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Edited Transcript of MOEX.MZ earnings conference call or presentation 2-Mar-17 3:00pm GMT

Thomson Reuters StreetEvents

Q4 & FY 2016 Moskovskaya Birzha MMVB-RTS PAO Earnings Call (IFRS)

Moscow Mar 2, 2017 (Thomson StreetEvents) -- Edited Transcript of Moskovskaya Birzha MMVB-RTS PAO earnings conference call or presentation Thursday, March 2, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Sergey Klinkov

Moskovskaya Birzha MMVB-RTS PAO - Head of IR

* Alexander Afanasiev

Moskovskaya Birzha MMVB-RTS PAO - CEO

* Evgeny Fetisov

Moskovskaya Birzha MMVB-RTS PAO - CFO

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Conference Call Participants

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* Armen Gasparyan

Renaissance Capital - Analyst

* Mikhail Shlemov

UBS - Analyst

* Olga Veselova

Merrill Lynch - Analyst

* Jason Hurwitz

VTB Capital - Analyst

* Maria Semikhatova

Citibank - Analyst

* Andrew Keeley

- Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's MOEX Full Year 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. (Operator Instructions)

I must advice you that this conference is being recorded today, Thursday, March 2, 2017. I would now like to hand the conference over to speaker today, Mr. Sergey Klinkov. Please go ahead, sir.

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Sergey Klinkov, Moskovskaya Birzha MMVB-RTS PAO - Head of IR [2]

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Thank you, (inaudible). Good afternoon, everyone, and welcome to our conference call. As usual, after the prepared remarks, we'll have a Q&A session. Today, we have on the call, Alexander Afanasiev, CEO of MOEX and Evgeny Fetisov, CFO of MOEX. So, before we start, I'd 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 and the Company doesn't intend to update these statements to reflect events occurring after the date of the call, prior to the next conference call.

So, by now, you should all have received our press release containing the results for the fourth quarter and full year 2016. Our management presentation is available on the Company's website in the Investor Relations section.

So, now, I will hand over the call to Evgeny Fetisov. Evgeny, please go ahead.

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Evgeny Fetisov, Moskovskaya Birzha MMVB-RTS PAO - CFO [3]

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Thank you, Sergey, and thank you all for joining us today to discuss Moscow Exchange's financial results. So, starting with slide 2. Before we start with a review of key developments and financial results of the year, I would like to remind you briefly how the [breaking] environment has changed for MOEX. In 2016, we had a combination of much lower volatility across different asset classes, a sluggish economic recovery and the regime of sanctions against Russia with debt remain in place. In this environment, MOEX's diversified business model once again demonstrated its stability and resilience to external factors and we delivered another year of fees and commissions growth.

I'm pleased to say that we had a number of record-breaking achievements this year. Primary placements of fixed income instruments with over one-day maturity reached a historical high of RUB2.5 trillion. Fee and commission income on the derivatives market reached a record high of RUB2.1 billion. Thanks to increased trading volumes of commodities futures, index futures and options. MOEX's Brent futures contract was the fourth most traded Brent contract globally.

Our money market demonstrated another year of record-breaking fees and commission income, RUB4.8 billion, on the back of volume growth in REPO with CCP. The foreign exchange market outstanding volume growth in the first half of 2016 positioned that market for record full year fee and commission income of RUB4.3 billion. Assets under custody at NSD reached a historical high of RUB36.4 trillion by the year end.

We have increased investments into -- to further develop our infrastructure and the infrastructure of the Russian capital market. As a part of that, we have completed the migration to DataSpace1, the only datacenter in Russia with Tier-III certification from Uptime Institute and launched Corporate Information Center, a single source of corporate data with golden copy status, which will solve the problem of multiple, inconsistent corporate actions data.

The legal framework for corporate actions reform went into effect. We believe this will lower both risk and costs for market participants, as all corporate actions will be processed through a single CSD platform.

The Bank for International Settlements assigned the highest rating to the Russian financial market. And on the product side, we continue to strengthen MOEX's offerings. We introduced Repo with general collateral certificates, GCCs, M-deposits, a direct market access to the money market on exchange auction technology for corporate clients, deliverable futures contracts on the most traded currency pairs, futures on ROIA and the first program of overnight bonds.

