Russia's two exchanges merge to challenge Hong Kong

Russia's two main stock exchanges on Wednesday signed the terms of a full merger aimed at helping turn Moscow into a global financial centre that becomes the focal point of emerging market activity. The Moscow Interbank Currency Exchange (MICEX) said it will buy out private shareholders in the Russian Trading System (RTS) under a complicated arrangement involving both cash and stock.
The tie-up will become official once approved by the two firms' shareholders this summer and then accepted by the Federal Anti-Monopoly Service at a later date. "The children have grown up and signed their marriage certificate," said Central Bank Deputy Chairman and major MICEX shareholder Sergei Shevtsov.
"We are facing the difficult task of making the Russian exchange infrastructure attractive, convenient and most importantly vital to Russian and foreign market players, investors and issuers," said RTS chief Roman Goryunov. President Dmitry Medvedev has made the modernisation of Russia a linchpin of his term in office and told an economic forum this month that attracting foreign investors was central to the country's plans.
He said in a budget address on Wednesday that "Russia needs to create a new model of economic development based in a large part on private initiative." Medvedev hopes to build an entire Moscow financial district and has been holding private meetings with some of the world's biggest bankers in a bid to get their ideas about how this might be achieved. Some reported suggestions have included eliminating road gridlock and improving the investment climate by making firms more accountable to independent court decisions and bound to report transparent figures.
Local investors hope this in turn will keep Russian firms from deciding to list shares in London and Hong Kong and in turn bring companies from other emerging markets and the former Soviet republic's to the Moscow trade floor. Russian officials have already voiced plans to list some of the shares of the state oil giant Rosneft - which plans to sell another small stake by 2013 - on the joint Russian exchange.
Terms of the merger deal reported before the signing said MICEX would pay for 35 percent of its rival's controlling stake in cash and acquire the rest in a share swap. The deal valued MICEX at $3.7 billion and the RTS at $1.2 billion. The joint exchange also intends to raise at least $300 million through a public offering to be held by early 2013. Trading would be conducted on the MICEX floor - the current venue for Russia's active currency trading - and headed by its current president Ruben Aganbegyan.