Moscow Exchange Securities Market

October 22, 2014 London Anna Kuznetsova MD, Securities Market Moscow Exchange Securities Market

India Brazil HK US Europe China World UK Japan EMEA Russia Mexico USA India South Africa UK Japan Turkey Brazil China Russia Russian equity market is significantly undervalued Russian equity market has underperformed YTD and trades with large discount both to DM and EM 20.7 Equity MSCI indices, % YTD P/E 2014 est 20.8 6.9 1.4-1.4-2.0-2.4-3.0-4.9-6.5-10.1 15.5 16.3 14.0 13.0 13.7 10.7 12.3 9.9 4.7-25.3 Comments The Russian equity market is significantly undervalued compared to international developed markets and emerging markets peers Russia is trading at a P/E ratio of 4.7х compared to the global average of 17.2х 1 and EMEA region average of 12.7х 2 Source: Bloomberg as of October 15, 2014; Gazprombank, MSCI as of September 30, 2014 1 MSCI World 2 MSCI EMEA 2

Equity trading volumes dynamics in 2014 In contrast to most EM exchanges, MOEX has shown a rise in EOB volumes due to reforms Emerging markets exchanges Country Change 8М2014/8М2013 Moscow Exchange Russia +14% Bursa Malaysia Malaysia +1% Shanghai SE China -1% Korea Exchange South Korea -2% Johannesburg SE South Africa -7% Borsa Istanbul Turkey -13% Mexican Exchange Mexico -14% BM&FBOVESPA Brazil -20% Comments Despite declining investors activity on emerging markets Moscow Exchange trading volumes are increasing following market infrastructure reforms 3

1 000 900 800 700 600 500 400 300 200 100 25.0% 20.0% 15.0% 10.0% 5.0% Opening up to foreign investors Foreign investors share of total equity trading volume % Avg. 40% + 7 p.p. T+2 implementation Growth despite increased risks 63% 58% 59% 57% 54% 54% 53% 37% 42% 41% 43% 46% 46% 47% Q1 Q2 Q3 Q4 Q1 Q2 Q3 2013 2014 Foreign investors Avg. 47% Local investors Comments In 2013-2014, Euroclear & Clearstream started providing settlement services for Russian securities: Q1 2013 - for sovereign bonds (OFZ) Q1 2014 for corporate, regional and municipal bonds Q3 2014 for equity As of September 2014 non-cyprus investors share of total OFZ volumes increased by 12 per cent YoY reaching 64 per cent ICSD s account balances in NSD OFZ secondary volumes breakdown by client types RUB bln 15% 20% 22% 23% 22% 24% 24% 5% 2% 4% 39% 29% 7% 4% 100% 4% Investment funds Retail investors 684 768 845 895 794 867 472 1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014 23% 28% 27% 29% 2012 9m2014 Other corporates Dealers Foreign investors Subsidiaries of foreign banks Source: Moscow Exchange data 4

Equity market 5

Growth in equities trading volumes due to migration to T+2 Average daily trading volumes (ADTV) on equities market 1 in 2013-2014 RUB bln Secondary volumes breakdown by client types 100% 4% 5% 10% 3% 14% 6% 30.3 +18% 2 35.7 +10% 3 39.4 28% 47% 49% 35% Jan-Aug 13 Sep-Dec-13 Jan-Sep 14 2010 9m2014 T+0 T+2 Investment funds Prop. traders Other corporates Foreign investors Retail investors Sources: WFE, Moscow Exchange data 1 Average daily trading volumes in main trading mode (T0,T+2), including negotiated deals with CCP 2 Average daily trading volumes in September-December 2013 vs January-August 2013 3 Average daily trading volumes in January-September 2014 vs September-December 2013 6

On-exchange market share in equity is increasing On-exchange vs. OTC share on the Russian equity market Comments % On-exchange share of the Russian +24 p.p. 72 79 76% equity market is constantly growing Equity market key growth drivers: ICSDs access to the Russian equity 63 market 55 56 Lifting restrictions on pension funds investing opportunities and increasing investment horizon from 1 to 5 years Tax incentives for long-term retail investors and special investment accounts effective from January 2015 New Listing Rules and Corporate Governance Code 2010 2011 2012 2013 9m2014 Source: Moscow Exchange 7