Slide 3. So, what you made the marketplace of choice for our clients with the growing local investor base and continued shift from foreign to local listings. For 2016, though 2016 was still a challenging year for equity capital markets in Russia. Russian issuance started to show signs of revival with seven IPOs and four offerings across different sectors from manufacturing to agriculture, to oil and gas, to leasing, raising a total of RUB137 billion.

We are proud that all companies chose MOEX as the venue for these capital raisings. We have also had a great start to 2016. RUB46 billion was raised via fee transactions. Detsky Mir is the largest children's goods retailer in Russia and the CIS completed in the IPO while TMK and Phosagro both well known to investment community completed secondarily.

2016 marked another significant achievement, which further improved the equities market quality. MOEX completed the key stage of the listing reform, bringing listing requirements into line with international standards. Foreign [exchange rate] resulted in a total of 72 new independent directors selected as Board members of Company included into the highest listing level. And overall, the corporate governance structure, which required both highest level issuers and standard listed issuers to comply with the new requirements for audit committee as well as certain appropriate publicly available dividend policy.

The listing reform has a tectonic shift in the Russian market, which will reduce investors non-market risks and add additional comfort for those trading and holding Russian Securities.

Now, I'd like to touch on the topic of MOEX's needs for capital and the new regulation that will come into force next year. The new target level for NCCs capital for 2017 has been set at RUB55.2 billion based on CCP stress test, as the capital should be sufficient to cover potential losses on the stress scenario and keep the NCCs business operational, the Central Bank's requirements for the CCP capital adequacy ratio. The capital adequacy ratio should be sufficient under Basel III rules or in adjustments of capital and risk-weighted assets. Later this year, NCC will apply for new licenses that will switch NCC from being regulated as a bank to the new regulation of CCPs.

The following set of regulatory ratios have been developed by the Central Bank of Russia. First, capital adequacy ratio. NCC's own capital shall exceed the sum of skin in the game, the minimum capital to maintain 11% of risk-weighted assets and a reserve of 75% of annual operating expenses. Second, adequacy of total resources to ensure there are enough funds to cover potential losses in the event of default of the two largest counterparties. And third, adequacy of initial margin to provide a shield for market risk entailed in case of high volatility. Fourth, liquidity ratio to ensure that CCP can immediately cover potential losses in the event of default of the two largest counterparties. And five, collateral concentration to ensure the CCP is not exposed to the overconcentration of one collateral type. We believe the new regulations will provide additional comfort for all types of market participants and ensure more separations of the central counterparty. It is important that the new regulation allows to grow the business faster than the capital needs in the medium term.

Now, let's move onto our financial results. In 2016, fee and commission income grew by 11% while operating income decreased by 5% as a result of normalization of interest income, which declined by 16% year-over-year. In 2016, fees and commissions contributed a 46% to total operating income versus 39% last year. The EBITDA margin remained at a strong 77.1%. Operating expense grew by 9%, primarily due to increases in depreciation plus 74% year-over-year. Equipment and intangible asset maintenance was 41% and market makers fees was 35%. The cost-to-income ratio increased by 3.6 percentage points to 28.1%. Net income declined by 10% compared to last year and reached RUB25.2 billion.

Markets. So, money market, the money market was the biggest contributor to fee and commission income in 2016 and also one of the fastest-growing most trading markets. Trading volumes increased by 47% year-over-year. Volumes in the repo segment increased by 51% year-over-year and the credit and deposit markets' volumes grew by 15%.

In a situation of liquidity surplus, repo with the Bank of Russia was replaced with inter-dealer repo and in particular repo with the CCP. Repo with CCP remained the fastest-growing instrument of money market with volume growth of 2.6 times year-over-year.

FX market, subdued effects volatility affected trading volumes, which grew 6% year-over-year. The growth of spot trading volumes was 4% year-over-year, while swap trading rose by 7%. Moscow Exchange increased its market share versus OTC in foreign currency trading. Around 53% of ruble liquidity volume traded on MOEX versus 49% a year ago.

