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. Last Updated: 07/27/2016

RTS Hopes to Ride Wave of Corporate Bond Issues

The Russian Trading System on Monday launched a system to trade bonds, as market players actively position themselves for an expected boom in corporate bond issues and renewed activity in the city and regional ruble bond market.

RTS hopes to increase liquidity and transparency in the secondary bond market, where more than 80 percent of trades are not registered by the market. About 20 percent of bond trades are made through the Moscow Interbank Currency Exchange.

"We want to bring the 'gray' turnover, which is not efficient for any trading organizers, into the public market to have clear pricing," said RTS president Ivan Tyryshkin.

"Our main goal is to create a transparent market," added RTS fixed income department director Igor Ignatov.

RTS Bonds offers two ways to trade: the guaranteed trading system and an over-the-counter model, with up to 15 market makers. The RTS has already signed agreements with 10 investment companies and banks, including Troika Dialog, NIKoil, MDM-Bank, Rosbank and Guta Bank, to make markets for 21 corporate and regional bond issues.

By fall, the RTS hopes to move into the primary market, said Tyryshkin.

The corporate bond market is expected to double in 2002 from the more than $2.6 billion worth of ruble-denominated corporate bonds issued in 2001. The regional and municipal bond market has grown more slowly, following a number of defaults in the wake of the 1998 financial crisis, but the Finance Ministry recently indicated it would allow more regions to issue ruble bonds.

"Overall, the RTS is doing the right thing, first by creating competition for MICEX … and second by creating a closed club for market makers," said Anton Zavyalov, a trader with Renaissance Capital. "The ultimate price discovery process should be accessible only to market makers. However, the RTS needs to go a long way to achieve this."

RTS Bonds set commissions at 0.5 basis points for guaranteed trading system transactions and $4.50 through market makers, compared to MICEX's 3.5 basis points.

"It is a good beginning to attract mass investors," said Sergei Petrov, a bond trader at Aton Capital. "It should help increase liquidity."

RTS Bonds saw volumes of $1.38 million for two bonds, Aeroflot and Perm Motors, at the close of its first day. The volume in corporate bonds on MICEX was 300 million rubles ($9.6 million) Monday.