the volume of settlement that we have. So it's normal. And it helps to improve net interest income in that.

The euro balances, first, they went down within the reduction of [0.2%] euro clearing fee. And then they recovered some what probably the volatility itself. So euro balances, largely speaking, have remained unchanged year-on-year, so roughly comparable.

The main change happened in absolute dollar terms. What happened in dollars? Simple thing. Dollars got cheaper for the market participants to pledge as a collateral on one hand because of the key rate, or the Fed funds rate declined. On the other hand, we had higher volume operating in the ForEx market, which also supported the use of dollars as for the settlement fund.

You have the comparing question, looking back into late 2014, I would say that at their peak or in, let's say, mid-March, volatility, the client balances were roughly comparable to what we observed in late 2014. Therefore, I can clearly say that what we observe in terms of volatility and client balances, performance and volumes and behavior by the market systems, look for us like pure resemblance of what we observed in late 2014. So it was not uncharted waters. It was a relatively predictable haven that we visited before. I hope this answers your question. Do you have another one?

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [16]

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Yes. Yes. That's very clear. And maybe just like additional follow-up on net interest income. So we see several quarters supported by realized gains. So do you expect this realized gain to fade in coming quarters, and we should see normalized NII, just core NII, which is around RUB 3 billion? Just any -- some kind of expectations.

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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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Well, that's marvelous question. Let me handle it in 2 components. The first one, the core NII, just look at that Page 14, you would see the numbers of RUB 3.3 billion. It's the core NII for the quarter. We have a relatively robust duration of [1.0]. So I would be looking at that. The core NII should be about that for the subsequent quarters this year. So in the core NII, it's a new normal. Let's say, the previous normal was that core NII was around, let's say, RUB 2 billion. Now into a new normal with the core NII that's lower. It's expected. When we've been talking to analysts end of last year, like virtually everyone is expecting the core NII to be in the range of RUB 3 billion - RUB 3.5 billion. And here we come. It's predictable.

Second thing, the realized gains. The realized gains is the function of: First, the interest rate, when interest rate decline, there are definitely opportunities for additional gains. And then we decide how we'll be exploring those opportunities, shall we seek in the portfolio itself. It's like a decision made in a given situation and circumstances. So we would not be able to guide you through, let's say, a predictable volume of the realized gains on the FVTOCI on the portfolio. So on the one hand, we don't have, let's say, I wouldn't have any expectations stating for you. Anton, would you add to my call?

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [18]

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Yes, sure. So as you can see in our equity section of our financial statements, we have already a negative valuation gain. So if we did anything at the beginning of the quarter when markets were still high, that would be it. So it should be -- just looking into our financial statements, this realized gain should be material. However, you now have another section of our balance sheet, which is called securities health and trading basically. So these are like short-term euro bonds. And these euro bonds, they make up maybe about -- to the tune of 10% of our total portfolio. And this part is revalued directly through P&L. So these are not FVTOCI, but Health and Trading Securities essentially. And if something changes to them, if market recovers, we'll see that revaluation, but not because it's realized, which is because different figure goes through straight to P&L on its own.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [19]

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Thank you, Anton. Thank you, Elena.

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [20]

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And just maybe one more question about this IFRS 9 provision. I understand you expect this provision to be released second quarter. At least you say in April, there is just some relation. Do you have like some kind of sensitivity, how CDS change affects this type of provision compared to the bond portfolio? Is there any -- just rough assumption you used to calculate it?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [21]

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No, that's a good question. We've been looking forward to it indeed, Elena. You just hit the right button. Okay. Look, the IFRS 9 provisions are here to stay like forever because it's standard. What happened throughout the quarter, the IFRS 9 provision on the bond portfolio went from, let's say, RUB 0.25 billion to let's say, almost [RUB 805 million -- RUB 50 million]. So it was boosted because of the CDS shipped. I saw it grew like between 3 and 4x the provision itself. The amount of this purely calculated provision, we didn't have like any defaults or losses on that. It's a calculated provision. The amount of this roughly correlates with the CDS shift, CDS curve above the sovereign debt and the maturity portfolio and the composition of the portfolio. So in the maturity of portfolio and the bond composition of portfolio, yes, they did fluctuate a little bit. But the main driving factor was the CDS shift. I would, for now, not specifically name the sensitivity to the CDS or the overall amount of reserve. We might be looking into that in the future. But so far, I would just look into numbers. Look into the CDS numbers, 2 numbers for our reserves by 0.25 billion and RUB 0.85 billion. Looking to this CDS spread dynamics for the quarter build your hypothesis. All in all, in April, we've seen some decline in the market in terms of CDS tariffs, which helped us to unwind some IFRS 9 reserves on the bond portfolio.