Depository and settlement services. Average assets under custody at the National Settlement Depository grew 14% year-over-year. At the year-end, average assets reached a record RUB36.4 trillion. The growth was driven by increased market cap of the Russian equities market and issuance of new bonds.

Derivatives market. Trading volumes increased by 23% year-over-year. The fastest-growing products were commodities futures, up 3.5 times. Index futures was 29% year-over-year and options was 66%. The share of currency futures declined from 67% to 56% of derivatives trading volumes in ruble terms.

Equities market. Despite lower volatility, trading volumes in the equities market declined by only 1%. Retail investor base of the equities markets continued to grow in incentivized by lower interest rates and the recent introduction of individual investment accounts. In particular, the number of active retailer accounts increased by 35% year-over-year to more than 110,000 accounts with ample potential for further growth.

Fixed income market. Trading volumes of the fixed income market increased 31% year-over-year. The performance was driven by new placements, which grew 91% year-over-year and was supported by strong secondary trading volumes, up 12% year-over-year. In 2016, primary placement of government bonds grew by 70%, and new placements of corporate and other bonds with maturities of more than one day grew 27% year-over-year. That substantially exceeds the growth of corporate loans granted by commercial banks over the same period.

In 2016, total fee and commission income increased by 11% and reached RUB19.8. MOEX's diversified business model allowed us to achieve a solid performance. Fee and commission income of the money market increased 25% year-over-year to RUB4.8 billion and contributed 24% of total fees.

FX market fees were almost flat at RUVB4.3 billion. The foreign exchange market accounted for 22% of total fee income. Fees from depository and settlement services RUB3.6 billion with 18% of total fees grew 3%.

Derivatives market fees increased by impressive 40% to RUB2.1 billion and contributed 10% of total fees versus 8% a year ago. The equities and fixed income markets contributed respectively 8% and 7% of overall fees. The equities market fees were down 3% year-over-year, while fees of the bond market increased 25%.

Interest and finance income. The investment portfolio declined 21% year-over-year due to lower market participant balances, especially in rubles and dollars. In 2016, 13% of client balances were in rubles, 38% in dollars and 48% in euros. The effective yield on Moscow Exchange portfolio increased from 2.4 percentage points to 2.6 percentage points. For your reference, the dollar LIBOR rate increased by 0.3 percentage points during the same period and the MosPrime rate decreased from 13% to 10.7%.

Interest income declined 16% year-over-year, driven by lower interest rates and change in the mix and the volume of funds available for investments.

Operating expenses. OpEx for the year grew 9%, below the full year guidance of 12% to 14%. Personnel expenses increased 3% year-over-year, in line with change in head count. Administrative expenses increased by 15%. The fastest-growing items included in administrative and other operating expenses were depreciation of property and equipment, and equipment and intangible assets maintenance, which grew respectively by 74% and 41% as a result of the migration to a new data center and the increase of the IT footprint.

So, CapEx and OpEx guidance for 2017. Our capital spending in 2016 reached a peak of RUB3.6 billion, consistent with the guidance. In 2017 and beyond, we expect CapEx to normalize at RUB2.5 billion to RUB3 billion per year. The key CapEx projects in near future will be the new IT architecture throughout the creation of the single collateral pool, the reform of the corporate actions and the plant upgrades of hardware.

We forecast the expenses in 2017 in the range of RUB14.3 billion to RUB14.6 billion, which corresponds to a growth rate of 17% to 19%. This figures include double-digit growth of administrative expenses and the growth of personnel costs above inflation. The former will be driven by the recent migration to the new data center which will continue to affect the depreciation and the maintenance expenses, while the ledger will mostly be the result of selective salary increases and share-based payment expense.

So, now I would like to handover the call to the CEO of MOEX, Alexander Afanasiev.

