Listing Tiers on the Moscow Exchange
Introduction
Listing on the Moscow Exchange signifies the public offering of a company’s securities and their eligibility for trading. The different tiers and categories of listing help investors assess the reliability and liquidity of issuers. Understanding the requirements for each tier enables issuers to craft their market entry strategies, while investors can select suitable investment instruments considering risk and return.
This distribution simplifies the evaluation of securities: large, transparent companies are concentrated in the first tier, while younger or less liquid issuers are placed in the second and third tiers. Such a grading system not only protects investor interests but also encourages companies to improve the quality of corporate governance.
The development of the tier system began in 2015 following changes to listing rules aimed at enhancing the quality of information disclosure and investor protection. Over the years, this system has proved effective in structuring the Russian capital market.
1. Main Listing Tiers
1.1 First Tier
The first tier represents a privileged group of the largest and most liquid companies. To qualify, companies must meet the following requirements:
- Market capitalization of at least 10 billion RUB.
- Free float of at least 25%.
- Regular reporting in accordance with IFRS for the past three years.
- Presence of independent directors and an audit committee.
- Compliance with high standards of corporate governance.
First-tier companies are included in major exchange indices (MOEX Russia Index, RTS Index), providing them access to passive investments through ETFs and index funds, which enhances trading stability and reduces volatility.
Examples of first-tier companies include PJSC "Sberbank," PJSC "Gazprom," PJSC "Lukoil," PJSC "Novatek," and other market leaders. These companies form the backbone of the country’s economy and are characterized by their high reliability.
1.2 Second Tier
The second tier encompasses medium-sized companies with a capitalization ranging from 3 to 10 billion RUB and a free float of 10-25%. The following requirements apply:
- Reporting in accordance with IFRS for two years.
- Basic corporate governance standards.
- Regular disclosure of key information.
- Maintenance of a minimum level of liquidity.
The second tier attracts investors seeking growth stocks with higher volatility and potential for appreciation. Promising companies with significant growth potential can be found here.
According to Moscow Exchange statistics, about 40% of second-tier companies transition to the first tier within 3-5 years, provided that they actively develop their businesses and improve liquidity indicators. Successful transitions include AFK "Sistema," "RusHydro," and "Polymetal."
1.3 Third Tier and Watch List
Issuers with a capitalization of less than 3 billion RUB and a free float of up to 10% fall into the third tier. For companies that temporarily do not meet the requirements, a watch list is available. This group includes startups, regional companies, and issuers with limited liquidity.
The third tier serves as a platform for the development of companies seeking to enhance transparency and scalability before moving to higher tiers. While the requirements are more lenient here, liquidity is significantly lower.
The watch list is for issuers that have breached certain listing requirements but have the potential to regain compliance.
2. Premium and Standard Categories
2.1 Premium
Premium is the highest category for first-tier companies that meet the strictest requirements:
- Capitalization of at least 50 billion RUB.
- Free float of ≥50%.
- Mandatory audit by "Big Four" firms.
- Developed corporate governance system with independent directors.
- High ESG (Environmental, Social, and Governance) standards.
Premium securities are automatically included in key indices and are particularly attractive to large institutional investors, pension funds, and international portfolios.
Statistics indicate that Premium companies have, on average, 30% higher trading volumes compared to Standard companies, with their stocks characterized by lower volatility and greater predictability.
2.2 Standard
Standard is the base category of the first tier. The requirements include:
- Capitalization between 10 and 50 billion RUB.
- Free float of 25-50%.
- Transparent reporting in accordance with IFRS.
- Appropriate level of corporate governance.
- Regular interaction with analysts and investors.
Standard securities are suitable for a wide range of retail and private investors looking to invest in reliable large companies with a moderate level of risk and stable returns.
3. Listing Criteria and Requirements
3.1 Capitalization and Free Float
Capitalization reflects a company’s total market value, calculated as the product of the number of shares and their market price. Free float shows the proportion of shares in free circulation, accessible to a broad range of investors.
A high free float ensures better liquidity and reduces the risk of price manipulation by significant shareholders. Issuers are required to maintain indicators within the limits corresponding to their tier; falling below the established threshold triggers a review process.
The exchange regularly reviews capitalization and free float indicators, considering market changes and corporate actions by issuers.
3.2 Reporting and Corporate Governance
Issuers at all levels must publish financial statements in accordance with international standards (IFRS) and adhere to corporate governance principles:
- Presence of independent directors on the board of directors.