But all in all, if the situation persists as now, it's less volatile than what we had in March, then I would be expecting some decline in that provision in the second quarter.

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [22]

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All right. Yes, we have some questions in our webcasting in U.K. So I'll read first one coming from Samarth Agrawal from Citi. Congratulations relations of the good results today. Two questions. First, with the rate cuts announced by CBR in April, how should we think about the outlook for primary issuance in fixed income?

So I think we covered that partially in the CFO speech. So we already have the Ministry of Finance, the government, coming back to the market with this OFZs placements. But at the same time, in corporates, so they aren't -- with this whole like isolation period, in the nonworking days, they weren't in their, let's say, complete abilities to take decisions. But now as the situation is being kind of released a little bit, they might be coming into the market. And I think it's kind of a circumstance where a lot of people would be interested to borrow. So I'd be looking for better primary issuances in Q2 probably because, let's say, in Q1, the market was essentially frozen for nearly half a quarter.

And the second question is, what's driving higher client balances in March and April? And we answered that, so Max was talking about it. It's really driven by volatility and by ruble evaluation, by the fact that we have lower risk weights if banks choose to put their cash into entity.

We are ready to take the next question over the phone.

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Operator [23]

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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 [24]

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I have a couple of questions. First of all, on your costs. I'm just wondering how we should think about costs after your super strong performance in the first quarter, but your guidance for the full year kind of barely moved. I'm just trying to understand what would change in 2Q and beyond to suggest that your guidance is kind of realistic.

I mean, basically, from what I can kind of calculate, it looks like to be roughly in the middle of your guidance, the kind of average quarterly costs would need to be around, I think, something like RUB 4.3 billion, which is well above the kind of typical run rate you've been doing for the last several quarters. So I guess, yes, it would be good to kind of get a bit more understanding as to why you're sticking with this guidance.

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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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Andrew I really love your question. As usual, you do look into the right place, ask precisely good question.

Look, on Page 15, there's a second bullet point on bonus provision reduction. I would say that in the first quarter, we had lower cost because of bonus reduction for the -- overall for the company. What happened? You remember, 2019 was not an easy year for us. We had provisions, for example, grain reserves. One company create provision, definitely, it affects the bonus. So the report the bonus -- the eventual bonus recalculation took place in March based on the review of the annual results, and it generated a bonus provision reduction. So that means that the actual run rate for the quarter would be like 1/3 of RUB 1 billion higher. When you adjust for that, you would make a forward-looking expectation, your cost growth for the company would be into the tune of 6% lower guidance, give or take. So that justifies or explain the 6% low range of the guidance.

Then you would ask me a question. Max, why would you today announce on behalf of the company that the upper range of the guidance is 8.5%? Here comes my answer. Our 6% guidance is given provided more or less existing exchange rates. 8.5% guidance implies that we might -- what happens if we would see like next wave of devaluation. It doesn't mean that we expect devaluation or we have a forecast on devaluation. But the range of the guidance provided for the case, if devaluation happens, what would happen to the guidance? Therefore, we have the upper range of the guidance provided here. I hope this answers your questions, Andrew.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [26]

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Okay. Yes, that's very helpful. I have -- sorry, the second question is on your capital position. So I'm wondering if you could give us an update on the kind of NCC's capital position in the light of the fact that the U.S. dollar client funds have pretty much doubled or so in the last 3 months. Would be good to kind of get an understanding of how that has impacted it.