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Alexander Afanasiev, Moskovskaya Birzha MMVB-RTS PAO - CEO [4]

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Thank you very much, Evgeny. Thank you, ladies and gentlemen, for your attention. And I would now like to turn the page on 2016 and talk about our main challenges and the opportunities in 2017 about the future. So, I'd like to highlight several [areas], where we believe MOEX can find the next driver for our business growth. I would say, our hub work in previous year resulted in creation of well-established financial infrastructure is really wide range of products and services, and frankly speaking, in a not favorable period of time for financial market. But this year, we feel a strong tailwind determined by positive macro factors. Due to the falling interest rates for deposits, local retail investors are rapidly increasing their investments in securities. Its share increased from 11% up to 18%, increase of individual investment accounts amount to 1 million, expected taxation exemptions for coupons and decrease of our long-term deposits for pension funds are also driving the interest of investors for acquisition of bonds.

The foreign territories are investing their rubles also in the local fixed income product. Volumes in primary markets increased in (inaudible) by 70% in 2016. In corporate bonds, they doubled, mincing plans to double their borrowing from the domestic market in 2017. For issuers, they shortened the time for issuing tranches of bonds from three days down to 15 minutes. So, we are working with the regulator also for further improvement. We opened access to our FX and repo markets for copper. They shall bring additional volumes, new trading strategies and also longer tenor to our markets. In all of the (inaudible) this year. All this will enable us to establish full-fledged money market platform on MOEX, which has already increased its market share from 50% in 2015 up to 75% in 2016.

New bond issues will increase the repo base. The repo base clearing certificate, is expected to become the flagship product in the money market. [We will] develop high-technology services, so far not actually offered to the market, first of all the market data services. We will focus on expansion of our market data distribution and to offer the customers both real time and value-added market data products, which shall be well customized for the customers.

During 2017 and beginning of 2018, we will provide our clients with unique gross market trading opportunities like unified collateral management, unified account and also gross margining around all asset classes trading on Moscow Exchange. We will also continue to expand our markets through efforts to grow the investor base, focus on retail investor including investment into fintech for retail support, online marketing tool, products and brand management, educational efforts targeting individuals, focus on international flow, the response of market access to the FX market, development of International Clearing Membership and our clearing house shall get reaccreditation by immune entity, FTC. In the mid-run, Russian corporates will become meaningful players on FX, money market and commodities market, and corporate governance reform (inaudible) will make the market more transparent for all types of investors introduce non-market risks. So all in, we have a number of initiatives in our pipeline according to our strategy that will make (inaudible) Moscow Exchange, I believe even more attractive and efficient for a latter stage.

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Sergey Klinkov, Moskovskaya Birzha MMVB-RTS PAO - Head of IR [5]

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So, that is great. I think we have finished the prepared remarks and now we are ready to take questions.

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Questions and Answers

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Operator [1]

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Thank you. We will now begin the question-and-answer session. (Operator Instructions). Armen Gasparyan.

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Armen Gasparyan, Renaissance Capital - Analyst [2]

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I have several questions. The first one, I was wondering if you have any comments to make on the dividend front regarding the dividend payouts for 2016 and whether you are planning to start paying interim dividend this year? The second question, is there any -- if there is any update on the progress in the rollout of the unified collateral pool, whether you've seen that the fees that customers will be supposed to pay for new services or services offers, i.e., portfolio margining, gross margining, recent hedging would help you offset the decline in balances, as obviously it will allow for a more effective use of collateral and hence interest income will subside? And my final question, we have seen Moscow Exchange introducing some new products. And I'm curious about the M-deposit technology. Do you think the introduction of peer-to-peer auction technology for corporates is possible sometime in the future? That would be very interesting. Thank you.

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Alexander Afanasiev, Moskovskaya Birzha MMVB-RTS PAO - CEO [3]

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Let me then start with, Alexander Afanasiev speaking here. So, just a couple of hours -- Armen is talking here?

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Armen Gasparyan, Renaissance Capital - Analyst [4]

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Yes.