- Functioning audit, risk, and remuneration committees.
- Regular and timely disclosure of financial and operational information.
- Compliance with the corporate governance code.
- Conduct of general meetings of shareholders in accordance with all procedures.
These requirements safeguard the rights of minority shareholders and enhance investor trust in the issuer. Companies must also publish information about significant facts and transactions on their websites and in the disclosure system.
3.3 Liquidity and Volatility
The Moscow Exchange thoroughly analyzes liquidity markers through average daily trading volumes, the number of transactions, and the size of spreads between the best buying and selling prices.
Securities with insufficient liquidity may be transferred to the watch list until trading activity is restored. Liquidity directly influences the attractiveness of stocks for institutional investors.
The quality of market making and depth of the order book determines the speed of order execution and minimizes slippage when executing large transactions.
4. Advantages of Tier Upgrading
4.1 Access to Institutional Investors
Transitioning to the first tier and especially to the Premium category significantly broadens the potential investor base. Large funds, pension companies, insurers, and international portfolios prefer securities from higher tiers.
Research shows that after moving to Premium, the average capitalization of the issuer increases by 25-35% within the first year due to increased demand and market re-evaluation of the securities.
Institutional investors provide a more stable shareholder base, reducing volatility and enhancing trade predictability.
4.2 Increased Liquidity
Listing in a higher tier automatically draws more attention to the stocks from traders and investors. This leads to increased trading volumes, narrower spreads, and improved order execution.
Improved liquidity is particularly important for large institutional trades, where rapid entry or exit from a position is needed without significantly influencing the price.
4.3 Inclusion in Indices
First-tier and Premium issuers are automatically considered for inclusion in major Russian indices: MOEX Russia Index, RTS Index, and Blue Chip Index.
Inclusion in indices guarantees a flow of passive investments through ETFs and index funds, creating additional stable demand for stocks and supporting their liquidity.
4.4 Lower Cost of Capital
Companies in higher tiers gain access to cheaper financing in both the debt and equity markets. Enhanced investor confidence and reduced perceived risks allow capital to be raised at lower rates.
5. Admission and Transition Procedures
5.1 Initial Listing
The initial listing procedure includes several stages: submitting an application, providing a complete package of documents, verification by the exchange for compliance with criteria, and making a final decision on admission to trading.
Key documents include the securities prospectus, audited financial statements, valuations by appraisers and lawyers, and confirmations of compliance with corporate governance requirements.
5.2 Transition Between Tiers
To upgrade tiers, a company must demonstrate improvement in key indicators: increased capitalization and free float, enhancement of corporate governance and reporting quality.
The transition process may take 3 to 6 months, depending on the complexity of verification and the readiness of documentation. The exchange conducts a thorough analysis to ensure compliance with new requirements.
5.3 Delisting
Upon systematic non-compliance with criteria, breaches of disclosure rules, or insufficient liquidity, a company may be downgraded to a lower tier or delisted.
Delisting significantly reduces stock liquidity and investor confidence, negatively impacting capitalization and capital-raising opportunities.
6. Regulator and Compliance Monitoring
6.1 Moscow Exchange
The Moscow Exchange, as the trading organizer, establishes listing rules, conducts regular monitoring of issuer compliance with established criteria, and enforces sanctions for violations.
The exchange maintains ongoing dialogue with issuers, helping them understand requirements and plan transitions between tiers.
6.2 Oversight by the Central Bank of the Russian Federation
The Central Bank of the Russian Federation oversees compliance with securities legislation, protects investor rights, and ensures market transparency and fairness.
The Central Bank also monitors the quality of information disclosure by issuers and applies administrative measures for violations.
6.3 Sanctions and Liability
Various sanctions are imposed for non-compliance with listing requirements, ranging from warnings and fines to transfer to the watch list and delisting.
Violations related to information disclosure, market manipulation, and insider trading are particularly strictly penalized.
7. Conclusion
The tier and category system on the Moscow Exchange represents an effective mechanism for structuring the capital market, balancing public funding availability for companies with the protection of investor interests.
Companies receive clear guidelines for development: increasing capitalization, improving corporate governance, and enhancing business transparency. Investors can select issuers according to their preferences for risk and liquidity level.
Understanding the requirements and advantages of each tier is critically important for both issuers planning their listing strategy and investors forming optimal portfolios. Regular monitoring of changes in exchange rules and analyzing transitions between tiers enable all market participants to make informed decisions and maximize benefits from participating in organized trading.
