Noticeable by their absence - representatives from the LSE and NASDAQ were no shows

Everyone at the conference was surprised by the conspicuous absence of familiar faces. I guess Paulina McGroarty, Managing Director of NASDAQ operations in Russia, missed her opportunity to have a nice debate with the representative from the NYSE-Euronext. Maybe we will see this debate in the upcoming Emerging Markets Private Equity Conference (EMPEC 2007). Also notable by their absence were representatives from the London Stock Exchange/AIM and their U.S. counterparts. LSE/AIM is, I think, resting on the laurels of their impressive 2006 results (Or they are involved in a flurry of popular activities?). The Austrian philosopher Ludwig Wittgenstein noted: "Resting on your laurels is as dangerous as resting when you are walking in the snow. You doze off and die in your sleep." Indeed, we have witnessed a substantial new effort from their competitors.

To round out my brief summary of the conference, I found some interesting stats about recent developments in the world's stock exchanges. In recent years, everyone has noticed the accelerating pace of change and more adaptations by stock markets to the demands of globalization. Financial commentators have especially focused on the so-called "emerging markets" and their expanding needs for capital and expertise. In my view, we will see more and more of this over the next 2-3 years. While the patriarch-stock markets (New York, Tokyo, London, and Frankfurt) are making these adaptations at a tad slow pace (it took about 10 years for AIM to gain its current position), restless investors find new instruments in emerging markets and SMEs (small and medium-sized enterprises).

Of course, the United States, with its refined stock market experience, is still leading the world in the introduction of new trading platforms. I would point here to Entrex and to the Unified Market Financial Information Exchange Network (UMKT). I believe that this is an excellent direction for the future. In 2005 World Federation of Stock Exchanges counted 35 alternative investment markets (unfortunately, this federation seems to be an extremely bureaucratic entity -- it is impossible to get fresh data as they do not answer e-mails); another research document from SME Capital Markets counted 35 this year, but excluded a number of new trading platforms worldwide.

In its investigation, SME notes that 29% of the stock exchanges have their own junior markets. On this basis, I would assume that there are about 40-45 emerging new exchanges worldwide. This means that global competition is increasing, and because of this we see new junior markets in such exotic venues as Malawi, Botswana and Papua New Guinea.


Making the case for the Euronext - recent growth in IPO listings on the Amsterdam-based exchange

This sense of increasing competition is present in Moscow too. Representatives from each Russian stock exchange made their best efforts to persuade the audience that theirs is the best. Euronext representative Aaron Goldstein (who is an extremely eloquent campaigner) put it very simply, when he described the points that any company looks for when listing their stock:

(i) best valuation;
(ii) (ii) best liquidity;
(iii) (iii) widest number of shareholders possible.

To briefly summarize some of the reports presented at the conference:

- Ms Medvedeyva, MICEX Vice-President, provided vital statistics for the exchange and reiterated the idea that the time is ripe for Russian companies to list shares domestically;

- Mr. Shatsky, RTS President, noted that we are still awaiting a domestic IPO boom in Russia, and that this may happen later this year. Mr. Shatsky's speech was followed by a report from Ms. Derisheva, Department Head at RTS Listing, who repeatedly declared that, "There was no IPO boom in the past, and there is none at the present time. What we do see is a heightened interest towards IPOs [in Russia]". I agree with this -- indeed, when Russia has tens of IPOs every quarter, only in that case could we honestly speak of an "IPO boom" in this country.

- Mr. Paul Chow, CEO of the Hong Kong Exchange spoke at the conference. It was the first appearance by such a high level official of the Hong Kong exchange here in Russia, although a representative from the Hong Kong index spoke last November at an IPO Congress in Tatarstan, and this appearance was supplemented by one at another Moscow- based conference in March 2007. The great success of the HK Exchange in 2006 certainly makes us think more about this opportunity. As Mr. Chow put it: "Hong Kong has complete freedom [of movement] for money, people and information". He also informed us that the HK stock exchange will be opening a representation office in Moscow very soon;

- A nice presentation was made by representative of another city-based (vs. country-based) stock exchange -- the Singapore Stock Exchange, which stressed Singapore as the "Gateway to Asia". The Singapore bourse has indeed performed very well in providing support to companies after their IPOs;

NYSE CEO John Thain

- Mr. Aaron Goldstein of Euronext was indeed silver-tongued. Mr. Goldstein presented all of the positive arguments for listing Russian IPOs on the Euronext versus the LSE, and his arguments were very convincing. All this is well and good, but what about NYSE Group Chief Executive John Thain's recent remarks about the Euronext? When I asked him about this, Mr. Goldstein replied that that my question is based on biased and out of context citations. For the benefit of our readers, here it is: "Thain outlined an international strategy for the combined exchange group focusing on Asia which he described as "the logical next step". NYSE Euronext will specifically target business in Japan, where it has an alliance with the Tokyo Stock Exchange, India where it owns a 5% stake in the National Stock Exchange, and China." But what about Russia?

- Mr. Rainer Riess, Managing Director, Deutsche Börse, was very convincing in his overview of the advantages of listing in Germany versus London, especially with respect to Post-IPO liquidity. Everyone was fascinated with his chart that showed the per cent of potential trading days logging zero transactions: for AIM-listed companies -- 25%, for the Deutsche Bourse Prime Standard -- 0%. I think we will see a lot more activity by DB in Russia as they are opening their offices in Moscow in May 2007.

So, this summarizes the general discussion of the 3rd Annual Russian IPO Congress. In my next few posts I plan to write about some specific reports that were of interest (i.e. the Sberbank and VTB "popular IPOs") as well as the Russian stock market and perspectives on its development.

You can read the original post at Vladimir Kuznetsov's blog, Equity Financing in Russia. The views expressed in this post and on his blog are the personal opinions of Vladimir Kuznetsov, and do not necessarily reflect the views of the FINAM Investment Company. To read more Russia Blog posts about Russian capital markets, click on the finance section or type www.russiablog.org/finance in your web browser.