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Alexander Afanasiev, Moskovskaya Birzha MMVB-RTS PAO - CEO [5]

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Good. So, couple of hours ago, the Supervisory Board of the Moscow Exchange took the decision to recommend through the general shareholders meeting their dividend (inaudible) for the result of the year 2016, as 69.3% from the result of the year 2016. So, the second question about gross margining opportunities, it's one. Indeed it is our strong strategical belief and it was proven many times in our -- in many of our products like implementation of T+2 for instance bringing to the market more efficiency for trading, result always -- in a better result, which usually is higher at our potential losses in the interest result. So, we made already a lot of calculations looking at the most active market players, which will make use of these opportunities first of all and we see that they are not as much sensitive on the cost of the collateral, but rather on the amount of collateral. So when they have some amount of collateral, they are using it for active trading. If they will need some lesser amount of collateral for providing more trade, so usually they are doing more trades. To the third point in terms of the M-deposits. So, the M-deposits definitely might also lead to the peer-to-peer solutions and we are a money market platform, which always increases not only the number but also the types of our participants.

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Armen Gasparyan, Renaissance Capital - Analyst [6]

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Just a follow-up on the dividend front, should we expect interim dividends to be introduced sometime in the near future?

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Evgeny Fetisov, Moskovskaya Birzha MMVB-RTS PAO - CFO [7]

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Yes, this is Evgeny. So, yes, the Company will be considering interim dividends later this year. And just to be very specific, the dividend recommendation for 2016 is RUB7.68 per share.

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Operator [8]

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[Andrew Keeley].

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Andrew Keeley, - Analyst [9]

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My question is regarding your cost growth, which I think first impression looks quite a lot higher on the guidance than we would have expected. I mean it would be good if you could kind of perhaps give us a little bit more detail about how you're getting to the 17% to 19% growth, because I mean if we look, [staff cost] growth in 2016 was very impressive, it was only 3% and that was with higher inflation, inflation is coming down. And on the other operating expenses side, you've already completed the move to the new data center, I can understand that there is going to be perhaps some higher D&A expenses and maintenance costs, but still it's just a -- it's a bit of a struggle to be getting to this kind of 17% to 19% range. Thank you.

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Evgeny Fetisov, Moskovskaya Birzha MMVB-RTS PAO - CFO [10]

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Thank you, Andrew, for the question. So, on the cost side, the way we look at this is we expect the personnel cost to grow 16% and we split it into the base to salaries plus taxes growth of 8% and the rest would be coming from the second wave of the share-based payments or the stock options program. So, that's expected to be -- this will be the crude expenses, but they are expected to contribute roughly RUB450 million a year to net of the expense base. On the administrative expenses, which include IT expenses and D&A plus the maintenance of all the systems. We expect 20% cost growth. And this is largely due to the record CapEx investment of this year and continuous investment into the IT footprint. So, we will continue to run the -- I mean we will continue to run the most reliable system that we think we can chip and this will be the priority for us.

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Operator [11]

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Mikhail Shlemov.

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Mikhail Shlemov, UBS - Analyst [12]

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Actually, I wanted to ask a little bit of follow-up on OpEx, because just like that looks really high. There is absolutely no room to further deliver on the cost cutting, especially given how much you have invested into the IT in 2016 and before that. And also perhaps you could elaborate on what specific changes to the share-based compensation have done whatever it's more people or in changes to the existing program? Thank you.

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Evgeny Fetisov, Moskovskaya Birzha MMVB-RTS PAO - CFO [13]

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Thank you for the question, Mikhail. So, on the latter one, so this is the second [wave] of the program. So, we are adding more people including the -- so, this is the broader base of the managers, say, roughly 150 people or slightly more than that. So, that's why we expect to have a more across related to this program. On the IT cost side, there is -- I mean we have done a couple of important changes to the infrastructure, like we mentioned we moved to the new data center and that actually increases our IT footprint and we have, say, expanded our networks, I mean I don't want to go into much details on this. We have a CIO for very detailed explanation, but we're actually now running and supporting a larger number of equipment, namely servers and communication equipment. It looks like we have -- we expect that in 2017 we would reach a certain base, which will allow us to maintain the IT expenses at a more or less stable level without such growth. But I mean, like I said, one of the largest contributors to the growth was the investments, which were done throughout 2016 and specifically in the second half of 2016, which amounted to RUB3.6 billion. Like I said, this is a record number for the Company. This number will go down to roughly RUB2.6 billion in 2017. So, this is the expected CapEx for 2017. And then we expect it to stay within RUB2.5 and RUB3 billion range.