Placements held exclusively on MOEX prevail Issuer Date Deal type Venue MOEX Offshore Deal value, USD mn February 2013 IPO 462 mn July 2014 SPO 469 mn March 2013 SPO 607 mn Finance Industry Computers & Electronics April 2013 SPO 453 mn Chemicals Мay 2013 SPO 3277 mn Finance May 2013 IPO 229 mn October 2013 SPO 286 mn June 2014 SPO 319 mn Finance June 2013 SPO 327 mn Real Estate/ Property June 2013 SPO 15 mn Mining June 2013 IPO 84 mn November 2013 SPO 96 mn Computers & Electronics August 2013 SPO 91 mn Finance October 2013 SPO 602 mn Finance October 2013 IPO 1280 mn Mining October 2013 IPO 1075 mn Finance February 2014 IPO 952 mn Retail Source: Moscow Exchange, Bloomberg, company data 8

Local shares vs DR s: gaining ground Moscow Exchange market share in trading volumes of selected companies Bid-ask spreads 66% Sberbank (SBER) 72% 68% VTB Bank (VTBR) 77% bps Moscow Exchange LSE 8.7 12.8 18.3 4.1 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2013 2014 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2013 2014 1 Contract Comments EUR 50k deal Severstal (CHMF) 70% 59% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2013 2014 Magnit (MGNT) 51% 32% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2013 2014 Moscow Exchange is the liquidity center for Russian equities: Market share in most liquid stocks has been stable or increased Implied trading costs (bid-ask spreads) are substantially lower than abroad Overall market share in 2014 is ~55% 1 Sources: Moscow Exchange, LiquidMetrix 1 Trading volumes in Moscow Exchange main trading mode vs LSE electronic order book (IOB), calculated for 33 dual-listed companies 9

Superiority of local shares vs. depositary receipts MOEX is the center of liquidity Holders of local shares have full shareholders rights Costs of ownership is significantly higher for depositary receipts Narrower spreads Shares Moscow Exchange accounts for more than 55% of trading volume 1 Full shareholders rights including: Receipt of dividends Voting at annual shareholders meeting Preemption right for new shares Nomination of a candidate for the Board Adding items to the agenda of the annual shareholders meeting Only custodian bank tariffs Starting from July 2014 it is possible to own shares through Clearstream and Euroclear Wider spreads Depositary receipts Lower liquidity for the majority of dual listed Russian stocks Rights are significantly restricted: Receipt of dividends and voting at annual shareholders meeting through depositary bank Custodian bank rates (in some cases) Depositary service fees for issuance services, maintenance, conversion and dividends payment may constitute up to 0.5% of the annual rate of return Special tariff upon dividends payment. The variable part for some depositary programs reaches 14% of dividends Source: depositary banks websites 1 Out of the 33 Russian stocks with dual listing: Moscow Exchange (main mode) vs. LSE (trading volumes IOB EOB) 10

Closing auction: modern technology for price discovery Introduced in September 2013 Based on the advanced methodology used in international practice: Price monitoring mechanism Three stages including market order extension Market-on-close (MOC) and Limit-on-close (LOC) orders are available Closing auction price is used in MOEX indices from March 2014 Bloomberg, Reuters, MSCI, FTSE are considering to use the closing price Russian financial regulator is planning to adopt closing price for calculation NAV of funds Statistics RUB bln avg 1,1% in total volume avg 0,3% in total volume 5.5 4.6 8.4 18.2 21.8 26.5 30.2 Share of foreign investors in closing auction value traded in 3Q 2014 68% 1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014 New technology Source: Moscow Exchange data 11

Probability New tick sizes New tick sizes are determined by both price and liquidity The new procedure ensure 2 to 10 ticks in spread: Helps to prevent unfair practices (e.g. front running) Improves cost efficiency for algo and HFT traders Reduces noise in stock prices and increases volumes in best bids and offers Aggregates liquidity on price levels Encourage the use of limit orders New tick size implementation timeline: Implementation of new tick sizes for all stocks except for TOP-10 New tick sizes are used for all stocks and DRs including TOP-10 Quarterly review of tick sizes October 1 st, 2014 December 1 st, 2014 Q2 2015 Comparison of tick size regimes by number of ticks in spread (data on 104 stocks through 12-month period) 35% 30% 25% 20% 15% 10% 5% 0% 0 1 2 4 8 16 32 64 128 256 512 1024 Qty of ticks in spread Old tick size regime Source: Moscow Exchange data New tick size regime 12

Listing and Corporate governance reform Simplification of the securities lists (three sections instead of six) Availability of any section of the securities list for public offerings Listing reform Change in corporate governance legislation Alignment of the Russian listing standards with international best practice A new legislation came into effect in September 2013 New listing rules came into effect in June 2014 Implementation of a structured dividend payment process in accordance with best international practice (no backdated dividends, terms specification) New Corporate governance code approved by the Government and the Bank of Russia: Protection of minority shareholders, transparency and disclosure Reasonability, good faith and the interest of the company as key indicators of directors actions Integrated risk management and internal control system Accountability, transparency and adequacy of remuneration system Greater transparency through disclosure of major corporate actions 13