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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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Good question. Look, we've been capitalizing NCC for quite a long time, putting aside amount of capital to make and to see capable of the pending stress test case scenario. And what we observed in March was roughly in line with our stress test parameter, [see to it], didn't go outside them. So it was within the criteria that we had at stress test. That means that the NCC capital adequacy ratio, even after the payout of internal dividend between the NCC entity and MOEX entity, it stood well above the regulatory requirement, the comfort position and it stood on the level of satisfied stress test requirements after the dividend. But that means that NCC capital position, after the internal dividend, this transfer from NCC to the MOEX parent company, because MOEX parent companies pay external dividend. We have NCC now compliant with stress test. It's adequately capitalized above the minimum regulatory requirement of 100%, we are to never breach those 100%, above 120% of the comfort level set by the Supervisory Board. And to the stress test, we are now above the stress test scenario that we have. So NCC is decently capitalized after the total dividend, but not excessively.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [28]

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Okay. That's very helpful. And just a brief final question. There's been a few stories in the Russian press about some brokers complaining about the settlement of WTI futures contracts. Do you have any comment on that? And is there any risk of any kind of provisions needing to be written there or not?

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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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Okay. Let me answer it just formally and then add some details into that. MOEX acted in full compliance with trading rules and contract specifications. Their minutes of Derivatives Market committee confirm that. The letter, by now for has PR point, but it only concerns our legal position. We have very solid, strong legal position. We acted in full compliance with trading rules and contract specification. As the CFO, I might say that trading in WTI company generates let's say, somewhat kind of revenue in million or fees or (inaudible) fees it's a relatively small product for us in the grand scale of business. The exchange guarantees execution of trades, but does not take profits or losses of them. Again, we acted in full compliance with trading rules and contract specification.

What that it meant? That we have changed a set of rules for a given contract, which is a mirror contract from CMA and we have a set of rules dedicated to the trading regulations. We acted important clients for those, or that means that whoever benefited from those deals, some or somebody lost on those deals. We are a trading platform. So yes, indeed, there are some market participants who lost and some market participants who gained. But that happens all the time.

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [30]

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All right. Yes. May I please read out the question now from Pawel Wiperzowski from Wood from the webcasting interface. So in that general questions, just a quick comment. So first that -- first is the question of NII that used to be in the range of RUB 2.5 billion to RUB 4 billion. And then slid to the range about that we communicated during the call -- the last call, it was about RUB 3.2 billion to RUB 2.5 billion. And given the significant growth of client at March and April on one hand and the recent drop in the Russian interest rates, on the other hand. What are thoughts on NII in Q2 -- to Q2 out of the year basically?

So we'll elaborate quickly on that. So let me just remind you several things. First, rates on both dollar and euro declined substantially. So the role of rubles has gone up a lot. And if we see continued strength in ruble balances, that would be a supportive factor. If the ruble rate is not going down any further, that would be a supportive factor.

Then you see -- I mentioned this already, that we have a trading fractional portfolio, at least classified for trading. And if it gains, then we'll have the gain in the P&L without any realization. It just goes through the P&L. So generally speaking, I would be -- for the NII in second quarter, I would be kind of referencing to Q1, more looking into Q1 as kind of as a reference point. But beyond that, let's even see how rates change, how balances change.

And the second question from Pawel is, what is the chance for a lease of this provision recorded in Q1 in the upcoming quarter? Like Max's said that it tolled down to macro conditions. If they improve, if CDM go down, it will be reversed.

And the third, and that is a question to Max. Would it be fair to assume that if the Marketplace project is not launched at all in 2020, the year-over-year OpEx growth will be closer to lower range of the guidance, which is 6%?

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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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Yes. good question, Pawel, yes. And there, the low range of the guidance is exactly for the case if Marketplace project gets delayed a little because of the legislation. Internally, we're developing the technological component for the Marketplace project at first (inaudible). The technological development of Marketplace project is largely CapEx-ed, and you would have seen that in our investor presentation when we disclosed the amount of CapEx for that project.

Overall, the OpEx component for the Marketplace project depends on the marketing expense of it. If we launched Marketplace project early enough, then we will have to spend on marketing. And marketing would mean a higher range of the guidance.

That being said, I would reinforce: We are developing the technological solution for Marketplace. We are not slowing down that one. We have all people in place. We are not engaged in any kind of high comp reductions. Why exposure? We are hiring people. We have the opportunity nowadays in the economy to hire people more. And we'll do that. So its mostly, we'll have the project ready. And then once the law is in place, we will start marketing it full speed. And that explains why we still keep the range and the guidance wide enough. Thank you, Pawel.