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Operator [14]

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Jason Hurwitz

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Jason Hurwitz, VTB Capital - Analyst [15]

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My first question would be relating to the dividends. So, you've increased your payout ratio considerably. Do you think that it would be possible that you will continue to raise the dividend payout ratio in future years? And what would be the constraints that might prevent that? That's first question. I'll let you take that one first.

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Evgeny Fetisov, Moskovskaya Birzha MMVB-RTS PAO - CFO [16]

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Jason. This is Evgeny, this is my favorite question as you may well know. So, the way we'll look at this is that we think the actions (inaudible), say, speak louder than words. So, we think that we -- with the minimum payout of [55%], we are getting close to 70% and I think you should be taking that as a base for -- thinking forward. We have persuaded the market wants -- or some investors want their larger dividends, but we have to balance that with the capital requirements on both and this year and as decided as well as to support the growth of the business.

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Jason Hurwitz, VTB Capital - Analyst [17]

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Second question then relates to the fee and commission income. In the fourth quarter, we saw growth of fee and commission income, but it was lagging that of the volume growth on many of the markets. So, effectively, pricing was down in many markets. Could you give us an indication market-by-market if necessary, but as to whether is -- there is a concerted effort to bring down the pricing or if this is one-off and how we should look at that heading into 2017? Thanks.

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Evgeny Fetisov, Moskovskaya Birzha MMVB-RTS PAO - CFO [18]

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Thank you for the question. Actually we are looking at this slightly differently. So, we have a situation, which was to the contrary. So, we have increases in the effective yields on the derivatives market, which is, I would say, more than 20% of the effective yields and more than 60% excluding the rebate which would last for at least a year. There are some decreases on the effective yields on the money market, but that was due to the shorter duration of the repos. If you -- you may remember that last year we had a fair -- decent share of the longer-term repos, which market participants did to secure liquidity. Now situation normalizes and we are seeing a higher volume, but a lower-duration repatriation on this market. The markets are fairly stable. We don't see many -- I mean any -- many change -- or any substantial changes in the price.

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Alexander Afanasiev, Moskovskaya Birzha MMVB-RTS PAO - CEO [19]

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So, we have also -- I mean, one thing which we may confuse some of the readers of the reporting, is that we have introduced this one-day bonds, overnight bonds, which are actually priced -- it is in essence a money market instrument and it is priced at the level of the money market instrument, i.e., the repo market. That's the only, say, difference, big caveat to the -- looking at the fixed income market.

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Jason Hurwitz, VTB Capital - Analyst [20]

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So, you wouldn't say that perhaps we should be looking at this as in many of these markets that, well, the pricing hasn't moved down per se from your perspective, but from our perspective that the nature of the type of trading volumes has brought prices down, and therefore, from an assumption perspective, looking forward that it does mean lower pricing, would that be accurate?

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Evgeny Fetisov, Moskovskaya Birzha MMVB-RTS PAO - CFO [21]

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Now, it won't be. I think the accurate statement from my side would be the pricing either remained stable as in many markets or improved as in the derivatives market case. So, what changes is the product mix, which is the function of demand from the client side. And then you have to look at really where the client demand comes from. So, it could be, say, if there is a demand for shorter repo operations, we will get the lower effective yields, but on the repo side, this is more, I would say, complex, because you have to look at the instrument, then the term, and then you would get the effective yield. So, it may actually change with the duration of the repo and that's -- that will be function of the market supply and demand. And the interest rate also affects the yield as well. So, with the lower interest rates on the repo, you would get the lower effective yield as well.

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Operator [22]

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Olga Veselova.

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Olga Veselova, Merrill Lynch - Analyst [23]

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My first question is about your ruble client balances. Could you share with us your outlook for this year as you did last year? And also give us your expectation of average yield on interest-earning assets for this year? Thank you.

