Moscow Exchange achieved strong financial results in 2016 as the company successfully delivered on its strategy to expand the product offering, grow the domestic investor base and attract more international investors to its markets.
As expected, lower interest rates led to the normalisation of interest income. At the same time, despite lower market volatility than a year ago, the Exchange continued to see substantial volume growth across most trading markets. As a result, the Exchange demonstrated strong growth of fee and commission income, the core source of income for an exchange.
Cost control remains one of the key priorities for the company. Cost growth was mostly driven by capital expenditures, as the Exchange switched to Dataspace1 as the main data centre and increased its IT footprint to ensure reliability of core systems. This led to higher depreciation and amortisation numbers as well as higher IT maintenance costs. Reduced spending on third-party professional services and rent of property delivered cost savings.
Fee and Commission Income
Operating income in 2016 totalled RUB 43.57 bln, down 5.3% YoY due to lower interest income (-15.6%) on the back of decreasing client balances and rates for RUB-denominated assets. Fee and commission income increased by 11.3% YoY driven by strong performance of the Money Market, Derivatives Market and Fixed Income Market.
Equity & Bond Market
Fees and commissions from the Equity Market amounted to RUB 1.6 bln in 2016 (down 3.2% YoY). Equities trading volumes amounted to RUB 9.3 trln, down 1.3% YoY. The total capitalization of the Equities Market reached RUB 37.8 trln (USD 627.5 bln) as of 31 December 2016.
Fees and commissions from the Bond Market increased by 25.4% YoY and reached RUB 1.5 bln thanks to increased volume of bonds available for trading. This was caused by a decrease of direct repo transactions by the Bank of Russia and subsequent reduction of collateral base of the Bank. Government bond placements grew by 69.9% YoY, while corporate bond placements reached a record RUB 3.9 1 trln (+98.3% YoY). The total trading volume of bonds was RUB 14.6 trln, up 31.0% YoY.
Fee and commission income from the FX Market remained flat at RUB 4.3 bln. Trading volumes reached RUB 330.0 trln (up 6.2% YoY). Trading volumes in the swap segment grew by 7.4%, reflecting continued demand for FX liquidity management solutions, while spot trading volumes increased by 3.7% YoY thanks to lower FX volatility.
Fee and commission income from the Money Market increased by 24.8% YoY to RUB 4.8 bln. Total trading volumes on the Money Market, including repo transactions and the deposit and credit market, increased by 56.2% YoY and reached RUB 333.9 trln. The volume of repos with CCP grew by 164.1% YoY and contributed 59.5% of total repo trading volume of RUB 176.2 trln in 2016. The average repo term reduced to 3.4 days from 6.6 days due to a reduced share of repo with the Bank of Russia in the total repo trading volume.
Fees and commissions from the Derivatives Market in 2016 amounted to RUB 2.1 bln, up 39.5% YoY. Derivatives trading volumes grew by 18.4% YoY in contract terms and reached 2.0 bln contracts or RUB 115.3 trln. Open interest at the end of 2016 was RUB 639.0 bln, up 8.3% YoY.
Depository and Settlement Services
Fee & commission income from depository and settlement services grew by 2.9% to RUB 3.6 bln. Assets on deposit held at the National Settlement Depository increased to RUB 36.4 trln as of 31 December 2016 (+14.9% YoY), and averaged RUB 33.1 trln in 2016.
Other Fee and Commission Income
Other fees and commissions increased by 10.3% YoY to RUB 1.5 bln. Sales of software and technical services grew by 20.8% YoY and contributed RUB 636.3 mln of fee income. Sales of market data and information services grew by 9.2% to RUB 751.8 mln.
Interest & Other Finance Income
Interest and other finance income declined 15.6% YoY to RUB 23.7 bln due to lower client balances versus 2015 (21% less for RUB and 24% less for foreign currency) as well as lower interest rates in Russia and funds available for investments.
Operating expenses grew by 8.8% YoY to RUB 12.3 bln in 2016, slightly above the Russian inflation rate. Administrative and other expenses grew by 15.0% YoY to RUB 6.3 bln, mostly due to growth in depreciation of property and equipment as well as maintenance of equipment & intangible assets. Personnel expenses grew by 2.8% YoY to RUB 5.9 bln.
Cash and Cash Equivalents
Moscow Exchange's cash position2 at year-end 2016 amounted to RUB 85.3 bln. The Exchange had no debt as of 31 December 2016.2 Cash position is calculated as the sum of cash and cash equivalents, financial assets at fair value through profit and loss, due from financial institutions, investments available for sale less balances of market participants, distributions payable to holders of securities and margin account under reverse repo.