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Operator [32]

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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 - Analyst [33]

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Congratulations on these great results. Actually, most of my questions were already answer through, I don't know, as a follow-up, just on this Marketplace thing. This higher end of the range in OpEx. Does this imply the adoption of the legislation, let's say, by middle of this year or what date? Because is there any difference in terms of marketing expenses, if the project is launched, let's say, in September in any day of this year or next year. So is there any let's say, effect of the launch date versus total marketing specific. Could it be marketed like within 3 months without any effect on OpEx, higher end of the guidance or not? It's first question.

The second question regarding, again, Marketplace, do you have any insights on maybe the approximate date of hearing of legislation passing in the second and third reading in state [Duma]. Because at first, it was planned for January, then February then March, then COVID happened, so on and so forth. Do you keep track on this? Do you have any insight into this?

And the last question regarding in this PLC provision in P&L. I understand that it's effective. It's purely technical non-cash is affected by CDS. But is it -- technically, is it included into the dividend formula or not? So, if it is not released, so does set the dividend formula and the dividend base?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [34]

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Amazing question, Sergey. The Marketplace cost. And there, the high range of the guidance implies that we launched Marketplace earlier this year and we'll market it through the fall. If we have some delay in the adoption of low-end marketing expense, then we will have to market it through the end of the year -- at the end of the year, let's say, fourth quarter rolling into the first quarter. So that would mean some shift of cost, marketing cost from this year to somewhat partially next year.

Yes, it is. In terms of the timing of the law, I don't have specific data. But I think, what I know is that all this pandemic situation, it encourages businesses to go to remote basis. Central Bank actually encourages banks nowadays to use the existing legal opportunities for opening accounts remotely. The Central Bank strives to encourage banks to do that. The legal platform is already there. So I think the pandemic situation, in this case, it helps us to have a long position on the Marketplace project than the short position.

I think it really supports the case for this project. That's the answer for your second question.

The third question, the ECL P&L provision. The ECL P&L provision in case for the last year, we'd say, the last year, overall provision, let's say, vast majority of that provision, 90-plus-percent was due to the grain case. The grain case was fully excluded from the dividend formula calculation, and the IFRS 9 for the ECLs end of year were pretty material. They turned out to be, let's say, visible throughout the first quarter. And then the question comes, shall they be included in the dividend formula or shall they not? Definitely they are noncash. Noncash things are going to be excluded. The adjustment in the dividend formula when we disclosed them, let's say, we took into account, let's say, the DNA calculation. But roughly, this ELC provision should be, on average, relatively immaterial.

There is a catch, though. These provisions affect the level of capital of NCC. Then comes the strange thing that although they are noncash, they are being deducted from the capital of NCC, and our dividend formula includes the clause that we should keep the NCC capital adequate.

Therefore, my paradoxical answer to your question would be, I'll buy them cash, they should not be on the dividend formula on one hand, they seem to flow into the dividend formula because they're a reduction in NCC capital by regulation.

But so far, let's say, the situation goes back to normal. The overall ELC provision, I would think that something that we observed like end of last year, RUB 0.25 billion run rate ELC provision, RUB 0.25 billion is a number. The change to that would be in line with the CDS. I don't see that one as immaterial. We are not purely, and we are not a bank. Therefore, ELC provision for us are not that volatile material.

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Sergey Garamita, Raiffeisen CENTROBANK AG, Research Division - Analyst [35]

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Okay. Thank you for the detailed answer. Just, I don't know, maybe it's a quick note on this COVID thing. Because we also see that you are one of the main beneficiaries of this volatility. Do you see any negative sides to this since, obviously, you're running a lower interest rates going down, some should be compensated by bonus in the fees and we such a highlight of -- keeps up the effect from the securities market and this (inaudible). Do you see any negative side for you, for MOEX in this pandemic?

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [36]

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Sergey, that's indeed very strong strategic question. Look, the overall business model of the exchange, so majority of people think that we are volatility driven, we are not only volatility driven, but also other factors where, let's say, the size of the company, the macro factor declined the volume of available demand and supply in the ForEx market. The ForEx market itself is a function of volatility and the overall, let's say, export/import balance in the GDP formula. So if you have a contraction in export/import balances, it might affect our model.

