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. Last Updated: 07/27/2016

Broker Woos Clients Into Cafes

In a bid to boost interest in small-capitalization Russian stocks, one Moscow-based brokerage is getting into the Internet cafe business.

Moscow-based Antanta Capital --which specializes in trading Russia's roughly 600 small-cap stocks -- plans to set up walk-in web trading centers, housed within its newly acquired NetCity cafes.

In addition to serving cappuccinos at the cafe bar, the company will make available a trading specialist to help customers set up accounts and hand out stock research to make Russia's lesser-known companies more accessible. The idea is to attract both seasoned investors with reservations about the second tier and newcomers from Moscow's newly minted middle class.

"The middle class is growing, and more and more people have money to invest," said Andrei Babenko, general director of Antanta Capital, whose subsidiary NetTrader purchased NetCity for an undisclosed sum a few weeks ago. "We're hoping this will widen our audience."

The plan is still short on specifics, but Antanta said it might also involve setting up new financial vehicles -- perhaps new small-cap mutual funds -- aimed at the wider pool of investors.

Market capitalization for small-cap stocks is typically less than $1 billion.

Some of Antanta Capital's competitors have scoffed at the idea.

"I doubt you'll find a lot of the emerging Russian middle class in Internet cafes," said Shani Kogan, head of research at Sovlink Securities, a brokerage also specializing in Russian small-caps.

Running NetCity's cafes on Kamergersky Pereulok and next to Paveletsky Station as regular Internet cafes with special areas for investors might make for an odd environment, he said.

Such public trading points, however, have operated with considerable success in other developing countries where banking and brokerage systems are less developed, said Chris Weafer, chief strategist at Alfa Bank.

The common ingredients are cheap liquidity and a rising appetite for equities, said Weafer, who worked as head of research for NatWest in Bangkok during the East Asian boom in the 1990s.

"In Bangkok, these things were a fairly common feature and were very widely used," he said. "They eventually evolved into a cross between a railway terminal and a bookie shop. Just before the market crashed in '97, there were dozens across cities in Southeast Asia."

Russians now make up the lion's share of daily trading in Russian stocks, whereas only half a decade ago foreigners accounted for 60 percent of daily trade volumes.

The plan might be "a good idea for attracting private investors to the second tier," Marina Alexeyenkova, a small-cap specialist at Renaissance Capital, while declining to speculate on Antanta's overall business strategy.

Bringing more investors into small-cap Russian stocks would mean less liquidity risk, which is the biggest problem with the second tier, she said.

And while Russian small-caps are generally riskier than small-caps in developed markets like America, the greater risk also means greater potential returns: Sovlink's small-cap index has appreciated over 150 percent since its inception about two years ago.