Further equity market development 1 Lifting restrictions on cross-agency trades Currently cross trades are forbidden New regulation will allow trading participants to execute on-exchange cross-agency trades in all CCP trading modes 2 Opening Auction 3 Optimization the Intraday Clearing Session schedule and settlement Intraday Clearing Session will be moved from 16:00 to 17:00 NSD extends USD DVP settlement till 18:45 4 Trading & Settlement of USD-denominated instruments in T+2 Opportunity to trade and settle stocks, shares in open-ended funds (PIFs), and ETFs in US Dollars as well as rubles 14

Bond Market 15

Long-term growth opportunities despite short-term freeze Secondary trading volume breakdown by products Key growth drivers USD bln Sovereign bonds Corporate and Municipal bonds 296 333 397 Low sovereign debt to GDP ratio and Finance Ministry s plans to increase borrowings in 2015-2017 231 182 Euroclear & Clearstream access to the Russian market in 2013-14 2010 2011 2012 2013 9М 2014 Volumes traded by retail investors USD bln Corporate and Municipals bonds Sovereign bonds 10.5 15.2 12.6 In 2012, sovereign bonds started trading on MOEX securities market and became available for retail clients After such a move the quantity of OFZ 2.3 2.2 market participants rose from 200 to 700, active clients from 300 to 1,500 2010 2011 2012 2013 9M 2014 Source: Moscow Exchange data 16

Migration to electronic book trading and local bonds placements as substitution for foreign debt Non-government bonds trading volume share in EOB 40% +12 p.p. 35% 30% 25% 20% 15% 10% 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 2013 2014 Primary market volume breakdown by products Key facts Share of non-government bonds trading in EOB increased from 25-27% in mid-2013 to 35% in Q3 2014 All groups of investors are increasingly using the anonymous trading modes Domestic on-exchange trading accounts ~80% of total OFZ trading volume and more than 90% of corporate debt trading volume USD bln 25 36 33 30 27 Local bonds placements are substituting Eurobonds for Russian 14 12 15 13 11 11 corporates in 2014 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2012 2013 2014 Corporate Corporate Eurobonds Source: Moscow Exchange data 17

New fixed income market trading opportunities 1 OFZ migration to T+1 settlement Anonymous trading in government bonds (OFZ) will be moved to the new single order book based on T+1 settlement cycle In line with international standards Increased opportunities for collateral management Concentration of liquidity in a single order book will lead to better price discovery and higher market efficiency 2 Block trading in OFZs New Trading Mode to allow for block trading in OFZs with no pre-trade transparency Orders are accumulated in the special order book and crossed twice a day Execution at the current midpoint price of the main T+1 order book CCP services for all trades 3 Local corporate bonds denominated in foreign currencies: USD, EUR, CNY 4 Simplification of issuing procedures to speed up placements 18

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No representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy or completeness of the information or opinions contained herein. None of the Company, or any of its subsidiaries or affiliates or any of such person's directors, officers or employees, advisers or other representatives, accepts any liability whatsoever (whether in negligence or otherwise) arising, directly or indirectly, from the use of this document or otherwise arising in connection therewith. This presentation includes forward-looking statements. All statements other than statements of historical fact included in this presentation, including, without limitation, those regarding MOEX financial position, business strategy, management plans and objectives for future operations are forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, achievements or industry results to be materially different from those expressed or implied by these forward-looking statements. These forward-looking statements are based on numerous assumptions regarding our present and future business strategies and the environment in which we expect to operate in the future. Important factors that could cause our actual results, performance, achievements or industry results to differ materially from those in the forward-looking statements include, among other factors: perception of market services offered by the Company and its subsidiaries; volatility (a) of the Russian economy and the securities market and (b) sectors with a high level of competition that the Company and its subsidiaries operate; changes in (a) domestic and international legislation and tax regulation and (b) state policies related to financial markets and securities markets; competition increase from new players on the Russian market; the ability to keep pace with rapid changes in science and technology environment, including the ability to use advanced features that are popular with the Company's and its subsidiaries' customers; the ability to maintain continuity of the process of introduction of new competitive products and services, while keeping the competitiveness; the ability to attract new customers on the domestic market and in foreign jurisdictions; the ability to increase the offer of products in foreign jurisdictions. Forward-looking statements speak only as of the date of this presentation and we expressly disclaim any obligation or undertaking to release any update of, or revisions to, any forward-looking statements in this presentation as a result of any change in our expectations or any change in events, conditions or circumstances on which these forward-looking statements are based. Past performance should not be taken as an indication or guarantee of future results, and no representation or warranty, express or implied, is made regarding such future performance. 19