On the other hand, if you look into the amount of issuances, issuances -- look, there is this beautiful slide on fixed income. I would explain why I called it beautiful. On fixed income slide, it's page -- I think it's Page 13. That slide looks like a seesaw, up and down, up and down, up and down, You see that. One quarter up, 1 quarter down, 1 quarter up, quarter down. Easy to explain. Because fiscal policy is visible on that slide through the issuances of all of these. They come and go. So that means that in prices situation, we might have more all of this because of the fiscal policy. On the other hand, we might observe lower corporate issuances throughout this deleveraging cycle. Well, therefore, it's a hard call in this case.

Next, we have a macro exposure to retail clients. We have more than 100,000 retail clients as shareholders of Moscow Exchange. That number went up substantially through the past year. So retail investors, we see them coming into ownership of our shares, the Moscow Exchange shares and the other Russian companies. And that's a good sign. So that means that the existing situation helps retail clients to build or allocate their resources more into the equity market and we like it, because it's strategical model.

Therefore, I would sum it up, that COVID situations, indeed, have a very strong positive short-term effect on us. Longer term, the effects are mixed. Some business lines or some components of business line might benefit, like equities are probably federal bonds. Some components might, let's say, have subdued interest.

All in all, macro is still a big factor for us. We'd rather love to have volatility, predictable volatility in a market going up here, than a high volatility in a market in the depression. Because the market in depression, the size of the market is declining. I hope this answers your question.

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Operator [37]

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

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Andrey Pavlov-Rusinov, Goldman Sachs Group Inc., Research Division - Research Analyst [38]

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Thanks a lot for the presentation and congrats on the strong results. Of course, basically, I just got a couple of follow-up questions. First of all, with regards to the client fund dynamics. Basically, I would appreciate that some of that is driven by the higher level of settlements and kind of trading volumes, say, on ForEx market, but I guess also, you have raised the margin requirements given the rising volatility. So could you please help us understand what is your policy here, how they are changed? And also maybe what should happen for the margin requirements to come down? And what is the lag with the absorbed volatility and this decision? Are you changing it on a daily basis? Or do you wait for a volatility to come down and persist for some time and only then, lower the margin requirements? So basically how it's evolved.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [39]

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That's a good question, Andrey. Look, there -- the amount of client funds is a function of settlement, [net] and the volatility margin requirements and other factors. The amount of rubles required for settlements in a given moment of time, if you would go into ruble balances data several years back, let's say, you would see like RUB 50 billion seem to be the lower bound. The market position just do not go below RUB 50 billion. That RUB 50 billion coincide with the volume of tradings and settlement. It's, of course, a little bit higher through the first quarter.

For rubles, rubles are expensive kind -- way to provide the collateral. So that means that rubles are largely settlement-driven. But the rest forms of collateral are largely driven by margin requirements. Then I would answer this question just large-scale and then hand on to Anton on covering the technicalities as to the frequency and triggers of changes of working requirements.

Well, there is -- the market margin requirements is the risk metric, risk instrument, risk management kind of technique used by the NCC to protect the -- to guarantee the execution of the deals in volatile requirements. Very roughly speaking, in business-as-usual mode, the margins, requirements are set up so that 2 major defaults might happen in the market, and the margin would be sufficient to handle that.

In extremely volatile market situations, we widen our margin requirement to the tune that we might sometimes handle like 10 defaults by having sufficient collateral on the accounts of NCC. So yes, in there. The overall margin requirements are driven by the [resold] that the deals got to be executed and NCC should be able to handle all those deals and not yearned capital even in the harsh market requirements, like measure, let's say, by the amount of defaults in the market.

Anton, would you comment on the frequency of adjustment of margin requirements?

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [40]

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Yes. Essentially, it could be adjusted continuously, basically in a more or less live session. And then the second thing, it's definitely forward-looking. It's not backward-looking. It's not that we face volatility, and then we start to react. We kind of see when the market's on the move and then these requirements change. But there's a flip side.