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Evgeny Fetisov, Moskovskaya Birzha MMVB-RTS PAO - CFO [24]

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So, I would be hesitant to give you an exact number on the client ruble balances, because this is not something we can control. So, we are definitely looking at the lower number for this year than we had in 2016. However, looking at the, say, most recent data, we think this is a reasonable level, which might be expected throughout the year. We don't expect any radical changes to the structure of the client balances. On the average yield, the expectation that we have for this year and probably -- you're probably much more well-versed into the macro forecasting. We have expected 2 percentage points interest rate decline through 2017. Again, this is what we have right now. It never has.

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Olga Veselova, Merrill Lynch - Analyst [25]

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My other question is about your average fees on bonds. There was a visible drop in yield in the fourth quarter. I understand that in part, this was driven by the new one-day bond instrument, but not only -- do you think the level of the fourth quarter is sustainable or we should expect some recovery this year?

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Alexander Afanasiev, Moskovskaya Birzha MMVB-RTS PAO - CEO [26]

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We didn't have any changes in pricing. So, the [arrowhead] was due to the product mix change and most notably due to the introduction of these overnight bonds.

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Olga Veselova, Merrill Lynch - Analyst [27]

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So, the answer is, you think it's sustainable?

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Alexander Afanasiev, Moskovskaya Birzha MMVB-RTS PAO - CEO [28]

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We think that the pricing is there. So, provided that we expect growth in the fixed income going forward and we expect growth in the, say, regular fixed income instruments on the OFZ side, corporate bond side plus the overnight bonds. So, we expect a large -- say, a larger fees and commissions on this particular product.

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Olga Veselova, Merrill Lynch - Analyst [29]

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And my last question is again about the client balances, but not ruble client balances, but assets client balances. Do you think that the excessive client balances in foreign currency have gone? And also do you think that the process of replacement of collateral in the rubles by collateral in FX is over?

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Evgeny Fetisov, Moskovskaya Birzha MMVB-RTS PAO - CFO [30]

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Starting with the latter, yes, we think that the replacement of the ruble balances is largely over. As for the excess client balances, it's difficult to say we still have fair amount of euros which client would keep with us. And then again we don't necessarily know whether this is for trading purposes, collateral purposes or they just keep with us. So, one can argue there is some, say, room for further decline in the euro balances or dollar balances, but we'll need to see. So, we think we're getting close to what we thought is in normal level of client balances overall.

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Operator [31]

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Ivan Kachkovski.

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Unidentified Participant [32]

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I'm [Atkin Collins] Thanks very much for the presentation. I have a, first of all, follow-up question on client fund dynamics. I appreciate that you look for lower ruble balances in 2017 than in 2016, if I got you right, but if we look at any part of the client fund dynamics, that is, maybe, not in your control, but influenced by your decisions on other side of the business, particularly your cross-collateralization initiatives. Do you expect anything significant in 2017 or mid-2018 on that front that could have a significant impact on ruble part of client balances? And on the dollar side, specifically, US dollar side and euro side, would you say that we should probably look at FX volatility and the FX trading volumes mostly as key indicators of those natural funds, not excessive, but natural level of funds would be? That's the first question. Thank you.

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Evgeny Fetisov, Moskovskaya Birzha MMVB-RTS PAO - CFO [33]

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So, on the first question, so on the cross consolidation and more efficient use of client collateral, we don't expect any major shifts or changes in 2017. So going forward, in 2018, we may see an improvement there, but again we expect more trading volumes to go through as we used to have with the T+2 transition and plus we expect more fees and commissions from this additional service offering. And I'm not sure I got your question on the dollars and euros, like we said, I mean there is a function -- there is still some connection to the FX rate volatility, which drives the client balances both on say, dollars, euros and rubles, but there is also some client funds, which were kept with us by clients for different purposes. And again, it's very challenging to give an exact forecast or very clear indications how these funds work and move.

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Unidentified Participant [34]

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My second question would be about your outlook for assets in custody. What kind of dynamics would you expect in 2017 and any particular drivers behind that? Thanks very much.

