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. Last Updated: 07/27/2016

Big Business Starts Online Trading

The first electronic trading floors in Russia will open for business this fall.

"Business-to-business, or B2B, projects are not the work of a few talented kids. They are backed by industry giants with vast resources. These projects are difficult to simply buy," said Yuly Orlov, an employee of Russkiye Fondi and head of the Zerno project seen at www.mtszerno.ru.

IBS vice president Sergei Merkulov said industry giants regard electronic exchanges either as a tool for earning money or cutting costs.

Metallurgical plants are making the most impressive investments in this new area.

"We want to create a functioning instrument. We?re not going to siphon off money and run. We?re not in it to get rich quick. In our opinion, the exchange has massive potential and we have plenty of money to develop this area. Any talk of the stock market is therefore premature, though eventually we will be listed," said Alexei Evgenev, head of the Russian side of the Global Steel Exchange project.

Europe-Steel.com has issued a $1 million float for its steel-trading Internet project in London. Europe-Steel.com is a joint venture between the British-based Middlesex Holdings, the Interfax agency and Gazprom?s wholly owned subsidiary ? Gazprominvestholding. Rem Vyakhirev, the head of Gazprom, is a member of Europe-Steel.com?s board of directors. Founders of Europe-Steel.com hope to attract $1 billion by year end.

Unlike the Global Steel Exchange ? set up by Gazprominvestholding, Severstal and the Magnitogorsk Metallurgical Plant ? the Seversky pipe factory is developing its Emetex project specifically for the Russian market.

As such, Emtex requires far less investment. Project head Mikhail Timodorov said the system is ready, but a few legal points remain to be ironed out. The system was developed by Moscow-based Inist, which produced software for the MICEX as well as other currency and stock markets.

Several Russian oil companies are planning to set up electronic trading floors. But oil companies have lagged behind the metallurgical field.

"While oil companies control the refining of oil, wholesalers determine the prices together with oil refineries. This process is not always transparent for the central management of the oil companies. Indeed, oil product trading is far from transparent and often presents opportunities for crime. The creation of an exchange would have the job of increasing transparency. Whether it will be successful and whose interests will be affected is a different matter altogether," said Stanislav Tsirlin, analyst with the Boston Consulting Group.

Tsirlin believes that any oil-trading floor in Russia will be oriented toward oil products rather than crude sales. As the pipelines are already at full capacity, oil products can only be delivered by rail.

"An oil exchange could not function without the Railways Ministry?s participation," warned Tsirlin.

Sibneft press secretary, Alexei Firsov, said the project his company is involved in ? in partnership with the Railways Ministry ? is aimed at trading oil product surpluses.

"There is no exact measurement of how much oil the company has extracted, refined at its refineries and ultimately sold at its filling stations. Everyone has surpluses. Therefore, our trading floor will be for oil products on the Russian market. We are presently negotiating with potential Western technical partners," said Firsov.

Another joint oil project, Oil-On-Line.com, is being set up by the Switzerland-based Crown Resources, a portion of the Alpha Group consortium and the Interfax agency.

Analysts believe that this trading floor is being set up "under the Tyumen Oil Co. [TNK]," which is controlled by the Alpha Group. Alexander Chernov, press secretary for TNK, confirmed that the company is connected to this project, but refused to comment further.

The head of Interfax, Mikhail Komissar, recently said that Oil-On-Line.com will trade Russian, Norwegian, Arabian and Venezuelan oil.

These international ambitions make analysts doubtful.

"There are plenty of projects under way in the West where the oil majors are creating international exchanges. Obviously, Interfax and TNK?s alternative exchange will look a little strange next to London markets on which the likes of Shell and BP trade. I believe that, sooner or later, everything connected with exports and international trading will result in a global exchange," said BCG?s Tsirlin.

To construct an electronic exchange, vast resources are unnecessary. Venture capitalists are working on creating trading systems for other less-profitable markets.

Two floors already exist for grain trading: the Zerno exchange, which belongs to Russkie Fondi, and the Zerno-Online floor, zol.ru, with undisclosed owners.

"The oil and metallurgy markets have been divvied up. They have clear leaders. Meanwhile, the grain market has more than 50,000 producers and only 5,000 consumers. No one can say that they control even 1 percent to 2 percent of it," said Alexander Heifets, the head of Zerno-Online. The grain trading floors were set up by outsiders to the grain market.

Surprisingly, B2B portals came to the computer market later than to the raw materials markets. Only in August were announcements made regarding two projects planning to trade computer equipment.

The eMatrix project by eHouse Internet holding is already up and running. Executive director Vladislav Ulendeyev said the holding intends to invest an additional $2.5 million to promote eMatrix.

A second project, as yet unnamed, was announced by Pricewaterhouse-Coopers and SK Communications. The planned system is technically identical to eMatrix, though it is intended for vendors, systems integrators and computer resellers. PricewaterhouseCoopers partner Leonid Boguslavsky said $2 million will be invested in the project.

Universal exchanges that provide floors for completely different sectors of the market are also appearing. Business.ru, which belongs to Independent Media is one such project. Initially, it will trade milk. Foodstuffs and alcoholic beverages will follow.

The Global Russian Information Network, or grin.ru, will become a trade floor for companies in all sectors of the economy ? from agriculture to metallurgy, said its founders, former president of the Moscow stock market Viktor Sakharov and former Foreign Minister Andrei Kozirev.

Grin.ru already has over 100 clients. Kemerovo Governor Aman Tuleyev issued a resolution last month recommending that enterprises in the region "consider the possibility of cooperation with Global Russian Information Network."

To set up a grain-trading system without fear of competition would require about $50 million to $70 million, he said.

Related Links
www.mtszerno.ru
Europe-Steel.com
Oil-On-Line.com
zol.ru
Business.ru
grin.ru