On the flip side, these requirements have to be compatible with the capabilities that party participants have. So these margin requirements have to allow trading, have to be compatible with the business models of our market participants. So these requirements go too high, essentially, they are prohibited. And for that matter, we are monitoring these requirements continuously, and we'll scale them backward appropriate, and we have already started doing that in particular products where we went down quite visibly. But at the same time, in FX, for instance, where we still are hearing from any possible volatility going forward. There, we haven't really started adjusting our risk parameters and margin requirements.

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Andrey Pavlov-Rusinov, Goldman Sachs Group Inc., Research Division - Research Analyst [41]

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It's very helpful. And just my kind of final small question. Could you help us understand the dynamics of the depreciation of equipment and actually halved year-on-year? So what are the drivers there? Have you increased the useful life of the equipment? Or what's happening?

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [42]

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Yes. So essentially, in Q4 last year, there was a review, essentially an impairment test for all the assets, both intangible and tangible. And as a result of that test, we basically run off some of the obsolete IT. And one of other results of the stress -- not stress but impairment test was the lower depreciation that we're having now on tangible assets as well.

And before we continue with the call, let me read out a question from the webcasting interface, it comes from [Irina Fontinov of] ITI Capital. So the question goes to Max. Does the OpEx guidance of 6.0% to 8.5% include new projects?

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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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Yes it does. When we provide for guidance, we account for the project pipeline. At the exchange, we have a robust pipeline of various projects. Usually we talk like about Marketplace, but there are also like stabilization projects like project life. A single interface for corporate clients, call it our corporate marketplace and so on. So yes, it does account for those.

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [44]

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And also, could we share any estimates for additional revenues in OpEx relating to the launch of the evening session, for example?

So why should we just say that evening session is one of our key projects, and it's definitely included into the OpEx guidance. But in terms of revenues, all our projects are -- products start from low base. It would be a bit premature to give precise guidance on a particular project, and we've never done that. So let's leave and see, let's see where it starts and when we have some initial data, we can then build some forecasts around it.

Let us now have another question.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [45]

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(inaudible) Okay, Anton.

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [46]

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Yes, please, Max, add if you want.

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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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It would have been indeed nice to do a service that we wouldn't have disclosed the expectations on given projects. But our word encouraged to look MOEX, more of a type of a little bit venture style company when we experiment with relatively low cost, but potential high gain projects. In our case, our projects are not like heavy in CapEx, but they create market niches, and market niches could be different in size. Should we have been like a retail or industrial company, we would have been able to tell you that we are going to open, let's say, a footprint of MOEX to 100 retail points and our average people like retail point -- like 2 retail points a week, and we would be able to drive the expectation for that. And for industrial company, we'd be able to talk about in terms of the capacity, let's say, 1 million ton capacity utilization, 70% ramp up over the next 2 years. In our case, we'd rather have like several dozens of projects, bigger than smaller ones. We'd rather talk about like the biggest project for them, the Marketplace. The rest is the portfolio of projects that might fly high or fly middle, but they are not even likely to pose, let's say, capital threat to a company if they are not successful.

I would like to encourage you that in terms of decent government practice, we have annual process or annual performance reviews of all projects in the past and existing portfolio, like annual post-investment monitoring, post-project monitoring of all projects with lessons learned. And in the post-monitoring project, we see that our previous NPV portfolio of projects is certainly positive, and is -- are roughly in line with expectations, although there are outliers both up and down. So we do see that. The predictability in our case is lower than for, let's say, other industries. Thank you.

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [48]

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But I would -- I'd like to touch a point -- another point on that. We actually hired a senior team member that will be overlooking digital platform development.

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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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Yes, we have better, reputable digital officer who joined us in May. So we've been able to hire a Chief Digital Officer for the company on a purely remote basis. So, remote video interviews, video tests, even handling out all the paperwork on a distant basis. So we had and we achieved this digital officer to take care of that project.

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [50]

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Thank you, Max. Operator, we're ready to take the next question on the phone.

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Operator [51]

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The next question comes from the line of Mikhail Shlemov from VTB Capital.

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Mikhail Shlemov, VTB Capital, Research Division - Equities Analyst [52]

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Thank you very much for your presentation and congratulations on good results. I have a couple of questions actually, both related to the equities market. The first one is actually regarding the velocity which we have since spiking in our first quarter to 66%. I was wondering if you could try to break it down for us to be what part of this velocity increase is actually carrying forward into the second quarter? And the reason why I'm asking because driven by the increased participation of retail investors into the market, velocity hasn't been going out quite steadily. So I'm wondering to what kind of a sustainable increase in the velocity we have seen in the Q1? That's my first question.