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Alexander Afanasiev, Moskovskaya Birzha MMVB-RTS PAO - CEO [35]

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Well, going forward, we expect the growth of, say, safekeeping fees, in line with growth of equities market cap and new replacement -- new replaced bonds. So we expect more bonds to be placed by both [municipal] and corporate, so which would in result drive the safekeeping fees on the NSD side.

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Operator [36]

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(Operator Instructions) Maria Semikhatova.

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Maria Semikhatova, Citibank - Analyst [37]

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Yes, good evening. Thank you for the presentation. I have a couple of small questions. Can you disclose what's the average duration of repos on your money market currently. So, how close we are to one day? Also, just to clarify, you mentioned that the effective tariff on the derivative market, if you exclude the rebate was almost 50% higher. Just want to confirm that these rebates were put in place when the new structure was implemented on the market, so starting from fourth quarter of 2017, we should expect that the effective tariff would be roughly 50% above the third quarter levels? And final question, it looks like your listing fees were relatively weak in the fourth quarter. Just want to hear your thoughts why that was the case?

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Evgeny Fetisov, Moskovskaya Birzha MMVB-RTS PAO - CFO [38]

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Thank you for the questions, Maria. So, on the average duration for the repo, we see declining from six days to roughly three days to four days -- 3.4 days. So on the listing fees, it has to do more with we count for the listing process. So we actually started to distribute it more evenly throughout the year versus what we have done past years. So it's not the changes in listing per se, but rather the more, I would say more distributed recognition of these revenues. And the other question was on derivatives side. So, yes, I mean it's not the rebate programs that we have, yes, they are limited in time. Some of them are one year, some of them are somewhat longer. They kick in with certain volumes, thresholds, and yes, I would say that you should be expecting that in about 9 months to 12 months' time, you should see more pronounced increase in the effective yields on the derivative market. That's correct.

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Operator [39]

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We don't seem to have any further questions at this time. Please continue.

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Sergey Klinkov, Moskovskaya Birzha MMVB-RTS PAO - Head of IR [40]

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So, if you have not any questions and before we can close the call, you probably know that Evgeny is about to leave to Uruguay. So I'd like to give the floor to him again.

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Evgeny Fetisov, Moskovskaya Birzha MMVB-RTS PAO - CFO [41]

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Yes, thank you, Sergey. So, as you probably know, this is my last conference call as a member of the MOEX's team. So, tonight is my time to say thank you all for cooperation and to say goodbye. I'm proud to have been a Member of the MOEX's team and to have a chance to work with this exceptional Company and the great people who have shown capacity to create change and to make Russian financial infrastructure better and stronger. So, the work here has always been challenging, but exciting. And I must say it has been hardly imaginable five years ago that Moscow Exchange would create a fully functional CSD, integrate Clearing Center, migrate the equities market to T+2, provide access to your clearing [queries] team, complete listing reform of corporate actions, help create tax incentive for individual investors, help to launch individual investment accounts, access to changes in the pension regulation. So there are many, many other things, which the Company had done. So again, that's exactly what the team and the Company did achieve. And I have to say I really appreciate your valuable feedback and insights throughout this period, which help us to make better management decisions and to be a well-run open and transparent Company. So, my successor will definitely join a very professional and stable team and I wish him or her a very good luck.

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Alexander Afanasiev, Moskovskaya Birzha MMVB-RTS PAO - CEO [42]

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And this is CEO of the Company. I'd like also to use this opportunity to thank Evgeny for his great work, because he was the person who actually established the full-fledged financial function in the new public Company, because we're relatively new public Company, quite young. There were really a lot of challenges around the Company, around Evgeny's work and his responsibilities and I'm happy with his work. I do believe you're also quite friendly and you are also quite happy with what Evgeny has done in establishing Investors Relations. And I also would like to thank Evgeny again for his work and to wish him all the best in his future.

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Evgeny Fetisov, Moskovskaya Birzha MMVB-RTS PAO - CFO [43]

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Thank you.

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Sergey Klinkov, Moskovskaya Birzha MMVB-RTS PAO - Head of IR [44]

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So, I think at this point, we may conclude the call. Thanks everyone for participation.

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Operator [45]

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And that does conclude our conference for today. Thank you for participating, you may all disconnect.