Russ Oil-Gas

02-27-2006 Analytical department of RIA RosBusinessConsulting -
The gas monopoly’s share market is expected to shift from RTS to MICEX.
The Moscow Interbank Currency Exchange (MICEX) is starting to trade in Gazprom stock. Until now, the company's shares were traded on the St. Petersburg Stock Exchange and the classic market of the Russian Trading System (RTS). The liberalization of Gazprom's share market will fuel the fight between the country's two leading stock exchanges. Operations with Gazprom shares currently account for 80 percent of the total amount of operations on RTS, but some investors are likely to move to MICEX now. RTS is already preparing to fight for Gazprom stock, reducing the price of operations with the company's shares last week and promising a ten-fold cut in trading lots for Gazprom stock. But it won't be easy for RTS to hold onto the attractive stock. The volume of Gazprom stock trading on the St. Petersburg Stock Exchange, part of RTS group, amounted to RUR 1.092 trillion last year, which is 80 percent of the total share trading on the RTS. Operations with Gazprom shares made up 41.5 percent of the total turnover in one week of trading (January 13-20) on the RTS classic market. But the most popular stock with investors were shares of RAO Unified Energy Systems of Russia, with trading on RTS totaling $1.56 billion last year and almost $43 billion on MICEX (a total of about RUR 1.26 trillion). MICEX analysts expect high liquidity in Gazprom stock during the first few days of trading. Alexander Potemkin, President of the stock exchange, thinks the appearance of Gazprom stock on MICEX will boost the price of the company's shares and its capitalization. Following Gazprom's liberalization, monthly sales of the company's shares on Russian and foreign exchanges surged from between $1.5 billion and $2 billion to between $6 billion and $7 billion. "And this is not the end. We hope that Gazprom shares will catch up with RAO UES stock in terms of liquidity, or even overtake it," Potemkin said. MICEX set standard tariffs for operations with Gazprom shares, at 0.01 percent of the transaction value, including commission for clearing and other services. Alexei Rybnikov, General Director of the MICEX Stock Exchange, said trading would proceed as usual, and trading lots for Gazprom stock would be 100 shares. The National Depository Center, which provides services for MICEX, is also preparing for operations with Gazprom stock. It has opened securities accounts in the Payment and Depository Company and Gazprombank, and also the nominal holder's account with the registrar SR-DRAG, which keeps the register of Gazprom securities' holders. Market traders say MICEX could claim the bulk of Gazprom stock operations from RTS. "Transactions on MICEX could be larger given the range of its clients," says Konstantin Batunin, an analyst with Alfa Bank. And Andrei Suverov, at Gazprombank, says daily sales of Gazprom stock on MICEX could rise to $40 million. RTS operators dealing with Gazprom shares find it difficult to forecast investors' behavior. Some of them do not expect great interest in Gazprom shares on MICEX. "Investors will move from RTS to MICEX, but their number will be insignificant. Fifty percent of the market will certainly remain on RTS over the next three months," one trader told RBC Daily. But Ivan Tyryshkin, the former RTS President and now Senior Executive Director of UFG, does not think so. The first three or four weeks of trading will show everything," he told an online conference hosted by RBC on January 20. "The market will form where liquidity is higher. It is unlikely that there will be two high liquidity centers in the long term," he said. Traders expect competition between MICEX and RTS to go onto a new level. "Each stock exchange has its advantages. RTS offers lower commission than MICEX. But the Depositary and Clearing Company, servicing RTS, has a more complicated account opening procedures compared with the National Depositary Center, which cooperates with MICEX. In addition, the money supply is higher on MICEX, and investor opportunities are also greater there," says Maxim Volkov, an analyst at ATON investment consultants. Besides, Gazprom stock trading is so important for RTS that its flow to MICEX could be a heavy blow to RTS. RTS managers understand it, and they are not giving up. The stock exchange has already taken some preemptive measures designed to attract investors: last week it lowered commission on operations with Gazprom stock to 0.095 percent of transaction value. RTS President Oleg Safonov also said on January 20 that trading lots for RTS shares will be lowered from 100 to 10 shares. There is no panic at RTS over the start of Gazprom share trading on MICEX. "This is a normal process," Igor Polishchuk, representing RTS, told RBC Daily. He thinks Gazprom stock trading will now be divided between the two stock exchanges. "When Gazprom stock trading began on RTS's classic market, some liquidity moved from the St. Petersburg Stock Exchange to it," Polishchuk told RBC Daily. But he could not say how many investors will move to MICEX. Meanwhile, if we compare trading in the most liquid stock on the Russian market – ordinary shares of RAO Unified Energy Systems of Russia and LUKoil, this comparison won't be in RTS's favor as more than 90 percent of operations with the two companies' stock concentrates on MICEX.