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [53]

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All right. Let me start answering it. In order to model that, I would personally -- because nobody knows, right? But I would personally look back into the 2014, 2015 situation. I think last time we saw these figures of extremely high velocity back in those days. And I think over several quarters, it was kind of subsiding, normalizing and then came back to the region of 30-something. So I would just look into that as an example and try to learn from that.

But today, I don't think we have an ability to really kind of decompose or predict that kind of thing.

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Mikhail Shlemov, VTB Capital, Research Division - Equities Analyst [54]

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Anton, thank you very much for this. But perhaps just like another way to approach this is that whatever you're a different type of behavior from the new retail clients who are putting money into the market, are they trading actively or are they still buying whole strategy like we have been seeing before?

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [55]

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Oh, it's kind of -- yes.

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Maxim Vyacheslavovich Lapin, Public Joint-Stock Company Moscow Exchange MICEX-RTS - CFO & Member of the Executive Board [56]

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Let me interrupt here for a second. What we observed with retail clients? All in all, retail clients nowadays are low single-digit percentage points in the overall -- I mean, the new retail clients or the retail clients who have not been in the exchange for a long time. They are like low percentage points of participation of ownership of stock so far. We would expect them to add, to represent like high single-digit percentage points of ownership of overall stocks, like in 5 years from now. So we would expect them rolling their savings into ownership of equities. And the good news that what we observed in -- so the fraction is really yet small. So the change in behavior on that group is not affecting the market that hard.

But what I'd like to draw your attention to that. On average, what we observed so far, retail clients trade -- the velocity of trading is higher than average of the market. They might, let's say, rotate their portfolio like every 2 months, rotation of their portfolio every 3rd month is (inaudible) to last term. So let's see how it pans out. So far, we are ultimately in the early stage for that. Anton?

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [57]

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Yes. I wanted to just to say that in our presentation and our general corporate presentation we showed this number of unique retail clients that has just hit 5 million. We show it like last reading was 4.6 million (inaudible) less sense. And then the same time, on the next page, we show the number of active clients, let's say, in the equities market because that's probably the first destination or one of the top destinations for retail clients. And what I see there, and these are the 2 adjacent, Slide 24 and 25 of the presentation. What I see is that over the last, like 3 years, they've been growing kind of coherently more or less. So the number of unique retail clients was 1.3 million at the end of FY 2017. Now it's like 5 million. So it's kind of went up less than 5x. But number of retail clients now is more than 600,000. It used to be like 110,000. So it's like went up like 6x. So it goes pretty much coherently and maybe even active accounts are performing slightly better if you take certain time frame.

And then on the previous slide, we show the number of retail accounts versus the value of securities held in these accounts. And value of securities held is a little bit lagging the number, but also coming pretty much hand-in-hand. That's what I could say on that. Does that answer the question?

I think he has gone out off the line. So if he wants to ask a follow up, we'll wait for him to reconnect. And I read one, maybe one of the final questions we have in our webcasting interface comes from (inaudible).

The question reads as follows: In the U.S., the trading in ETFs comprises 27% of volatility trading. What terms under the exchange plan to undertake to lift the share of ETF trading in Russia?

I'll probably start answering this question. So we've seen very substantial rise in the number of ETFs. We show how we expand this offering in every presentation. And even in today's presentation, it's one of the points on the very first slide set that we show. This combined AUM or NAV, let say, for these funds to have passed RUB 50 billion, it started from 0 not so long ago. So I haven't really heard of any obstacles that exist and that exchange can solve or should solve.

What we can do, we can provide the sort of support, give our platform for some events that -- for some seminars, workshops that tell about the product, and that's what we do.

And then as exchange, I think we do everything we can to support the development. It's one of the interesting products. It's one of the very fast-developing section, rapidly growing number of products. And also, that's an exposure we are giving to foreign stocks and global asset classes. Because if you look into the composition of this Russian law, importantly ETFs, you'll see that it's maybe like 2/3 or something, it's foreign securities. I think that's all I have to say on that.

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Operator [58]

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Dear speakers, Mikhail Shlemov has been reconnected.

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Mikhail Shlemov, VTB Capital, Research Division - Equities Analyst [59]

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So sorry, my line broken up. Sorry, I probably missed a part of the answer related to the whatever the behavior of retail clients who are currently coming to the market is different from the ones who previously present, especially if they trade more or they still stick to the buy and hold strategy.

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [60]

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Yes. The answer was really short. I'll tell you a long version, but the short version was that if you take the number of active accounts, the number of unique clients and the value held in securities at these accounts, these 3 metrics will be going pretty proportionately or pretty coherent over the last several years.

I don't see much of a law of diminishing to returns there, to be honest.

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Mikhail Shlemov, VTB Capital, Research Division - Equities Analyst [61]

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Okay. And probably the second question, which is also somewhat related. Recently, we've seen some reports are actually coming from St. Petersburg Exchange, which is organizing a trading of the international stocks at their platform, that they are actually seeing a surge of interest from retail accounts and probably even capturing half of the inflow of retail money, which is going into the market. In that regard, I was wondering on whatever you are revisiting your previous decisions or ideas to launch the trading of the foreign stocks at your platform, and whatever we could see this coming to your platform in the near term?

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [62]

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Yes, sure, we do. We do that. And during our recent webinar with our retail shareholders, our Head of Equity Market, (inaudible) was talking in detail about that. So the short answer is, yes, we do look into that. And we do recognize that, that fact that we need to expand our product line basically. And we've been adding ETFs that are a proxy to foreign stocks to our platform and quite actively. But that provides none another pure exposure but a diversified exposure.

So to an extent, we have similar products already. These are rational law and foreign law ETFs on global asset classes and global stocks. But on seeing in terms of single stocks, I think we should be doing more on that, and we haven't stopped on that, and we'll be continuing our efforts to bring that asset class to our platform.

But no, I can't give you a certain time line yet, but we are looking to that quite actively.

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Operator [63]

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The next question comes from the line of Elena Tsareva from BCS GM.

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [64]

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I just have one more additional on my side. So just -- I have a question on timing of introduction on fee on euro balances, given just we had negative euro rates quite for long, but the fee came just recently. And if you see any, like, possibility of introducing, I don't know if any rate level of euro, of the Fed to introduce similar fees or maybe just other circumstances, you think that it's possible, just the ideas.

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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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Great question, Elena. Look, we have previously like had a long, long time, the reimbursement clause on the funds provider. Let's say whatever rate negative is out there, we have to allocate euros at that rate where -- pass those costs through onto the plan. Those expenditures were disclosed in net interest income in our report. So let's say, the negative rate was 0.5 point minus, then we have got reimbursement from the client, 0.5 point minus if we couldn't offset that trade. So that cost has been with us for a long time.

What happened on the first of January, we've seen that euro balances were spiking for a long time as well, in well excess of their overall collateral requirements needed. The collateral -- excess collateral might exert some capital pressure on us. So we decided to institute additional on top of that negative reimbursement clause, additional clearing maintenance here of 0.2%. So the float in part linked to ECB negative trade persist as interest component of that fee is offset by the clients, pass-through on to the client, the clearing maintenance fee is added on top of that. What will happen if that goes negative? If that goes negative, we are likely to repeat that similar clause. We will have a pass-through cost of the negative rate of fed. On top of that, we will might probably replicate the solution that we have with euros and Swiss francs. That's it.

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Operator [66]

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Dear speakers, there appears to be no questions at this time.

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [67]

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All right. So I see -- yes, that's correct. I see no further questions in the queue or on the webcasting interface as well. I think we've been with you for almost 1.5 hours. It's about time to wrap it up. So thank you very much, everyone, for your great insightful questions. And staying in touch, let's reconnect with the results of the second quarter. Thank you.

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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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Thanks, everyone. Been a pleasure.

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Anton Terentiev, Public Joint-Stock Company Moscow Exchange MICEX-RTS - Director of IR [69]

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Bye.

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Operator [70]

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That does conclude your teleconference for today. Thank you for participating. You may all disconnect. Have a nice day, and stay healthy. Dear speakers, please stand by.